Egypt issues renewables power purchase agreements

09 November 2015

Developers still waiting for assurances on currency

  • Egypt issues revised PPAs on its 4300MW renewable energy feed-in tariff scheme
  • Developers are now studying the PPAs and preparing to negotiate before signing the agreements
  • Availability of currency remains the biggest concern for investors as foreign reserves

Egypt’s New and Renewable Energy Authority (NREA) issued a revised power purchase agreement (PPA) to developers on the renewable energy feed-in tariff scheme in early November.

Developers are now studying the PPA, and will begin negotiations with the authority soon.

Investors are confident that the scheme will go ahead. NREA and others are pushing ahead on the scheme, and it is still possible that PPAs could be signed by the end of 2015.

The expected progress is despite months of delays in reviewing the PPAs. Developers and legal advisors submitted comments on draft PPAs in April this year.

Developers and investors are very concerned over the availability of foreign currency. Foreign exchange reserves fell to $16.4bn in October 2015, and are expected to continuing being depleted. There is currently a scarcity of hard currency, and investors are waiting up to a month to convert and expatriate profits.

Developers will be paid in Egyptian pounds, with 85 per cent of the tariff indexed to the dollar. This allays concerns over expected devaluations of the Egyptian pound.

While the Central Bank has agreed to give the utilities sector priority for dollar conversions, developers are asking for guarantees on availability.

The Egyptian government has suggested that the tariff is generous enough that developers should take on currency risks themselves.

With foreign investors cautious on currency issues, it is unlikely developers will be able to secure finance from international commercial banks without guarantees. Egyptian banks have little appetite for long-tenor finance and lend at rates of 12 per cent or above, making them an expensive option.

Financing: The bulk of the financing will fall to development banks such as the Washington-based International Finance Corporation and the European Bank for Reconstruction & Development. They have taken a leading role in preparing the revised PPA.

The feed-in tariff scheme involves 4,300MW of projects in the first round. This comprises:

  • 2,000MW of wind projects,
  • 2,000MW of solar photovoltaic (PV) projects with a maximum size of 50MW, and
  • 300MW of rooftop solar PV projects.

No of contracts: This implies the award of at least 80 large contracts and 600 rooftop contracts.

The majority of land plots have now been allocated and developers are lining up equity investors, including local EFG Hermes and Dubai-based Adenium Energy Capital, and lenders. Many projects will be syndicated to make financial agreements more efficient.

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