After a currency crisis in the country this year slowed the industry and in a sign that developers are slowly moving forward with clean-energy projects, Egypt has agreed to buy about 400 megawatts of solar capacity.
According to Mohamed Salah El Sobki, executive chairman of Egypt’s New and Renewable Energy Authority, the power-purchase contracts are worth about 600 million euros ($662 million). Only eight companies signed purchase agreements out of the 100 companies that qualified for Egypt’s solar program in January, becoming eligible for the system of feed-in tariffs.
Aftershocks from a government decision in March to devalue the Egyptian pound are still being felt by the country. With a $12 billion loan from the International Monetary Fund, the officials are trying to alleviate a shortage of hard currency that the economy has subsequently endured. The solar contracts demonstrate that global green energy companies remain wary of investing and they show local developers can line up financing.
The fact that it’s smaller local companies moving forward now rather than international developers shows that it’s still a bit hot,” said Dario Traum, an analyst at Bloomberg New Energy Finance.
With developers that include Saudi Arabia’s FAS Energy LLC and Egyptian developers ARC For Renewable Energy SAE, Infinity Solar Systems and ELF Energy Egypt Co., the power purchase agreements were signed between Oct. 20 and Oct. 27. All but one of the companies are close to completing financing agreements while one ne of the eight has completed financing arrangements.
Efforts by solar developers to finance new power plants were complicated by the currency crunch in Egypt. Developers and lenders halted plans amid the volatility as projects would generate revenues in local currency.
Egypt had announced plans of $13.5 billion to boost its share of power generated by renewable sources, from about 12 percent to 20 percent in 2022, and that is hindering its plans. Originally targeting 4.3 gigawatts of wind and solar projects to be installed over three years, the nation announced extensive plans to develop renewable energy in 2014.
A standoff over the issue that has stalled planned investments ended after Egypt finally agreed to allow international arbitration in contracts for the second round of its solar power feed-in tariff program and the power purchase agreements come after that event. Egypt, which has suffered a foreign currency shortage since the 2011 uprising, was hailed as an investment bright spot due to the subsidy.
“The currency shortage and the dispute over the arbitration has led investors to pull out of the earlier round, and were the reasons behind the delays in projects” EL Sobki said.
According to a cabinet decree dated Sept. 29, the government said that it would pay the equivalent of 7.88 dollar cents kilowatt-hour to plants with 500 kilowatts to 20 megawatts capacity and 8.4 cents to those with 20 to 50 megawatts capacity and it has a feed-in tariff system. At 8.88 Egyptian pounds to $1, the country set a fixed exchange rate for the first round of payments. According to the decree, the remaining 70 percent will be paid according to the exchange rate on the due day.
“The tariffs are relatively high compared to other projects in the region,” Traum said. “This is reflective of the risk that comes with the country’s challenges with only a partial mitigation of currency risk for the developers. They also have requirements on local content and foreign finance.”
(Adapted from Bloomberg)
Categories: Economy & Finance