Q&A: the legal framework for renewable energy in Egypt

Market framework

Is there any legal definition of what constitutes ‘renewable energy’ or ‘clean power’ (or their equivalents) in your jurisdiction?

‘Renewable energy resources’ are defined in the Renewable Energy Law as ‘natural sources of energy, which are non-depletable, and which may be used to produce electricity’. In practice, NREA considers that these include hydropower, wind and solar photovoltaics (PV), concentrated solar power (CSP), and biomass.

What is the legal and regulatory framework applicable to developing, financing, operating and selling power and ‘environmental attributes’ from renewable energy projects?

On 21 December 2014, Egypt published the Renewable Energy Law, identifying four main mechanisms to reach its renewable energy targets, which were:

• state-owned projects with competitive bidding for engineering, procurement and construction contracts;
• competitive bidding for build-own-operate contracts;
• FIT programme; and
• a merchant scheme, according to which independent power producers can enter into bilateral contracts to sell power directly to consumers using the national grid against wheeling and grid-access charges payable to the grid operator.

The Electricity Law requires projects set up for the generation, distribution or sale of electricity (including under any of the above schemes) to be developed through an Egyptian joint-stock company. Such a company must mainly seek a preliminary then a final licence from EgyptERA to be allowed to carry out its activities.

Does the government offer incentives to promote the development of renewable energy projects? In addition, has the government established policies that also promote renewable energy?

The government of Egypt offers a number of incentives and is putting in place favourable policies to promote the development of renewable energy projects in the country. Investment Law No. 72/2017, published on 31 May 2017, granted a special investment incentive to new projects generating renewable energy or depending on it or projects expansions by addition of new assets increasing the production capacity, consisting of a deduction of 30 per cent of the net taxable profits for the first seven years of the life of the project, subject to certain conditions such as the incentive value not exceeding 80 per cent of the paid-in capital until the start of the project’s operations, and the project company being established within three years from the date of entry into force of the Executive Regulations issued by Prime Ministerial Decree No. 2310/2017 (ie, from 29 October 2017). The Investment Law also creates a 2 per cent unified rate of customs duties for all equipment and machinery necessary for the establishment of the project (down from 5 per cent). Land may be allocated free of charge if the project company’s activity is deemed of a strategic interest; otherwise, 2 per cent of the production is generally payable yearly for land lease (based on Renewable Energy Law No. 203/2014).

In 2013, Egypt introduced a net-metering scheme to promote distributed solar power. The scheme allowed small-scale renewable energy projects in the residential and the industrial and commercial sectors (with a maximum capacity recently increased from 5MW to 20MW) to feed electricity into the low-voltage grid. Under the scheme, solar PV generation is credited against the user’s bill for consumption from the grid using a calculation method that credits surplus electricity in the consumers’ highest tariff bracket. In May 2020, EgyptERA revamped the net-metering scheme by virtue of Circular No. 2/2020, introducing a number of limitations for the projects established thereunder, including a requirement of the generation facility being located within the premises of the electricity consumer; the total capacity of net-metering solar power projects connected to any single distribution company not exceeding 1.5 per cent of the peak load of the distribution companies registered during the financial year preceding the contract; the total capacity generated from solar net-metering projects not exceeding 300MW (125MW for capacities up to 500kW and 100MW for capacities greater than 500kW and up to 20MW); the installed capacity of the met-metering facility not exceeding the maximum load of the consumer during the year preceding the commercial operation date of the facility; and a balancing charge being payable, among other requirements.

In addition to the utility-scale solar projects, the FIT programme also proposed tariffs for distributed PV ranging from E£0.848/kWh for residential systems below 10kW up to E£0.973/kWh for systems between 200kW and 500kW.

Also, the merchant or independent power producer model provided for in the Renewable Energy Law allows private offtakers to enter into agreements with private power generation companies to secure the purchase of electricity from renewable energy sources.

Are renewable energy policies and incentives generally established at the national level, or are they established by states or other political subdivisions?

Renewable energy policies and incentives are established at the national level by the Egyptian government, typically through the Cabinet of Ministers.

Describe any notable pending or anticipated legislative proposals regarding renewable energy in your jurisdiction.

The framework for the set-up of commercially viable waste-to-energy projects remains in gestation, as it requires close coordination between the MOERE and the Ministry of Environment, as well as a solution to the lack of an efficient waste collection system. The low pricing (E£0.92/kWh) originally proposed in November 2015 was an issue, particularly given that payment will take place in Egyptian pounds without pegging to the US dollar. The Egyptian government has been reported to have agreed to issue grants to governorates to help subsidise recycling efforts that feed into the programme and facilitate land concessions on a usufruct basis for companies seeking to develop waste-to-energy power plants. Then, in October 2019, the Cabinet approved the new feed-in tariff for waste-to-energy (WTE) projects at E£1.40/kWh. The tariff will be payable in Egyptian pounds and will remain in place for 25 years. The governorate in which a WTE project is set up will pay E£1.03/kWh, while the remaining E£0.37/kWh will be paid by sanitation organisations falling under the Ministry of Environment’s jurisdiction.

In 2019, NREA formed a committee comprising all electricity sector stakeholders and tasked it with the drafting of Executive Regulations of Renewable Energy Law No. 203/2014. The committee has however not completed its draft, and there are currently calls for the Renewable Energy Law and its Executive Regulations to be integrated into the Electricity Law. EgyptERA has also, in parallel with the support of development finance institutions, hired a consultant to assist with reshaping the electricity market; the works were supposed to be initiated in early 2020 but have been delayed because of the covid-19 pandemic and there is to-date no clarity on the timeline for their completion.

Describe the legal framework applicable to disputes between renewable power market participants, related to pricing or otherwise.

The Executive Regulations of the Electricity Law, issued by Decree of the MOERE No. 230/2016, provide for the establishment of a committee within EgyptERA for the settlement of disputes arising between the electric utility parties in relation to the utility’s activities. The committee is chaired by a state councillor and comprises technical, financial, commercial and legal members, as nominated by prime ministerial decree for a one-time renewable term of one year. The committee’s decisions must be succinctly justified and issued within a period not exceeding 60 days from the date of the substantiated claim. The decision is then presented to the board of EgyptERA for ratification and notified to the parties.

Typical power purchase agreements entered into with EETC as offtaker would, however, provide for international arbitration clauses referring disputes to arbitral tribunals constituted in accordance with the Rules of the Cairo Regional Centre for International Commercial Arbitration and seated outside Egypt. According to the Egyptian Arbitration Law applicable to most such agreements, the consent of the MOERE on the arbitration clause is required for it to be valid.