Reluctance to commit capital early leads to lower capitalisation requirements
- EgyptEra seeks developers feedback on feed-in tariff rules
- Concerns have been raised over legal and financial terms
- Capitalisation requirements have been relaxed
The Egyptian Electric Utility & Consumer Protection Regulatory Agency (EgyptEra) has requested feedback from developers on the draft rules for participation in its 4,300MW feed-in tariff scheme, after international financial institutions (IFIs) and developers raised concerns over legal and financial terms.
It relaxed capitalisation requirements after developers said they were reluctant to put down the specified special project vehicle (SPV) capitalisation before the terms of the power purchase agreement (PPA) become clear. It was previously set at E£3.5 ($460,000) a MW, totalling between $9m and $23m depending on project size. Without incorporating a SPV, developers cannot apply to the New & Renewable Energy Authority (NREA) for an allocation of land for their project.
Developers raised concerns over the upfront costs and proposed a lower initial capital to incorporate a SPV and secure a plot of land, with the full amount committed before acquiring a temporary electricity generation licence, says Tim Armsby, partner at UK law firm Eversheds. The government has reconsidered this and now asked for developers comments on the SPV process.
The draft rules now only require 10 per cent of the specified capitalisation immediately for incorporating joint stock companies, to be increased to 25 per cent after 3 months.
A consulting process over the PPA, with participation from IFIs continues, but a draft PPA is still being revised. A bankable PPA is seen as the essential step in reducing uncertainty, persuading developers and investors to put down capital.
Developers are also concerned about the down payment to part-cover grid connection costs on NREA plots of land. A cost-sharing agreement has not been released, but connection costs will vary according to the size of the project, and are expected to reach $3.5m for a 50MW solar photovoltaic (PV) project. In cases where developers subsequently pull out, the down payment is only returned if another party takes over the project. Developers are pushing for this payment to be delayed or split into several smaller payments.
The draft rules also clarify that the total share capital for each participant in the scheme is limited to 50MW per technology (solar PV or wind) for the first three years of operation. It may be across several consortiums (with a 10 per cent minimum stake), although a company may only be the lead developer in one scheme. New participants may buy in to projects, but not as lead developers.
Land coordinates, solar and wind atlases have been released for developers to study the potential of available sites.
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