Egypt agrees to international arbitration for PV projects but slashes FITs

Suspicions had been mounting over why the Egyptian Electricity Transmission Company (EETC) was refusing to accept international arbitration for the PV projects that had been agreed in Phase 1 of the country’s new FIT program. With the announcement of a new revised phase for the program, which slashes FIT rates, projects awarded under the first tender are unlikely to come to fruition, as developers will likely need to reenter through this second phase.

A new renewable era

Egypt originally announced the scheme in 2014, with a goal of attracting international investment and foreign financing for solar and wind projects within the country. It set an initial target of 4.3 GW of renewable energy projects to help the country on its way to meet its aim of having renewables make up 20% of its energy mix by 2020 (this has since become 2022).

To attract investors and solar developers, it 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. Queries over such a relatively high rate were raised in the following months, as other emerging markets such as Dubai and Jordan offered rates that were significantly lower.

Seat of arbitration dispute

Once developers had been decided for the 2 GW of PV projects on offer, draft Project Agreements began to be passed back and forth between solar developers and the EETC. However, a point of contention kept springing up: that the EETC was reluctant to accept an arbitration venue in a neutral location, choosing Egypt’s capital Cairo instead of an international location.

As a result the final Project Agreements have not been signed by the developers, as international lenders considered this non-bankable. These projects have until October 2016 to reach financial close, however, it is looking unlikely with the EETC’s refusal for international arbitration.

“In principle the phase 1 projects (those shortlisted in the tender) should have been implemented with the old tariffs (according to what was established when the FiTs scheme was launched back in 2014), but things changed throughout the process,” IHS Energy senior research analyst Silvia Macri explained to pv magazine. “The work on the PPAs templates lasted longer than expected, and issues continued to arise will disagreement between the government and project companies. 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.”

Phase 2 of the FIT program

With Egypt’s FIT scheme and the PV projects in doubt, the country’s Electricity and Renewable Energy Minister Mohammed Shaker has now announced a second phase of the scheme, which, among a number of revisions, clear up the arbitration dispute. “We’ve agreed that the seat of arbitration be offshore, outside Egyptian borders,” announced Shaker.

Only pre-qualified PV developers during phase 1 will be eligible to participate in phase 2, which continues to aim for the initial target of 2 GW of solar PV, however, they will be faced with much 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, and 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. Needless to say, this is likely to bring into question the viability of the large-scale PV projects in the country, although solar companies have already invested in the development of the projects and the permitting process.

“We did expect a tariff reduction in this second phase,” continued Macri. “Tariffs are more in line to what we’ve seen in other regional markets (Jordan for example, or Dubai, although bid prices in these countries’ tenders were much lower) but it’s still too early to say whether projects are viable. We’re missing details on the currency, rules around source of financing, etc., country risk remains high and confidence that the country will abide by the new rules may have been shaken.”