Electricity generation and prices in Egypt have been hot topics this summer. In August, Reuters reported the government increased residential electricity prices for the second time this year. This time, the hike was between 14.8% and 50%.
The news wire service said the move came as “the country grappled with power shortages [and] high cooling demand driving up consumption.” The other big issue that led to “load-shedding to keep the grid functioning” was that Egypt only “received five cargoes … of liquefied natural gas out of 21 cargoes … it had contracted for.”
The increase in electricity prices is also part of Egypt’s “commitment to slashing energy subsidies as part of an agreement [with] the IMF … in March,” Reuters said.
A July report from the International Energy Agency (IEA) offered a mixed outlook for electricity generation. On one hand, the world’s biggest economies will see significantly higher demand as their GDP growth rates increase. On the other, increased reliance on clean energy should reduce the demand for fossil fuels, decreasing global electricity prices.
Rising global demand
The IEA report said that until the end of 2025, “global electricity consumption is expected to increase at the fastest pace in years … The 4% growth expected in 2024 is the highest since 2007, with the exception of the strong rebounds … after the global financial crisis and in 2021 following COVID-induced collapse.”
That growth pace should continue into next year, the IEA report said. “In both 2024 and 2025 … electricity use [will] be higher than predicted global GDP growth of 3.2%.”
China, India and the United States will drive this increase in demand. China should see “electricity demand … increase by 6.5% in 2024, similar to its average between 2016 and 2019.” India is “the fastest growing major economy in the world,” the IEA said. “[Its] electricity consumption in 2024 … is forecast to post an 8% rise.”
Meanwhile, US electricity consumption will almost double in 2024 compared to 2023. The IEA said that jump would likely be necessary to counter higher temperatures this year versus 2023.
The EU forecast is uncertain. “Electricity demand … is expected to increase by 1.7% in 2024, as economic difficulties ease, but uncertainty over the pace of growth remains.” The report explained that “EU electricity consumption had contracted over the two previous years” because of economic sanctions on Russia, the continent’s biggest natural gas and oil supplier, in retaliation for starting the war in Ukraine.
Fueling consumption
Fueling global electricity consumption in 2024 and 2025 is that “some energy-intensive industries are restarting operations as energy prices stabilize,” the IEA said. Those sectors, particularly in the EU, “cut back [production] amid soaring energy prices [in] 2021 and 2022” as sanctions on Russia meant Western-affiliated businesses and governments could no longer use its natural gas and oil.
The other driver of higher electricity demand is “heatwaves that continue to strain power systems around the world … From January to May, the world registered its warmest surface temperature on record at 1.32 degrees [Celsius] above the 1901 [to] 2000 average … May was the hottest month since global records began and the 12th consecutive month of record high temperatures.”
The IEA report also expects electricity consumption by data centers (excluding those used to store cryptocurrency data) to increase between 50% and 100% between 2022 and 2026. That is due to the increasing number and utilization of those facilities thanks to “AI applications becoming more prevalent, … digitization gaining pace in many regions” and increased reliance on cloud services, such as Microsoft’s Azure and Google’s Docs and Gmail services, to store ever-increasing amounts of data.
In the long term, data centers aim to be energy self-sufficient, relieving some pressure on national power grids. “To circumvent grid connection challenges or to reduce dependency on the grid, … data center providers are increasingly looking into on-site [electricity] generation.”
That is already happening in China, where data centers are designed to use on-site solar power stations. Meanwhile, a private fossil fuel-powered electricity generation company in Ireland “has received 20 formal connection inquiries from data centers,” noted the IEA report. Amazon Web Services uses “Talen Energy’s data center [which] is connected to [a] nuclear power plant.”
AI algorithms also consume electricity when “learning” from information stored in data centers to generate answers to user queries. In 2024, research by Alex de Vries, a PhD candidate at VU Amsterdam, forecasted that by 2027, the AI sector could consume as much electricity as the Netherlands. “You’re talking about AI electricity consumption potentially being half a percent of global electricity consumption by 2027,” de Vries told The Verge in February. “That’s a pretty significant number.”
Green supply
The growth in electricity demand will be unlikely to cause higher carbon emissions. “Power sector emissions are plateauing, with a slight increase in 2024 followed by a decline in 2025,” said the IEA report.
This year’s slight increase in emissions is because growth in fossil-fuel-powered stations will slightly outpace that of renewable electricity generation stations. The IEA estimates that “global coal-fired output [should] increase by less than 1% in 2024.”
Those fossil-fuel-powered stations will mainly be in emerging markets, especially China and India. “US power sector emissions are expected to increase … by slightly below 2%.” Europe will “make up most of the total [global] contraction … of emissions from electricity generation,” the report said.
Next year should see a reversal, as the IEA expects carbon emissions from electricity generation to drop 1%. “This will be driven by a modest fall in coal-fired output due to further expansion of clean energy sources and the continued decline in oil-fired generation.”
However, the IEA report said “extreme weather conditions such as heatwaves and droughts, as well as economic shocks or changes in government policies, can cause an uptick in emissions in individual years. [Yet,] the structural trend of clean energy sources constraining fossil fuels will remain robust.”
Losing hydropower
In the long term, hydropower’s contribution to renewable electricity generation will dwindle significantly. “Hydropower output was reduced in various regions in [the first half of] 2024 due to [extreme] weather,” the IEA report said,
It noted that while China and the EU saw a 21% and 20% growth in hydropower in the first half of 2024, “numerous other regions were [hit] by droughts, [halting hydropower stations].”
In India, water “reservoirs had fallen to their lowest level in five years.” In Vietnam, electricity from hydropower fell 20% in the first five months of 2024 compared to 2023. “Colombia hit record lows of 30% in April in the wake of … droughts,” the IEA report said.
The decline in Colombia created an electricity shortage in Ecuador, which imports hydroelectricity, and caused the government to ration usage. Meanwhile, droughts and heatwaves that hit Mexico, Canada and South Africa caused hydropower supplies to drop as electricity demand increased to counter higher temperatures, the report said.
Pricing electricity
Global electricity price trends in 2024 and 2025 are essential to the Egyptian government’s plan to remove all electricity subsidies by the end of 2025, as the move would significantly impact tens of millions of families. “As many as 60% of Egypt’s 106 million citizens are estimated to be below or close to the poverty line,” Aidan Lewis, Thomson Reuters bureau chief for Egypt and Sudan, wrote in March.
The good news is “energy commodity markets experienced a slight easing in the first half of 2024 compared to 2023 … supported by robust generation from renewables,” IEA said.
Beyond 2025, wealthy economies could face “negative electricity prices,” where supply outstrips demand, forcing producers to pay potential consumers to take the excess electricity instead of shutting down production. “Negative prices are an important market signal that encourages [electricity generators] to reduce production and increase consumption,” the report said.
According to the IEA report, “negative prices have become the new normal in some markets, while in others, the first cases are appearing.”
Several US states and Southern Australia saw negative electricity prices 20% to 40% of the time. In Europe, “the record for maximum duration of negative price events was broken in 16 countries” last year. In Japan and New Zealand, regulations prevent negative electricity prices, which are currently near zero.
However, negative prices don’t yet mean lower costs for consumers, noted the IEA report. “The impact of negative prices on the overall wholesale electricity cost is small, [as] most of the negative prices are only slightly below zero.”
In the coming few years, Egypt could greatly benefit from Europe’s negative electricity prices. In November, Egyptian Electricity Transmission Co. signed an agreement with Jan De Nul Group, a Belgian civil engineering firm, to “conduct a feasibility study for the construction of an undersea cable [to connect] with Europe.”
Energy Capital Power, a specialized news platform, reported in November that construction of the 2-gigawatt undersea cable should start in 2027. Once complete, the new infrastructure would enable Egypt, a net electricity importer since 2013 (except in 2019), according to data aggregator Statistica, to import the continent’s excess electricity at relatively low prices.
This article first appeared in September’s print edition of Business Monthly.