You are here
Egypt inks deals for US$662m of solar amid currency crunch
[CAIRO] Egypt has agreed to buy about 400 megawatts of solar capacity, a sign that developers are slowly moving forward with clean-energy projects after a currency crisis in the country this year slowed the industry.
The power-purchase contracts are worth about 600 million euros (S$923.5 million), according to Mohamed Salah El Sobki, executive chairman of Egypt's New and Renewable Energy Authority. Out of the 100 companies that qualified for Egypt's solar program in January, becoming eligible for the system of feed-in tariffs, only eight signed purchase agreements.
Egypt is still suffering aftershocks from a government decision in March to devalue the Egyptian pound. The economy has subsequently endured a shortage of hard currency that officials are seeking to alleviate with a US$12 billion loan from the International Monetary Fund. While the solar contracts show local developers can line up financing, they also demonstrate that global green energy companies remain wary of investing.
"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.
The power purchase agreements were signed between Oct 20 and Oct 27, 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. One of the eight companies has completed financing arrangements, and the rest are close to doing so, El Sobki said in a telephone interview.
The currency crunch in Egypt has complicated efforts by solar developers to finance new power plants. As projects would generate revenues in local currency, developers and lenders halted plans amid the volatility.
International Arbitration That's hindering Egypt's US$13.5 billion program to boost its share of power generated by renewable sources to 20 percent in 2022, from about 12 per cent. The nation announced extensive plans to develop renewable energy in 2014, originally targeting 4.3 gigawatts of wind and solar projects to be installed over three years.
The power purchase agreements come after Egypt finally agreed to allow international arbitration in contracts for the second round of its solar power feed-in tariff program, ending a standoff over the issue that has stalled planned investments. The subsidy was hailed as an investment bright-spot for Egypt, which has suffered a foreign currency shortage since the 2011 uprising. "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.
The government has a feed-in tariff system and said 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, according to a cabinet decree dated Sept 29. The country set a fixed exchange rate for the first round of payments, at 8.88 Egyptian pounds to $1. The remaining 70 per cent will be paid according to the exchange rate on the due day, according to the decree.
"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." Nations in the Middle East and North Africa region have seen some of the lowest prices for solar power. The current record was set in the United Arab Emirates in September with 2.42 cents per kilowatt-hour, 71 percent lower than Egypt's feed-in tariff for larger-scale projects. Competitive tenders have pushed down prices for both solar and wind across the globe, averaging drops of up to 50 per cent for solar and 60 per cent for onshore wind, according to Bloomberg New Energy Finance.