A focus on the Egyptian power market

Opportunities and challenges




In 2013 power generating capacity was at 27GW, with peak demand at 24GW and frequent blackouts over the summer months. By some estimates, an additional 30GW of capacity generation will be required by 2030 to meet demand, translating to an overall capital investment of around US$5 billion per year.

Whilst development of power generation has become an increasing priority over recent years for the Egyptian government, the events of 2011 and the subsequent political uncertainty slowed progress. However, the relatively stable political environment over the past 12–18 months has seen a renewed impetus and focus on finally starting to deliver the power infrastructure Egypt so desperately needs. However the Egyptian government has shown reticence to deliver on the first round of feed-in tariff projects due to what is perceived to be an overly generous feed-in tariff. The effect that this will have on investor confidence to participate in a proposed second round with a lower tariff is yet to be seen.

Egypt is increasingly attracting interest and is seen as one of the key market opportunities in the Middle East and North Africa (MENA) region. This can be seen with the recent introduction of an ambitious renewables programme and the project announced at the Sharm El Sheikh Egypt Economic Development Conference in March. This brochure explores the potential project pipeline for power generation projects in Egypt, the regulatory framework for delivering those projects and some of the challenges which may be faced.

Challenges facing the Egyptian electricity sector

Generation capacity shortfall is the key issue.

Electricity demand growth is very high in Egypt, estimated at six per cent per annum, which creates a power generation deficit of approximately 6GW per annum through to 2022. There is currently a very high reliance on thermal assets (over 90 per cent of current installed capacity) and a low reserve margin relative to peak demand of 11.5 per cent. In addition to installing new power generation capacity, there are significant opportunities to increase power generation efficiency by up to 20 per cent without changing existing asset stocks. A third of generation infrastructure is more than 20 years old and availability and efficiency rates are five to eight per cent below benchmark assets.

The financial burden placed on the state to subsidise the current electricity sector is also significant, with energy subsidies reaching seven per cent of GDP in the financial year 2013/14. These financial commitments far outweigh spending in the health and education sectors and the Ministry of Finance is starting to fall behind on its payments to the Egyptian Electricity Holding Company (EEHC),although it is worth noting that there are no reports of Independent Power Producers (IPPs) not being paid on time. This, coupled with increasing operating and investment costs, has led to increasing pressure on EEHC’s financial position.

In July 2014, the Government announced its plans to bring electricity tariff costs to recovery levels within five years. Even if we can assume that a period of relative political stability will now follow in Egypt (a necessity for attracting foreign direct investment), the Government will need to ensure a robust legislative regulatory framework is in place to achieve these ambitious aims and secure the necessary financing.

Regulatory framework for power projects in Egypt

The power sector and market in Egypt has historically been structured on a vertically integrated basis with the Government in control of the process from generation to meter.

The Egyptian government ended its monopoly over power generation in the early 90’s, passing a series of laws that opened the possibility for private entities to own power stations. This led to a round of government sponsored IPP/privatisation programmes which ended in the mid to late 1990s. The first IPP in Egypt was the 683MW power plant at Sidi Krir. The tender was for a 20 year BOOT natural gas-fired power station. The bid was awarded to InterGen in 1998 and the plant began commercial operation in 2002.

Although the generation sector has been partially liberalised, transmission and distribution remain a monopoly controlled by the EEHC. Notwithstanding a small number of IPPs, the EEHC continues to own approximately 90 per cent of Egypt’s power generating capacity.

Please see Table 1 and Table 2 for further details on the regulatory framework and key government sector stakeholders.

Table 1 – Key regulatory stakeholders

Ministry of Electricity and Renewable Energy Competent Ministry sets national energy policy, oversees government agencies/owned entities in the sector.
Egyptian Electricity Holding Company (EEHC) Historically a government agency amended to a joint stock company in 2000/eight subsidiaries carrying out distribution activities/six subsidiaries carrying out generation activities/one for transmission (EETC).
Egyptian Electricity Transmission Company (EETC) Government transmission company, offtaker and responsible for issuing bids and tenders (together with NREA for renewable projects) for construction and operation of power projects.
New and Renewable Energy Authority (NREA) Government agency overseeing renewable energy development. Owns large parcels of land for that purpose. A recent legislative amendment authorises it to establish companies with third parties.
Electricity Utility and Consumer Protection Regulatory Agency (Egypt ERA) Sector regulator, issues (and cancels) licenses andsupervises all activity of electrical energy production, transmission, distribution and consumption. Egypt ERA was established by virtue of the Presidential Decree No. 326 1997 which was cancelled by the Presidential Decree 339 2000 reorganising the Electric Utility and Consumer Protection Regulatory Agency and giving Egypt ERA a defined scope and responsibility.
Ministry of Finance Finance-important role to consider (i) in providing guarantees for projects entered into with other ministries and/or their affiliated companies/(ii) as ministry to which PPP Unit is affiliated to (PPP Unit undertakes projects in all sectors provided they are under a PPP scheme).

Table 2 – Key legislation

NREA Law Law No. 102 for the year 1986 establishing the New and Renewable Energy Authority.
EEHC Law Law No. 164 for the year 2000 for the Egyptian Electricity Holding.
Renewable Energy Law Law No. 203 for the year 2014 for Renewable Energy.
Law No 14 Law No. 14 for the year 2013 granting the Minister of Finance permission to guarantee the EEHC and its subsidiaries regarding any facilities EEHC obtains. Also guarantees performance of its financial commitments in relation to projects executed through the private sector or in partnership with the private sector.
The New Electricty Law (not yet in force) Draft. Approved by the Government Cabinet on February 18, 2015, not yet come into force. Aimed at privatising electricity production, distribution and transmission law and limiting the state’s role in the electricity sector to regulation and supervision.

Over the past twenty years the model for power projects in Egypt has slowly seen moves from a state owned/state operated model to one where the private sector is playing more of a role through the use of Build–Operate–Transfer (BOT), Build–Own–Operate–Transfer (BOOT) and Public–Private Partnership (PPP) structures. The regulatory regime has increasingly facilitated the ability to do this through (i) statutory provisions in NREA Law, EEHC Law, Egypt ERA’s role and most recently in the Renewable Energy Law which provides for the possibility of private parties to enter into agreements with each of them (ii) recent easing up of the procurement regime and (iii) the mandate of Egypt ERA for ensuring ‘fair competition’.

The implications of the new Renewable Energy Law are considered in more detail below in the context of the planned renewables programme.

The new electricity law

In addition to the existing regulatory framework, a new electricity law is expected to come into force shortly which will continue to expand on the deregulation of the electricity sector. The text of the law has not been made publicly available but we understand the draft law was approved in February 2015 by the Government cabinet and now requires administrative approval and presidential ratification.

According to reports, the law will aim to move the state towards more of a regulatory role, with less focus on directly running and managing the electricity sector. As part of this, both transmission and sales will be opened to the private sector, a step away from the current system in which only the EEHC may transmit and sell electricity through the national grid. The new law will introduce rules to allow ‘free competition’ in the production, transfer, distribution and sale of electricity, and will separate the transport, production and distribution of electricity. This should pave the way for transmission and distribution projects to be put up for public bidding and facilitate linking Egypt’s grid to neighbouring countries, such as an initiative to share electricity between Egypt and Saudi Arabia. Updates have also been made to the investment laws in order to further facilitate foreign investment. For electricity generating companies these benefits include immunity from nationalisation, rights to directly import assets and raw material and exemptions from stamp tax.

The renewables programme and regulatory framework

In 2014, the Egyptian government announced plans to develop up to 4,300MW of renewable generation over an initial regulatory period covering the years 2015–2017. The programme included 300MW of small solar projects, solar PV projects (below 500kW), 2,000MW of solar PV projects from 500kW up to 50MW and 2,000MW of wind generation from wind installations ranging from 20MW to 50MW.

A feed-in-tariff (FIT) regime was subsequently announced in September 2014 and enacted in October 2014 (Decree 1947/2014) in order to implement this plan and invited developers and consortia to submit proposals for wind and solar projects under this regime. The FIT regime provides for a tariff for solar PV and wind projects in the first regulatory period of 14.34$. Cent/kWh for large-scale solar PV projects (20-50MW) and for wind projects, a range of 9.57$.Cent/kWh to 11.48$.Cent/kWh during the initial five years, moving to 4.60$.Cent/kWh to 11.48$.Cent/kWh for the remaining 15 years of the project (depending on hours of operation).

Although the prices are determined in US$, the tariff payments are payable in EGP (based on the conversion rate on the invoice date). The FIT includes connection costs, tax and land costs. Ongoing grid access fees are not envisaged but projects will be expected to bear interconnection costs (with 50 per cent of such costs to be paid upfront) and possibly costs of expanding substations to accommodate the additional load.

The FIT regime was limited to determining prices and did not address issues such as grid connection, access to project land, and licensing. In December 2014, the Renewable Energy Law came into force which sought to put in place a legal framework for renewable energy projects in Egypt to compliment the FIT regime. The Renewable Energy Law envisages a number of structures for the development of energy projects including (i) those owned by NREA (which is how most renewable energy projects in Egypt have been developed to date) (ii) projects tendered by the EETC on a Build-Own-Operate (BOO) basis and (iii) projects developed by the private sector pursuant to the FIT regime to sell electricity to the EETC. The law also envisages privately developed projects which will enter into PPAs directly.

FIT regime documentation

Under the FIT regime, the EETC or distribution companies are committed to purchase the power produced by renewable energy plants at the announced prices under 25 year power purchase agreements (PPAs) for solar projects and 20 year PPAs for wind projects. All financial obligations under the PPAs are to be guaranteed by the Egyptian Ministry of Finance pursuant to a government guarantee set out in the lenders’ direct agreement.

The draft project documents, were released to the developers in April 2015 and are currently undergoing a final round of updating and developer feedback. The pack of documents comprises the following:

  • Cost sharing agreement which sets out the framework for each developer to pay its share of costs to enable the EETC and NREA to construct energy and road infrastructure necessary for the FIT programme.
  • PPA.
  • Network connection contract.
  • Usufruct/land-use agreement (where government land is used).
  • The PPA direct agreement (which includes the government guarantee provisions).

Development finance institutions, including the International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD), are likely to play a major role in the financing of a fundamentally bankable suite of project documents and have been involved in preliminary discussions. Some of the issues under the documentation are considered further below.


We understand that land allocation has commenced for large-scale solar and wind projects on a first come, first served basis. Applicants must first establish an Egyptian special purpose vehicle for the project and then make a down-payment to cover the grid connection costs.

We understand that 36 plots of land will be provided by the government. The investor must pay a fee for the land use in the amount of two per cent of the project income. Prequalified developers who are not allocated government sites will be free to source their own land. Government allocated land, however, will be fully permitted, whereas developers sourcing their own land will have to procure appropriate usufruct or ownership rights in respect of the land satisfactory to the government. The operation of a renewable energy plant requires a license which is granted by the Egypt ERA. The details of the licensing procedure are subject to the executive regulations (which have not yet been enacted).

110 qualified applications were announced in January, including 69 large-scale solar facilities (i.e. between 20MW-50MW capacity) and 28 wind facilities ranging from 20MW to 50MW. A number of developers bid for both wind and solar facilities. In respect of solar projects, the Government received 50 per cent more PV proposals than the targeted 2300MW. Wind, however, was undersubscribed with the Government receiving proposals for 1700MW as opposed to the targeted 2000MW. It is therefore anticipated that there will be a further round for wind projects during 2015 under the same FIT regime.

Given the oversubscription on the solar PV programme and the limitation on government land allocation, the pre-qualified developers are expected to be in a ‘first to the post’ competition to enter into PPA and develop their projects.

The first wave of solar PV projects are targeted to sign PPAs in the coming months and achieve financial close Q4 2015 or Q1 2016.

The Egypt Economic Development Conference (EEDC) – the wider infrastructure and energy masterplan

The renewables initiative outlined is a key cornerstone to delivering Egypt’s much needed power generation and infrastructure requirements but it forms only a relatively small part of the wider plans which have recently been outlined by the Egyptian government.

The recent EEDC conference, held in Sharm El Sheik in March 2015, was seen as a key milestone of the Government’s medium term economic development plan. The Government announced a statement of intent to attract a combination of developers, financiers and government related entities, including Siemens, British Petroleum, General Electric, AfDB, EBRD, the EIB, the IFC, Citigroup, the China Investment Corporation and Russian Direct Investment Fund.

Transactions valued at US$33 billion were reported to have been signed during the conference with the energy sector being a key focus. This includes:

  • US$10 billion worth of investment from Siemens to build up to 6.5GW of power capacity (conventional and renewable) in addition to a wind turbine facility; and
  • PPAs for almost 8GW of generation capacity including:
    • a 3GW coal-fired project to be developed by a consortium led by Abu Dhabi’s IPIC
    • a 2.64GW coal-fired project to be developed by Abu Dhabi’s Al Nowais Investments
    • a 2.3GW combined-cycle gas turbine (CCGT) project to be developed by Egyptian developer Benchmark Power.

In addition, a large number of Memorandums of Understanding (MOUs) were reported to have been signed at the EEDC, totalling a potential 27GW of generation capacity, with the likes of ACWA Power, Masdar and Skypower.

Alongside the announcements in the energy sector, other ambitious flagship infrastructure and real estate projects were highlighted including the US$8.5 billion Suez Canal expansion and, ‘The Capital’ a project for a new major administrative capital outside Cairo covering 700km². It is worth noting that the energy projects will be competing with a number of other sectors to attract the equity and financing investment which will be needed to deliver them. This is just one of the challenges the economic plans in Egypt will face.

Challenges to successful delivery of the energy capacity generation

The announcements at the EEDC and the renewables programme are welcome and present a huge opportunity for both the Egyptian economy and the Egyptian and international investor community alike. The delivery of these projects now presents the real challenge and there are a number of issues which will need to be addressed.

Ensuring the appropriate legislative and contractual framework

In the immediate future, the legislative framework and contractual framework for delivering projects still needs to be finalised. The Renewable Energy Law provides a general framework for delivering the renewables pipeline but a large number of details will be have to be developed in the associated executive regulations, which are yet to be enacted. The tariffs announced in October 2014, even when discounting the connection costs that need to be factored in, are high compared to the tariffs achieved through competitive procurements in Dubai. The tariffs on the most recent round two of the Jordanian Solar programme are also expected to be revisited in the second half of 2016. While this will lead to a concerted push to close projects beforehand and secure the current tariffs it does on the other hand throw some uncertainty on the economic viability of future waves of renewables projects. The tariffs for coal and gas-fired projects also need to be confirmed by the Government. The enactment of the new electricity law should be a key step to liberalising the electricity sector but until its terms are published and in force it is difficult to say with certainty what the impact will be.

In terms of documentation, the sentiment in the market is that the most recent round of FIT documentation issued to developers is broadly, in a bankable form, albeit with a number of issues that are likely to require resolution. In addition to some general risk allocation issues which present challenges, proposed liability caps set out in the government guarantee, government step-in rights and dispute resolution jurisdiction provisions are also issues which will need to be addressed.

In addition to these contractual issues there is a more fundamental matter around currency convertibility risk. Whilst some of the larger projects may have tariff regimes denominated and payable in US dollars, the FIT projects will be paid in Egyptian Pounds at the prevailing exchange rate at the date of the relevant invoice. Although Egypt has few restrictions on repatriation, it remains to be seen what comfort if any will be given on convertibility and transferability, whether by the Central Bank of Egypt (CBE) or otherwise. With the volume of projects in the pipeline it is unlikely the CBE would have the capacity to give cover for all projects or all payments.

Funding of the projects and capacity constraints

At present it is expected that most projects will be externally funded, with development finance institutions likely to play a significant role, particularly on the FIT schemes. It remains to be seen how and to what extent the local banking industry will get involved in these projects – they have reasonably healthy but, limited foreign reserves. The currency convertibility issues noted above are also likely to play a role to fund in Egyptian Pounds.

With the enormous pipeline of projects announced, it remains difficult to ascertain which projects will be taken forward and which will stall at the MOU stage. If everything which has been announced to date – including outside of the energy sector – were to progress over the next 12-24 months it would create a liquidity crunch, but it is likely that natural attrition and the timetable will inevitably extend timelines.

Gas supply

In the context of gas-fired projects, of similar importance to foreign developers will be the supply of fuel gas. Under the existing gas-fired IPPs, fuel is sourced by Egyptian General Petroleum Corporation (EGPC) and the Egyptian Natural Gas Holding Company (EGAS). Rather than a straight pass-through arrangement under the PPA, the project company pays the gas supplier and, under the gas supply agreement, is then reimbursed by EEHC. This structure is not dissimilar to the gas supply arrangements for the IPPs in Qatar and Oman. We understand that for the proposed Dairut CCGT IPP project and the other gas-fired projects in the pipeline, gas will be supplied by EGAS. As EGAS is a state energy company, our expectation would be that the risk allocation under the fuel supply agreement for planned CCGT projects will not be less developer-friendly than that agreed by EGPC. Despite this, the liquefied natural gas (LNG) and floating LNG capability which is being built up and the proven domestic reserves, the market may still need convincing that the actual gas supply volumes needed are going to be deliverable.


Despite the challenges which may be faced, significant progress has been made and momentum generated over the last six to nine months. The next twelve months are going to be even more important as we move from the planning and announcement stage to delivery. It is also worth noting that prior to the 2011 revolution, the Egyptian government had previously run a limited IPP programme and this experience should assist in delivering dividends as we move forward.

The FIT projects are likely to lead the way given their relatively small size, the huge investor interest, the relatively well developed regulatory framework in place and the support of the DFIs. Whether the more ambitious thermal power plans can also be delivered remains to be seen.

The energy industry wants Egypt to succeed and currently sees it as the most exciting market in the MENA region.

* Produced in association with Egyptian law firm Matouk Bassiouny