The EBRD’s involvement
The EBRD is a strong supporter of these initiatives which, for the reasons stated above, meet the Bank’s sustainable energy agenda as well as the Bank’s private sector agenda by introducing a large number of private sector players. The Bank has therefore invested many resources in the programme since the beginning of 2015 which took various forms.
The Bank has initiated extensive policy dialogue through workshops, conferences, meetings and informal discussions with the Egyptian authorities to shape the contractual framework and the regulations applicable to a feed-in-tariff scheme (the “Feed-in-Tariff Programme”) launched in 2014 for the generation of 4 GW of wind and solar electricity (some 4,300 MW for the first round only, that is 2,000 MW of wind and 2,300 MW of solar power).
The EBRD has also funded a short-term technical cooperation consultancy under the SEMED Resource Efficiency Policy Dialogue Framework for the drafting of the additional provisions of the high-voltage network code in order to accommodate the specifics of solar photovoltaic plants.
In addition, the EBRD is sponsoring the tender of a 200 MW solar plant in Kom Ombo through the Public-Private Partnership (“PPP”) Project Preparation in the Southern and Eastern Mediterranean (“MED 5P”), an EU advisory facility created to support public authorities in the SEMED region in the preparation, procurement and implementation of public-private partnership infrastructure projects. MED 5P is providing €1.5 million in legal, technical and financial advisory services to the Egyptian government for the preparation of the Kom Ombo PPP project.
The EBRD is also supporting the development of long-term renewable energy by providing more than €2 million of technical cooperation funds for a Strategic Environmental and Social Assessment in connection with the second phase of development of the East Nile. This region is expected to be the area of future development of renewable energy after the Gulf of El Zeyt and the Benban sites are fully utilised.
Lastly, the EBRD will provide up to US$ 500 million to finance a number of renewable solar projects under the first round of the Feed-in-Tariff Programme.
Promoting competition in the power market
The Egyptian government has not only welcomed the private sector’s participation in renewable energy, it has also undertaken various reforms in order to ensure a more private sector investment friendly environment. The efforts include setting a roadmap for a gradual opening of the power market to competition, redefining the mandate and powers of the regulator and unbundling the transmission company/single buyer of bulk electricity as well as restructuring the tariffs and the subsidy scheme.
The unified electricity Law No. 87 of 7 June 2015 enacted by presidential decree (the “Electricity Law”) establishes a broad framework for the partial deregulation of the existing power market and the introduction of some competition.
CHART 4: ELECTRICITY CONSUMPTION IN EGYPT BY TYPE OF USER
Source: Egyptian Electricity Holding Company Data 2014 Annual Report.
In the existing Egyptian single-buyer market model, with a vertically integrated supply chain through generation, transmission, distribution and supply, the first step has been to open power generation and supply to competition, while transmission and distribution will remain natural state monopolies which cannot be subject to market forces at this stage.
Two markets will co-exist in practice. The competitive market will only be accessible to eligible consumers (“Qualified Consumers”) who will have the right to purchase electricity through bilateral agreements from either: (i) the power generation company of their choice; or (ii) the authorised suppliers (traders) (“Authorised Suppliers”) of their choice. Although the term “Qualified Consumer” is not defined in the Electricity Law and will need to be so by secondary legislation, we understand that it should extend to industrial, commercial, administrative and government consumers rather than residential consumers. The latter or non-qualified consumers will have no alternative but to purchase their power on the regulated market pursuant to some standardised agreements and fixed tariffs approved by the Egyptian Electric Utility and Consumer Protection Regulatory Agency (“EgyptERA”).
Although not clearly stated, according to some experts, the government’s long-term goal is to shape a market where investors will take the risk of generating power without any power purchase agreement or related contractual power purchase undertaking guaranteed by the Ministry of Finance. The state will gradually withdraw from power generation and state-owned power plants will decrease in number following decommissioning or privatisation. As a first step, the Egyptian authorities are aiming for a market of multiple generators and suppliers, respectively, competing among themselves. It is unclear whether full-scale liberalisation of the market where competition is also introduced beyond generation and supply with a full unbundling of the supply chain is contemplated at this stage.
Redefining the mandate and powers of the state-owned utilities
The Electricity Law has clarified the role and powers of the EETC. Formerly a state owned subsidiary of the Egyptian Electricity Holding Company (“EEHC”) which was vertically integrated into the supply chain, the EETC will be unbundled and separately owned, gaining some independence from all other utilities participating in the supply chain. In its capacity as transmission system operator, the EETC still enjoys a monopoly over the power transmission activities and management of the network operations. In its capacity as single buyer, it will primarily be responsible for ensuring a power supply to non-qualified consumers as well as an interim power supply to Qualified Consumers (via six-month long agreements). The EETC will be the counterparty to the power purchase agreements to be entered into with the private sector generation companies in connection with the Feed-in-Tariff Programme and the Build-Own-Operate projects.
The Electricity Law has conferred more independence on EgyptERA, the sector regulator. To ensure general oversight and regulation of the power sector, EgyptERA grants licences and approves tariffs applicable to the sale of electricity to non-qualified consumers and tariffs applicable to all for the use of the grid and distribution networks.
The Electricity Law also anticipated a new market operator, which will be an autonomous unit within the EETC, enjoying financial and administrative independence. It will regulate the power supply and demand bids as well as being responsible for accounting and settlement operations.
The newcomers are the Authorised Suppliers which are legal entities licensed by the EgyptERA to deal with the purchase of electricity or related services in the name of and for the account of producers, distributors and consumers. Secondary legislation is expected to provide further details on the role and status of the Authorised Suppliers as well as defining their rights and obligations.
The New and Renewable Energy Authority (“NREA”) was established in 1986 as a state agency responsible for the development of renewable energy. Although it reports to the Ministry of Energy and Renewable Energy, it is independent from EEHC and the other state-owned electricity companies. It advises on the renewable energy targets, strategy and regulatory framework. In 2014, the NREA’s competencies were amended and the EgyptERA endorsed a more active role in the development of renewable energy through: (i) its involvement in renewable power projects whether managed alone or in collaboration with third parties; (ii) the sale of the electricity produced from such projects to third parties; and (iii) the setting up of joint stock companies, whether alone or in partnership with others, to develop and operate such projects. In addition, the NREA owns and acts as lessor of the public land allocated to the development of wind and solar plants in connection with the Feed-in-Tariff Programme.