Developers attracted by the generous feed-in tariff pricing for Egypt’s renewables scheme are now calculating extra costs that will reduce the potential profits from their projects.

“Taking all these costs into account, the feed-in tariff is still attractive,” says a developer on the scheme. “But it’s too early to tell.”

Egypt is providing a guarantee for developers from the Finance Ministry and the central bank, which will set up escrow accounts.

The feed-in tariff, announced in late 2014, is $0.14 for photovoltaic (PV) solar projects between 20MW and 50MW, and between $0.046 and $0.12 for wind schemes.

Of the tariff, 85 per cent will be paid in Egyptian pounds based on current exchange rates, while 15 per cent will be paid based on the rate at the time of signing the contract.

Speaking at the World Future Energy Summit in Abu Dhabi on 20 January, Mohamed Salah Elsobki, the chairman of Egypt’s New and Renewable Energy Authority, explained the costs implied in setting up a project.  

“The feed-in tariff includes the connection fee and taxes, which aren’t negligible,” said Elsobki. “This is why it looks so generous.”

Leaving aside engineering, procurement and construction (EPC) costs, the largest upfront cost is the cash downpayment, which covers 50 per cent of connection costs. It must be paid before applying for a plot of land, but is reimbursable if the developer pulls out.

“We’re asking for the downpayment for Egyptian Electricity Transmission Company [EETC] to be able to start construction on the substations,” said Elsobki. “We will try to have them ready by the end of 2015 to expedite the execution of the projects. We need the cash. They’re huge projects so a few million won’t hurt the overall budgets.”

The fee covers medium-voltage transmission lines between the wind or solar field and a substation, 220kV substations and high-voltage connections to the network. Developers on plots allocated by NREA will pay a rate per MW based on an average of a 10-kilometre distance to the substation, with eight projects connected to each substation. This does not apply to developers using other plots, for example through governorates, who will have to subcontract the work themselves and will pay different costs.

“We’re still bargaining with EETC on the value of the fee – I’m negotiating in your favour,” said Elsobki. “It’s fair for all developers to make the same investment. Everybody knows how much high-voltage cable and substations cost, so you can come up with a reasonable estimate.”

These costs will be of crucial importance to developers and financiers studying power purchase agreements (PPAs). Developers expect to take six to eight months to reach a financial close for their projects.

“Egypt is highly focused on creating a bankable, marketable structure for the projects,” said Michelle Davies, a partner at UK law firm Eversheds and board member of the Middle East Solar Industry Association, which organised the event.

Follow Philippa Wilkinson on Twitter: @Philippa_MEED