Renewable Energy in Egypt
By Youssry Saleh Law Firm, Egypt
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Egypt after 2011 started to focus mainly on energy and renewable energy sectors as an integral part of the main projects in the sustainable development plan 2030. Egypt recently issued The Electricity Law No. 87 of the year 2015, and its Executive Regulation in 2016 (Ministerial Decree No. 230 of year 2016) and Renewable Energy Law No. 203 of the year 2014.
Current policies and regulations:
Companies Law No. 159 of the year 1981: governing incorporation of companies in Egypt and requirements for incorporation of SPVs.
Investment Law No. 8 of the year 1997 (amended in 2015): covering investment incentives, customs exemptions, allocation of properties and the relation between investors and the Egyptian authorities.
Law No. 102 of the year 1986 – Establishes the New and Renewable Energy Authority (NREA): NREA’s primary role is promotion and development of renewable energy in Egypt. Its responsibility includes identification and allocation of sites for renewable energy projects.
Presidential Decree No. 326 of the year 1997 (as amended): Establishes the Electric Utility and Consumer Protection Regulatory Agency, an affiliate of the Ministry of Energy and Electricity. Its primary responsibility is the issuance of permits and licenses for generation, transmission and distribution of energy.
Prime-Ministerial Decree No. 1947 of the year 2014 (Round I): Establishes feed-in tariffs (FiT) for electricity generated from renewable sources. The purpose of the feed-in tariff is to guarantee a fixed price for energy producers (for 25 years for solar energy projects and for 20 years for wind projects) to encourage investment into the renewable energy sector. This tariff shall be reconsidered after two years from the date of its publication or reaching the maximum limit of the contractual capacity shown in this Decree whichever is the nearest. Such amendments shall apply to prices on subsequent contracts.
Prime-Ministerial Decree No. 2532 of the year 2016 (Round II): Modifies the prices of the electricity (FIT) generated from renewable sources, establishes the contractual period for wind projects which is 20 years and for solar energy projects is 25 years. This Tariff shall be applied to a maximum of one year for solar energy projects and a year and a half for wind energy projects or till reaching the maximum contractual capacity whichever is the nearest.
Renewable Energy Law No. 203 of the year 2014: Governs power generation projects from renewable sources, sets out the rules applicable to the allocation of land for such projects, connection to the national grid and sale of power generated from such projects in accordance with the feed-in tariff.
New Electricity Law No. 87 of the year 2015: Governs the electricity sector in Egypt in general. The law provides guidance on the authority managing this sector in addition the relationship between private and public sectors.
Ministerial Decree No. 230 of year 2016 (Executive Regulation of the aforementioned Electricity Law): Governs the determination of tariffs, prices, fees paid by various electricity players in various types of services. Moreover, it governs the licensing regime for generating and distributing of electricity.
The Executive Regulation of Renewable Energy Law: Expected to Be Issued
Requirement to establish renewable energy project in Egypt:
Joint Stock Company has a minimum capital requirement of EGP 250,000 and a minimum of 3 shareholders. The capital is divided into shares.
FIT projects must be incorporated in the form of a JSC with a minimum capital requirement determined by NREA which currently stands at EGP 15,000,000. Pursuant to the statutory provision, the payment of the issued capital of SPVs may be settled as follows: 10% of the issued capital must be paid at incorporation, to be topped up to 25% within three months from incorporation, and the remaining 75% to be paid within five years from incorporation.
The SPV (in the form of a JSC) must be incorporated by a minimum of three shareholders, including the lead developer and other qualified investors.
The winning consortium (or a single developer) must hold at least 51% of the capital of the SPV for at least until commercial operations date (COD). The lead developer must hold not less than 25% of such capital for a period of at least 2 years from COD.
The capital of the SPV can be used upon completion of incorporation, towards the payment of all costs involved in the FIT project.
Maximum Capacity: The authorized MW capacity for any SPV awarded a PPA for a solar or wind project under the FIT scheme may currently not exceed 50MW per site.
Participation: The total share capital of any member in several consortiums may not exceed the total capital required to establish FIT projects with a capacity of 100 megawatts per site per technology (solar PV or wind). Each shareholder shall present a declaration disclosing share allocation percentages in the share capital of other qualified SPVs. Upon the end of two years from COD, the total share capital requirement shall be waived.
Change of Ownership: The lead developer cannot be changed earlier than two years from the start of the commercial operation. Consortium members, however, can be replaced by and equivalent/superior entity subject to approval of the Feed-in Tariff Unit. Moreover, EgyptERA must be notified of any change in the shareholding structure following COD.
Development Assets – Real Estate, Security
NREA is responsible for allocation of state owned plots of land to developers of solar and wind FIT projects. The land is allocated on a usufruct basis for the period of twenty-five years
The land is allocated to developers on a usufruct basis for a term of twenty-five years for solar projects and twenty years for wind projects in consideration for two percent of the value of the sold energy. Material permits are already in place for such plots. A Usufruct is usually provided for BOO schemes as well.
For FIT schemes, following the incorporation of the SPV, agreements shall be signed with EETC, NREA and the Ministry of Finance. The sale of power is governed by the Power Purchase Agreement. For BOO schemes, a PPA is entered into with the successful bidder following evaluation of technical and commercial proposals.
Permits and Licenses
In both BOO and FIT projects, the bidder is responsible for obtaining the permits and licenses necessary for the operations. Moreover, the production, transmission and distribution of energy produced must be authorized by the EgyptERA. The investor shall be provided with a temporary permit which allows the implementation of all primary work necessary for the project.
The Bidding Process
Under BOO schemes, tenders are conducted with prequalification round during which bidders submit technical and commercial proposals, followed by evaluation. The successful bidder will enter into a PPA with EETC.
The government is responsible for provision of the site in BOO schemes. Following the launch of modified FIT scheme in 2016, all qualified developers which do not have access to the private land for the FIT project, are eligible to file an application to NREA requesting allocation of land plot. The land is allocated on a ‘first-come-first-served basis’ taking into consideration investor’s preferences and the availability of land. Once the land is allocated, a developer is granted access to the plot for a period not exceeding fifteen months for proper technical measurements and evaluation. For access to be granted a developer shall sign a Memorandum of Understanding (MOU) with NREA.
ABOUT THE AUTHOR: Yulia V. Akinfieva, M.B.A,LL.M.
Mrs. Yulia V. Akinfieva is a business professional, experienced management consultant with mature business acumen accumulated over 15 years of work who brings her cross-cultural and cross-disciplinary experience in business and management to the team to better understand clients’ needs.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.