Egypt Renewable FiT Taking Shape

Egypt's renewable Feed In Tariff (FiT) continues to take shape, albeit at a slightly reduced speed than expected earlier.  Happily, the additional time appears to be being used to respond to constructive comments from developers and other stakeholders.  It is also expected that some clarifications will be issued in writing.  Developers are reporting that up to now many details are only emerging verbally in face to face meetings, which many have found somewhat frustrating.

Details therefore remain sketchy, but indications are that EgyptERA is planning in the next week to issue guidelines that will clarify the exact requirements for incorporating a special purpose vehicle.  Incorporating an SPV in Egypt remains the first and most important step for a qualified bidder to receive its allocation and ultimately develop its project.

In recent weeks it emerged that exact details on the amount of the required capitalisation of the SPV, the timing of that capitalisation and the specifics of the purpose of the SPV remained undetermined.  Without these details, developers have been frustrated in their desire to incorporate rapidly and press forward with their projects. It is hoped that the guidelines will clear these issues up.

Another area where the government is reportedly considering a response is the requirement to prefund interconnection costs.  The government may be considering permitting this requirement to be initially satisfied by the posting of security rather than requiring cash to be paid up front.

A third area where it is believed some additional flexibility is under consideration is in the area of changes to project ownership. This issue is being anxiously watched by developers and investors interested in joining consortia, sell positions, or those wishing to consolidate their positions in several potential projects.  Previous indications were that EgyptERA was not inclined to permit more than very minor changes to the ownership of projects qualified by the initial round of prequalification results.  One element that seems reasonably likely to be included in any revised policy is a restriction on the designated lead developer of a project.  We understand the lead developer would not be able to sell down to less than 30 percent until at least the commercial operations date, and possibly until two years beyond COD.  This would seem to imply some ability to buy and sell shares outside of this restriction.  However, the developer community will have to wait to see to what extent (if any) these restrictions may be relaxed.

Finally, the release of the draft PPA has been pushed back to possibly early March. A select group of lenders have reviewed the document and their comments are reportedly still being considered.  Many of the detailed questions that developers have are expected to be answered in the draft PPA.