September 6, 2016

Round Two of Egypt FiT Program Announced

Round two of the feed in tariff (FiT) program has been announced by the Egyptian Minister of Electricity in a press conference Tuesday, the 6th of September 2016. Below is a summary of its main features.

New Tariff and Payment Formula

The new tariff for Round Two is reduced to be as follows:

7.88 $Cent/kWh for solar projects with capacity of more than 500 kW and up to 20 MW.

8.4 $.Cent/kWh for solar projects with capacity of more than 20 MW and up to 50 MW.

4 $Cent/kWh for wind projects with speed ranging from 2500 to 5000 per hour.

The tariff will be paid in EGP based on a new USD exchange rate formula taking into account the increase of the dollar’s exchange rate against the local currency. For solar projects: 30% of the due tariff will be calculated at a fixed rate of 8.88 EGP per USD, and 70% will be floating at the prevailing rate at the invoicing time. For wind projects: 40% at a fixed rate of 8.88 per USD, and 60% at a floating rate.

The Minister mentioned that these new tariffs are determined in light of the continuous decline in the energy prices as well as the cost of the used technology and equipment. Other factors taken into consideration include the reduction of the applicable tax from 25% to 22.5%, the fluctuation of the USD exchange rate and tariff of similar (FiT) programs in the neighboring countries like UAE and Jordan.

Minimum Local Component Requirement

Solar projects are required to achieve a minimum local component of 30%, while 70% could be exported from outside Egypt. The minimum local component for wind projects is 40%.

Arbitration Clause

Offshore arbitration will be allowed in Round Two at a neutral seat in order to allow international financial institutions to participate in the projects.

Status of Round One

The Ministry of Electricity announced that it is still committed with the tariff announced in Round One for developers who will succeed in achieving the financial closure by 27 October 2016.

The Ministry placed harsh conditions for concluding the PPA in Round One including insisting on a domestic arbitration clause and mandating a financial structure of 85% of the cost be secured through foreign banks. These conditions caused the international lenders to freeze funding Round One, and in the same time closed the door for the participation local banks. Most of the qualified investors would therefore find difficulties in reaching financial closure before the deadline in October.

Participation in Round Two

Participation in Round Two will be open as of 28 October 2016, and it will be limited to the qualified investors of Round One until reaching the target capacity of 2000 MW for solar project and 2000 MW for wind projects. In case the target capacity was not achieved by Round One qualified investors, the door will be opened for new comers.

Signing the project contracts with the investors of Round One will start from 28 October 2016. Investors are required to reach the financial closure in one year for solar projects, and one and half year for wind projects, from the signature date.

Developers of solar projects are required to submit a commitment letter from their international lenders confirming their acceptance to finance the project within maximum 6 months from the signature date.

Withdrawal from Round One and Two

Investors who are not willing to participate in Round One or Two are required to submit a request in this effect to the competent authority by 27 October 2016 declaring the withdrawal from (FiT) Program. In such case, the Government will repay all their paid installments according to the executed Cost sharing Agreement without any deduction.

If you have any questions regarding the FiT program, please contact Fatma Salah and Heba Elkady.

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