Egypt’s feed-in tariff renewable energy scheme is facing a $3bn project finance gap as development banks reach their finance limits for the projects, the Egypt Energy Investment Summit on in Cairo on 17 February was told.

“Just the feed-in tariff scheme needs $6bn of investment,” said Ahmed Mortada, associate banker energy sector at the European Bank of Reconstruction & Development (EBRD). “It is based on project finance with a BOO [build-own-operate] structure. Each project will be 75 to 80 per cent leveraged so that means $4bn to $4.5bn in debt. IFIs [international financial institution] have exposure limited, and combined they will extend $1.5bn to $1.8bn. There is a substantial debt gap that needs to be covered in hard currency to progress.”

With commercial banks reluctant to take on the currency and political risk, local currency and alternative financing will need to come into play.

“When you have revenue in local currency, the extent to which you can match debt to revenues makes the project more sound,” said Chris Vermont, head of UK-based Garantco. “Realistically you can’t exclude either local or hard currency, but you have to maximise the local currency debt.”

Egyptian banks cannot lend in foreign currency to entities without revenue in that currency.

Other options are IPOs and green bonds. Renewable energy companies have performed well on stock exchanges globally in recent years.

“Green bonds are treated just like conventional bonds in Egypt, with some extra environmental conditions” said Dr Shahira Abdel Shahid, advisor to the chairman of the Egyptian Exchange. “There is a lot of investor appetite for green bonds and IFIs can provide guarantees. We just need a first mover to take the step.”

Solar photovoltaic projects under the feed-in tariff scheme need to reach a financial close by 28 October. Final power purchase agreements (PPA) for the Benban site have been released, and should begin to be signed in the next month.

“We think it is a bankable PPA,” said Mortada. “There are minor changes to be made which are related to IFIs not commercial matters. From a commercial and risk point of view they are good.”

Egypt is hoping for $8bn to $10bn of foreign direct investment in 2016, of which $1bn in the renewables sector.