Power surge: Why Egypt’s renewable energy sector needs corporate PPAs

The Egyptian government has set a target of producing 20 percent of its electricity from renewable sources by 2022 and 42 percent by 2035.

“Large corporate buyers are increasingly viewing corporate PPAs as an efficient and customisable tool to secure the supply of energy, reduce electricity costs and obtain greater visibility of energy cost increases,” he said.

Other benefits include enhancing corporate sustainability among investors and protection from changes in a country’s domestic energy policy, he said.

Egypt’s first corporate PPA was commissioned in December 2020 when Coca Cola’s one-megawatt (MW) solar photovoltaic (PV) rooftop at its Sadat City facility started operations.

The European Bank for Reconstruction and Development (EBRD), which helped finance the project developer SolarizEgypt, said the PV plant would provide Coca Cola access to cheaper electricity with zero investment upfront while creating 15 sustainable jobs for plant maintenance for the next 25 years. In December 2020, EBRD said it is financing another private-to-private renewable energy project in Egypt by TAQA PV for Solar Energy.

Mohammed AlKhayat, Chairman of New and Renewable Energy Authority (NREA), told Zawya Projects that more than 12 corporate PPAs had been signed in industrial and commercial sectors.

Yaseen Abdel-Ghaffar, Managing Director of SolarizEgypt told Zawya Projects that he believed Egypt’s industrial sector could be much more competitive in the global economy with a higher penetration of solar in the energy mix.

“We have around 47MW of signed PPAs under the net-metering and self-consumption schemes with Egypt Arabian Cement Company, El Gouna, Coca Cola [and other companies],” he said.

Access to project finance

Arguing the case for corporate PPAs in Egypt, Bicciato pointed out that in emerging or new markets, whenever an investment boom in renewables begins to slow down, there is often a direct correlation between the slowdown’s pace and the falling rate of sovereign guarantee issuance by the government.

“This is because a project’s ‘bankability’ is heavily dependent on sovereign guarantees, which are still considered the essential de-risking tool in emerging and new economies.”

“In such a scenario, a corporate PPA with a financially strong counterparty could be the only available instrument for a renewable energy developer to secure the financing of a project,” he said.

Abdel-Ghaffar added that corporate PPAs pave the way for energy transition by utilising flexible business models to address market opportunities.

Bicciato observed that finding a balance between corporate buyers’ demand and project availability is critical in a corporate PPA market.

“Project availability is heavily influenced by bankability requirements imposed by lenders, specifically pricing and creditworthiness of the off-taker,” he said, adding that a well-devised corporate PPA can also be shared by medium-sized corporate buyers, who can join forces in multiple-buyer structures.

However, a specific challenge for Egypt is the absence of a detailed legal framework applicable to corporate PPAs.

“I understand this issue will be resolved shortly, as the government is in the process of preparing regulations for the development of IPP projects,” he said.

Other challenges include the grid transportation charges, which affect a project’s commercial viability, and insufficient transmission and distribution infrastructure.

Strong fundamentals

Bicciato said Egypt’s strong fundamentals, from availability of renewable sources and large market size to political and currency stability and strong track record with projects lend support to the country’s ambitious renewable energy targets.

“Egypt’s commitment to renewables goes back to the 1980s and has grown constantly throughout the years. The Benban Solar Park, which was constructed with a total solar power capacity of 1465 MW, is probably the most positive and concrete evidence of this commitment,” he said.

In October 2020, the electricity minister said the government is likely to increase the 2035 target to 60 percent.

He said the government should ensure that any renewable project that has been awarded or is still in the bidding phase moves to the next step in line with investors’ legitimate expectations.

“A track record of projects reaching the financial closing stage within the expected timeframes and in compliance with the terms and conditions of the awarded bid serves as the best calling card for investors,” he said.

He also called for improving transmission and distribution infrastructure, developing a legal framework for biomass energy (particularly waste-to-energy projects) and supporting the development of a corporate PPA market.

Bicciato said Egypt should also look at sectors other than wind and solar.

“This includes biomass energy, such as producing biogas from animal waste in rural areas and generating energy from waste in big cities. Another recommended way forward is to strongly support the utilisation of solar thermal systems in residential and industrial sectors, particularly in new projects,” he said.

Source: zawya