Egypt gets it right second time around
The second round of the country’s feed-in-tariff programme is making commendable progress, despite a reduction in tariffs. The signing of contracts under the second round of Egypt’s feed-in-tariff (FiT) renewable energy programme shows that Cairo has managed to get it right the second time, ironing out issues that plagued the first round of its ambitious 4,300MW scheme.
Saudi Arabia’s Acwa Power is the latest developer to announce it has signed deals under the second round of the FiT programme, with the firm having agreed to develop three projects with a total capacity of 165.5MW. Acwa Power follows fellow Saudi company Alfanar Energy, which signed a deal to develop a 50MW plant under the second round in May. According to sources close to the programme, several other developers have signed agreements for one or more schemes.
With the second round having opened on 28 October last year, much swifter progress has been made with awarding projects than under the initial round, and according to sources close to the programme there is confidence the projects will reach financial close.
Despite a generous tariff being set, the first round was beset by a number of problems, from the ongoing currency crisis in Egypt to disputes over the omission of an international arbitration clause in the contracts. Following the launch of the FiT first round in 2014, 109 developers submitted expressions of interest in the scheme and 40 firms were prequalified to participate. However, out of these, only nine of these signed power purchase agreements with the client, and, more disappointingly, only three reached financial close earlier this year.
The impressive progress in the second round is testament to Cairo having learned from the first round, and allaying fears of potential investors. The fact that more projects are likely to proceed in the latest round despite tariffs being reduced by more than 40 per cent from round one shows increased confidence in Egypt to deliver on promises. In addition to integrating a new dollar exchange rate for tariffs, a provision for international arbitration has been included in the second round. In addition to reassuring developers, the changes for the second round has reinstalled confidence in lending institutions.
A number of development banks had planned to provide financing for the first round, but pulled out due to the concerns discussed above. The news that Alfanar has secured $55m in financing from the European Bank of Reconstruction and Development (EBRD) and the Islamic Corporation for the Development of the Private Sector (ICD) for its second round project, shows that banks are now prepared to commit to supporting the FiT programme. While there is still work to be done for these signed projects to achieve financial close and reach execution, the signs for Egypt’s next foray into renewable energy will be much more successful.