A tender for a 1,000-megawatt wind farm signals intent by the Egyptian government to meet its ambitious target for tapping renewable energy sources.
Bidding for the complex is under way, with the farm expected to come online in 2016, Hassan Younis, Egypt's minister of electricity, said at a wind energy conference in Cairo last month. The contract will be awarded before the year is out, Professor Galal Osman, the president of the Egyptian Wind Energy Association, told The National yesterday.
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The tender represents one of several wind energy projects that are intended to provide a total of 7,200 megawatts by the end of the decade. Egypt generates only 550 megawatts from wind.
Yet the Egyptian government hopes that, together with solar and thermal power, wind energy will cover 20 per cent of all domestic electricity demand by 2020. Wind turbines will provide 12 per cent of all alternative energy, said Prof Osman, as the government is looking to capitalise on its vast potential.
"The wind conditions in Egypt are among the best in the world," said Stefan Gsänger, the secretary general of the World Wind Energy Association, which organised the Cairo conference.
Existing capacity is state-owned, but a two-step plan is in place to introduce private ownership. While 33 per cent of the added capacity will be owned by the government, the remaining 4,825 megawatts will be generated by private companies under the build-own-operate (BOO) model.
Experts believe that private investment in wind energy will depend on the introduction of a feed-in tariff, which reimburses producers for the cost of production not covered by electricity prices. Feed-in tariffs are in place in virtually every country that generates electricity from wind or solar power. In the Middle East, where fossil fuels are heavily subsidised, renewable energy would not be competitive without financial incentives. "With existing subsidies, investment in renewables is not viable without compensation," Mr Gsänger said.
Egypt is working on a feed-in tariff, scheduled to come into existence next year. It will be based on the prices quoted by private companies bidding for the BOO contracts, Mr Osman said.
Investing in wind power not only diversifies Egypt's electricity sources, it will also provide the government with an opportunity to create much-needed jobs. High unemployment, especially among the young, was the primary reason behind the popular unrest that unseated Hosni Mubarak, the president, after 31 years in power.
"A well-established wind energy industry can create tens of thousands of jobs," Mr Gsänger said.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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