Egypt’s renewable energy sector offers $6 bln investment opportunity

Egypt continues to mobilize private regional and foreign capital to support the country’s renewable energy sector

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Egypt continues to mobilize private regional and foreign capital to support the country’s renewable energy sector.

Wind and solar photovoltaics (PV) under the feed-in-tariff scheme presents an investment opportunity of at least $6 billion to 2018, one of the region’s leading investment banks commented Sunday in the build-up to the World Future Energy Summit.

Facing growing energy demands and pressure on fuel supplies for conventional energy generation, Egypt is focusing on renewable energy as a viable and effective source to add to the gas-dominated energy mix. Egypt’s New and Renewable Energy Authority aims to generate 20 percent of its power from renewables by 2020.

Egypt will need to add about 8 gigawatts, foreseen to be split between 5.5 gigawatts of wind power, and 2.5 gigawatts of solar power according to EFG Hermes, one of the leading investment banks in the Arab World.

As a result, EFG Hermes predicts a debt and equity investment opportunity of approximately $6 to 7 billion for Egypt’s feed-in-tariff renewable energy program to 2018.

In these challenging times, renewable energy is increasingly serving as an innovative solution for Middle East and North Africa countries, especially Egypt, to rebuild, reconstruct, and drive diversified economic growth.

Renewable energy’s low cost of production, reduced environmental impact, and ease of implementation in rugged and demanding situations make renewables the best power source for Egypt’s future. Whether developed by governments, the private sector, or NGOs, renewable energy can transform the key development pillars of power, health, infrastructure, education, and people.

“We are bullish in the short- to medium-term on Egypt’s renewable energy projects. But it’s a matter of properly executing the first feed-in-tariff wave. The Government’s implementation of the regulatory framework is one of the biggest challenges. Once the right implementation plan is in place, then it will be easy for international lenders to be fully comfortable with Egypt’s renewables sector,” said Bakr Abdel-Wahab, Managing Director of Infrastructure Private Equity at EFG Hermes.

“There is a lot of focus on investors and developers, but we have to remember that 60 to 75 percent of the funding will be via debt from international and multi-lateral institutions. All the necessary structural changes need to be in place to assist aggressive debt financing,” he added.

Bakr Abdel-Wahab will address financing renewables at both the Egypt Energy Forum and the World Future Energy Summit 2016, hosted by Masdar and part of Abu Dhabi Sustainability Week.

Currently, Egypt is deploying several different development models for renewable energy projects. These include bilateral agreements between the government and private developers, feed-in-tariff where the government pays set tariffs for renewable energy, and Build-Own-Operate and Build-Operate-Transfer tenders for more competitive bidding by developers.

Egypt is working on a range of measures to make opportunities more accessible to equity investors and lenders alike, including ensuring currency stability for settling renewable energy tariffs and funding the capital expenditure requirements of power projects, EFG Hermes said.

Moreover, many of Egypt’s renewable energy projects under the feed-in-tariff regime are split into 50 megawatt contracts, which has created a fragmented renewable sector that lends itself to further aggregation and consolidation of opportunities by larger developers and investors.

“Egypt’s renewable energy sector is very promising and will become substantially more so as roadblocks including currency convertibility are cleared. To be able to raise equity for these projects, for example via a dedicated renewable energy fund, investment managers require immediate tangible opportunities for investment. Investors do not prefer to hold commitments without disbursements for excessive periods,” he further said.

“We would also expect that larger developers will consolidate projects and develop strategic partnerships within the sector, resulting in the acceleration of renewable energy development,” Bakr Abdel-Wahab noted.

EFG Hermes is presently considering establishing a $200 million renewable energy fund to spur wind and solar projects in Egypt and the wider region. The firm led the acquisition of a 49% stake last year in a 330 megawatt portfolio of wind assets owned by EDPR in France.

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