Economic Research Forum (ERF)

Drivers of renewable energy adoption in Egyptian firms

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How can policy-makers encourage small and medium-sized enterprises to adopt renewable energy sources in their production processes? This column reports evidence from Egypt, where gender and youth play a key role within firms in encouraging practices that are more positive for the environment and can help to mitigate climate change.

In a nutshell

Evidence from a sample of small and medium-sized enterprises in Egypt shows that firms owned by women are more likely to consider deploying renewable energy; this suggests that removing the impediments facing women entrepreneurs should be a priority for policy-makers.

The larger the share of youth in a firm’s labour force, the higher the probability that the firm will adopt renewable energy; providing young people with the necessary skills through education would further enhance this positive impact.

Raising awareness about the benefits of renewable energy can encourage firms to deploy it, as can providing access to information about backup generation technology that reduces the risks stemming from the intermittency of renewable energy sources.

Egypt managed to grow by 9.8% in the first quarter of the 2022 financial year (World Bank, 2022). But in light of rapid population growth, raising the country’s GDP per capita remains a major challenge.

The Egyptian government faces an additional challenge in decoupling growth from its negative environmental impact. Egypt’s performance is quite modest in this respect, ranking 94th out of 180 countries on the 2020 Environmental Performance Index, scoring 43.3 out of 100 points (Ministry of Planning and UNDP, 2021).

The threats of climate change include declining agricultural yields, lower productivity of factors of production, rising sea levels, and the inundation of a considerable part of the Nile Delta, where agricultural land is concentrated.

Mitigating climate change requires concerted efforts to cut emissions of greenhouse gases and move away from fossil fuels, which continue to dominate the energy mix in Egypt. To this end, the country updated its nationally determined contributions in 2023, setting an ambitious target of generating 42% of energy from renewable sources by 2030.

Currently, Egypt has around 5.8 gigawatts of renewable installed capacity, the bulk of which is generated from hydropower and the rest (mostly government investments) comes from the sun and the wind (Ministry of Planning and UNDP, 2021). Meanwhile, the share of energy generated from fossil fuels has declined from 50% to 30% (Barsoum and Ehab, 2023).

Sustained demand for renewable energy is essential to generate momentum for continuous expansion in supply. Both residential consumers and firms are key actors in this regard.

With the bulk of firms in Egypt’s manufacturing sector classified as small and medium-sized enterprises (SMEs), identifying the drivers of renewable energy adoption by these firms constitutes an important step toward evaluating the role of the current regulatory and policy environment. It is also a significant stride toward designing a more enabling regulatory and policy environment that stimulates the adoption of renewable energy.

Operating renewable energy requires specific skillsets such as engineering or technical skills. Since this technology is relatively new, it is reasonable to expect these skills to be acquired by the younger generation and that firms adopting renewable energy employ a larger share of young people in their labour force.

Awareness of the environment is typically lacking in developing countries, but it is slowly building up among the youth through education and the media. In the absence of pressure from environmentally aware consumers and environmentally lax governments, pressure for environmental protection is likely to come from employees. A young labour force should then be one of the drivers that facilitate the adoption of renewable energy at the firm level.

In another vein and supported by research evidence showing that women are more concerned about environmental issues compared with men, Atif et al (2021) find that gender diversity on firm boards increases consumption of renewable energy. This suggests that women entrepreneurs might be more inclined to employ renewable energy compared with their male counterparts. In short, the role of gender and youth as drivers of renewable energy adoption deserves thorough investigation.

Empirical analysis of a sample of SMEs in Egypt shows that firms owned by women are indeed more likely to consider deploying renewable energy. Additionally, the larger the share of youth in a firm’s labour force, the higher the probability that the firm adopts renewable energy.

Other factors identified in previous research – such as access to information and communication technologies, awareness of renewable energy and its cost, and access to information on backup generation technology – strongly influence the likelihood of firms adopting renewable energy in Egypt.

In addition, credit-constrained firms opt to consider renewable energy, as it is a cheaper alternative. While certification in general positively influences the likelihood of firms employing renewable energy, integration into global value chains leads to a similar conclusion but only for some firms. This result reflects lax environmental standards in Egypt. It is worth noting that government policies and incentives, such as feed-in tariffs, encourage firms to consider renewable energy.

These results have important policy implications. Removing the impediments facing women entrepreneurs should be a priority for policy-makers in Egypt since they are more likely to consider the adoption of renewable energy. Since young people are important drivers of renewable energy adoption, providing this group with the necessary skills through education would further enhance this role.

In general, both these results provide an impetus for NGOs eager to advance the role of women and youth in society. In another respect, they provide firms seeking to adopt renewable energy with guidance about the ideal composition of their labour force, encouraging them to include more women and young people.

Raising awareness about the benefits of renewable energy presents a straightforward means by which firms in Egypt can be encouraged to deploy renewable energy. In a similar vein, access to information about backup generation technology can reduce the risks stemming from the intermittency of renewable energy and thus promote its adoption.

The results of this research also point to the fact that government policies around renewable energy are effective. This holds policy lessons for other developing countries seeking to encourage the adoption of renewable energy.

Further reading

Atif, M, M Hossain, S Alam and M Georgen (2021) ‘Does Board Gender Diversity Affect Renewable Energy Consumption?’, Journal of Corporate Finance 66:1-29.

Barsoum, G, and A Ehab (2023) ‘Green Jobs and the Future of Work in Egypt: A Focus on the Agriculture and Renewable Energy Sectors’, ERF Policy Research Report No. 2023-2.

Ministry of Planning and UNDP (2021) Egypt Human Development Report.

World Bank (2022) Egypt, Country Climate and Development Report.

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