The Electricity & Renewable Energy Minister Mohammed al-Shaker has announced significantly lower feed-in tariffs for the second round of Egypt’s 4,300MW of renewables projects.

The second round tariffs are:

International arbitration will be allowed for the second round. This point of contention, between the Ministry of Electricity & Renewable Energy, the Egyptian Electricity Holding Company and the New & Renewable Energy Authority, and developers and lenders, derailed the majority of projects in the first round.

A proportion of the local currency tariffs will be indexed to the US dollar, 70 per cent for solar projects and 60 per cent for wind projects. This is a reduction from round one, when 85 per cent of the tariff tracked the exchange rate between the Egyptian pound and the dollar.

There will also be a reduction in taxes on the projects from 25 to 22.5 per cent.

The qualified developers from round one will have priority to participate in round two. The majority decided they could not reach financial close by the October deadline, after the Egyptian authorities insisted on local arbitration, as well as 85 per cent of finance through foreign banks.

International commercial banks had no appetite for the scheme, and solar PV projects were expected to be financed by development banks including the Washington-based International Finance Corporation (IFC) and the European Bank for Reconstruction & Development. The IFC and several other development banks pulled out of the first round over the lack of international arbitration.

Eleven solar developers out of 39 attempted to line up alternative finance for solar PV projects through local banks and bridge loans. Some are expected to reach financial close by 27 October.

Developers are currently examining the figures to decide if their projects are viable under the new tariffs, sources connected to the scheme have told MEED.

The financial model under the second-round tariffs, especially for solar PV projects, is expected to be much tighter. This will make it more difficult to secure finance, although development banks may agree to finance projects with international arbitration.

A reduction in tariff was expected due to falling costs of equipment and lower tariffs in other countries. The tariffs are still higher than in some markets such as Dubai, but investors face higher finance costs and risks in Egypt, especially around currency.

Some less experienced developers are expected to pull out, and confidence in the scheme has been badly damaged. The funds invested for cost-sharing and land agreements should be returned. 

Other private power projects in Egypt have stalled over the international arbitration issue, including Dairut independent power project (IPP), Gulf of Suez wind project and various coal power plant schemes.