The money is in: on 20 July, the board of the World Bank’s International Finance Corporation approved a USD 635m investment for the construction and operation of an 11-solar plant field in Egypt with a combined capacity of 500MW. It is undoubtedly the biggest direct, private foreign investment in the country’s energy sector in recent years. The project is part of a larger USD 730m project to create an enormous solar park in Benban (near Assuan in Upper Egypt), aimed at mobilising private investment to build the world’s largest photovoltaic park.
Egypt’s solar feed-in tariff (FIT) regime includes projects financed by other institutions. These include the European Bank for Reconstruction and Development, which – together with the French group Proparco (part of the Agence Française de Développement) – expects to allocate USD 500m to finance solar energy plants (with a total capacity of 750MW) in Benban and has already granted the first loans. The Multilateral Investment Guarantee Agency, a World Bank group, has agreed to provide USD 210m in guarantees to several international companies.
Various international organisations are on the move to fund the Benban solar park, which will be the world’s larger solar park – with a forecast energy of 1.8GW. The project is expected to receive USD 2bn in funding. According to a Bloomberg New Energy Finance report, clean energy investment in Egypt reached USD 805m in the second quarter of 2017; at the same time last year, this figure was almost zero.
Egypt currently depends largely on traditional energy powered by expensive, imported hydrocarbons. However, the government aims to generate up to 2000MW of solar-powered energy as part of its ambitious plan for 20% of the country’s electricity to come from renewable sources by 2020. The government is expected to reach this goal through 40, approximately 50MW projects, which are part of its strategy to increase energy from renewable sources by mobilising private-sector investment. These solar energy projects – which will be built entirely by private businesses – are possible thanks to recent reforms.
According to a SACE analysis, Algeria, Egypt, Ghana, Kenya, Mauritius, Rwanda, Tanzania and Uganda have implemented a FIT mechanism, but of these only Algeria, Egypt, Kenya, Mauritius and Tanzania have launched a public tender. “Egypt’s case is emblematic”, explains SACE. The government, after announcing a FIT of USD 143/MWh on onshore wind and solar power (to be paid in Egyptian pounds under pre-agreed formulas), lowered the mechanism in 2016 to USD 84/MWh and reduced its peg on the USD to 70% of the amount. This adjustment brought the tariff into line with the average of the area and with the standards of a market which – particularly for solar energy – saw a significant decline in fixed costs but does not seem to include an adequate award concerning the country risk – especially considering that, in the UK in 2017, several offshore wind plants were awarded under a similar FIT mechanism (in British pounds).
*The feed-in tariff mechanism pays producers an agreed price for a defined period (15–20 years) for electricity produced and fed into the grid. This system is more profitable than standard energy prices on the market.
