After a dispute over its solar Feed-in-Tariff (FiT) scheme Egypt permits international arbitration in contracts, whilst radically reducing FiTs.
Egypt’s electricity minister, Mohammed Shaker, announced that the North African country would allow international arbitration in contracts for the second round of its PV Feed-in-Tarrif scheme. The decision finally put an end to an ongoing stand-off over the location of the arbitration seat. It was a necessary step since the issue had already prompted international financiers to pull out of the earlier phase. However, it also leads to a dramatic reduction of the FIT rate. For PV projects the rate sank to $8.4 cents and 7.8 cents/kWh, putting the viability of previously proposed projects at risk.
Egypt’s aims for renewable era
The government originally announced the scheme in 2014, with a goal of attracting international investment and foreign financing for solar and wind projects within the country. Its original target was to install 4.3 gigawatts of wind and solar projects over three years. This would have brought Egypt closer to its aim of having renewables make up for 20% of its energy mix by 2020. (It has since become 2022.) Plans included a 1.8 gigawatt solar park in Upper Egypt to be developed for $3 billion and operated under a FiT scheme.
To attract investors and solar developers, Egypt was offering generous FIT rates of $13.6 cents/kWh for PV plants between 500 KW and 20 MW, and $14.3 cents/kWh for PV plants of 20 MW to 50 MW. This relatively high rate raised questions in the following months, as other emerging markets such as Dubai and Jordan offered rates that were significantly lower.Ever since the 2011 uprising Egypt has suffered a shortfall in foreign currency due to the decrease in foreign investors and tourists – sources of hard currency
The FiT project was hailed as an investment bright-spot for Egypt. Ever since the 2011 uprising Egypt has suffered a shortfall in foreign currency due to the decrease in foreign investors and tourists – sources of hard currency the country needs to finance imports. However, with the announcement of a newly revised phase for the program, which cuts FIT rates, projects awarded under the first tender are unlikely to come to fruition. Experts reckon that developers will probably have to reenter through this second phase.
Who will be eligible in Phase of the FiT programme?
The doubt about Egypt’s FIT scheme and the PV projects prompted Mohammed Shaker to announce a second phase of the scheme. “We’ve agreed that the seat of arbitration should be offshore, outside Egyptian borders,” he said.
Only pre-qualified PV developers during phase 1 will be eligible to participate in phase 2. The second phase will continue to aim for the initial target of 2 GW of solar PV. However, developers will be faced with dramatically reduced FIT rates. For projects between 500 KW and 20 MW in size the rate has been reduced from $13.6 cents/kWh to $7.8 cents/kWh. For projects between 20 MW and 50 MW in size the rate has been reduced from $14.34 cents/kWh to $8.4 cents/kWh. This will most likely raise doubts about the viability of large-scale PV projects in the country. But solar companies have already invested in the development of the projects.
IHS Energy senior research analyst Silvia Macri said: “Now we have to see whether any of those projects claiming to be able to reach financial close by October 2016 can actually make it.”