Egypt solar developers see costs rise

10 July 2016

Local finance more expensive

Egyptian developers affected by the withdrawal of the development banks from funding solar photovoltaic (PV) feed-in tariff projects have accepted a significantly higher cost of finance.

Around ten developers are expected to go ahead, mainly local or Middle Eastern.

Some always relied on local finance, and others were able to line up a deal with local banks such as Commercial International Bank, after development banks, led by the Washington-based International Finance Corporation, pulled out.

“Unfortunately [the IFC] pulled out, and as an international company with a huge investment vision especially in Egypt, the board agreed with my request to continue with our project,” one developer told MEED. “The finance cost, definitely, rose too much comparing to international finance.”

Egyptian banks can lend at a couple of percentage points above Central Bank mid-corridor rates, which are currently between 11.75 and 12.75 per cent. US dollar lending on the projects was expected to be around 4 or 5 per cent over London interbank rates, meaning that the cost of finance could have more than doubled.

The developer was one of the few which decided to replace its development bank finance. The majority, especially international developers, decided to wait for the second round of the scheme, on which tariffs are expected to be lower but the terms may be more favourable.

The key issue for development banks was the inclusion of international arbitration in the power purchase agreements. First round projects will have to accept local arbitration.

“Our group [has been] investing for a very long time in Egypt and we believe in Egyptian law,” continued the developer.

The developers thought to have submitted financing plans to the Egyptian authorities ahead of a June deadline include Norway’s Scatec Solar, Saudi Arabia’s FAS Energy, Alfanar, local Orascom Telecom & Media Technology (OTMT) and Wadi Degla Holding Company.

The tariff for the first round solar projects, which has a target of 2,000MW is seen as very generous. This means profitable projects are still possible.

First round developers will also have to take on high levels of currency risk, as no guarantees have been secured in this area. Around 85 per cent of project costs are for technology which must be imported. The currency shortage in Egypt could also affect the repatriation of profits, if it persists.

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