Three new solar power plants have started operations recently under the first round of Egypt’s feed-in tariff (FiT) system. Seventeen companies have signed power purchase agreements (PPAs) with the Ministry of Electricity and Renewable Energy (MERE) under the second phase that ended in October 2017.
FiT is a special pricing system in which the government is obliged to buy electricity generated from renewable energy installations by the private sector at a fixed price. It has resulted in solar photovoltaic and wind projects that will add 4,300 Megawatts (MW) in capacity to the system by 2018. Photovoltaic (PV) cells convert sunlight into electricity and have become more cost-effective in recent years.
The current absence of tariffs for new projects after the closure of the FiT’s second phase has led to a focus on the net-metering scheme that was initially approved by the Egyptian Electrical Utility and Consumer Protection Regulatory Agency (Egypt ERA) in 2013.
Net-metering is a billing system in which individuals or businesses generate their own electricity using solar cells and feed the excess power to the national grid at fixed prices.
Low electricity prices at that time compared to current rates led to meagre interest in the PV installations. However, increases in electricity prices as part of government plans to lift energy subsidies, along with the updating of the net-metering system in February and August 2017, has changed how investors look at solar power projects.
Abdel-Rahman Shawki, managing director of Onasolar, an Egyptian solar solutions company, explained that the updated system allows developers to use energy generated from the net-metered installations and sell surplus power to MERE.
Egypt ERA increased the upper limit of installations under the net-metering system from 500 kilowatts (KW) to 20 MW last August.
Most Egyptian companies working in the solar energy sector concentrate their work on the smaller and medium scale installations with a capacity of up to 500 KW that are found in small factories and farms. Some of these commercial sector projects are on grid, and others are off grid, like farms that use water pumps powered by diesel.
“Rising prices of electricity in 2016 and 2017 helped give the solar energy sector more opportunities for growth,” Shawki said. This was mainly due to the existing net-metering scheme that makes solar energy a cheaper and more efficient option for the time being, he added.
He said that it was easy to start power production from small- or medium-sized solar PV panels. “It can take just six months,” he said, explaining that those interested could contact a company specialising in solar power solutions. A site survey would then be done to determine the amount of generation that needed to be installed. After agreement, the project could be operational within six months, he said.
However, solar energy projects on scales up to 20 MW are not growing in line with the opportunities offered through net-metering.
According to Shawki, this was because of the lack of awareness among decision-makers of the benefits of using solar energy solutions. He said that the last few years had been problematic for companies working in the sector, in terms of accessing bank loans for small- and medium-sized solar projects. Interest rates were higher than seven per cent, discouraging many investors, he added.
Today, financing has eased, Shawki said, because the banks were more interested in solar projects and had brought interest rates down to five or seven per cent depending on project type.
“We have made many presentations to the banks to educate them on the details related to solar PV installations and how to calculate revenues and payback periods,” Shawki said. “However, we still need a protocol that will encourage more banks to facilitate financing procedures for small- and medium-sized solar energy projects.”
This could be done with support from MERE, the Ministry of Finance and the Central Bank of Egypt, he said.
More work by the solar power companies, along with the important role played by the media, would help create more awareness about the benefits of installing solar PVs on small and medium scales through the net-metering system, according to Shawki.
Solar energy could become an appealing investment, as excess electricity can be sold to the government at good rates. Payback periods might be an issue for some, but they could be offset against possible future price hikes in electricity sold by MERE, he said.
*This story was first published in Al-Ahram Weekly newspaper