Inside the financing of Egypt’s IPP boom

Somebody has to lend Egypt the money to more than triple its renewables capacity by 2029 — and how that lending gets structured will help decide what the electricity costs at the end of it. Right now, “debt financing is predominantly provided by development finance institutions (DFIs), as commercial lending appetite is still lagging,” VP of Business Development at Scatec Mahmoud Shata tells EnterpriseAM.

The shape of the debt explains why: These projects run on long-term project finance, foreign currency lending, debt at 70-80% of total project costs, and repayment periods extending up to 20 years, Mahmoud Morsy, principal banker in the SI MEA team at the European Bank for Reconstruction and Development (EBRD), tells EnterpriseAM. “Providing this type of long-tenor financing at competitive pricing remains challenging for many commercial banks, particularly in local and regional markets,” he adds. Because renewables combine high upfront costs with “relatively compressed returns,” even small reductions in the cost of financing “can have a meaningful impact on project viability and affordability,” Morsy says.

Development lenders take the first risk

A DFI’s job is to make a project safe enough that someone else will lend to it. Renewables in Egypt are typically financed on a non-recourse basis, with debt making up most of the capital stack, Shata says. The local market can’t carry that alone, so DFIs step in as the first lender. “Sponsors often view EBRD as an anchor lender whose involvement provides comfort on the project’s structure, risk allocation, and overall bankability,” Morsy says. EBRD financed 16 of the 31 projects that reached financial close under Egypt’s feed-in tariff program, Morsy says, and has kept lending since. DFIs have also been first in on newer technologies like battery storage, setting a precedent that brings the rest of the market in behind them, Shata adds.

The trick is stacking lenders by how much risk each can stomach: Scatec’s solar-and-storage project in Upper Egypt, costing more than USD 590 mn, closed with USD 479.1 mn from development finance institutions: USD 184.1 mn from AfDB, up to USD 173.5 mn from EBRD, and financing from BII. The concessional layer is what pulls private money in behind it: “in many cases, a relatively small amount of concessional or risk-sharing support can unlock a significantly larger volume of private capital,” Morsy says. Those structures also extend tenors and cover specific risks that would otherwise keep lenders out, he adds.

None of this makes the risk disappear — it changes who prices it: Guarantees and risk-sharing facilities move all or part of a project’s financial risk to another party, according to the IFC, and the World Bank says they can cut financing costs and improve terms. Somebody still carries the risk: a commercial lender, a developer, a DFI, or a guarantee provider, each with its own cost and appetite. If none of those structures makes a project bankable, the financing doesn’t materialize.

Commercial banks follow under a DFI’s umbrella

Here’s how a commercial bank gets comfortable enough to join: On the 1.1 GW Suez Wind project, jointly owned by Saudi Arabia’s Acwa Power and Hassan Allam Utilities, EBRD arranged a USD 275 mn syndicated loan. It comprises a USD 200 mn A loan and USD 75 mn in B loans from Arab Bank and Standard Chartered, alongside co-financing from AfDB, BII, DEG, the Opec Fund, and Apicorp. The two banks lend under the EBRD’s lender-of-record and preferred creditor status. The structure is designed to attract “commercial financing that might not otherwise be available to the market,” Morsy says.

What lenders need to see before they say yes

Is a signed contract enough on its own? Lenders want confidence in the offtaker’s creditworthiness, tariff certainty, currency protections, and contractual remedies, and the sponsor’s balance sheet has to show enough cashflow to service debt and still return something. Those are usually the sticking points at financial close, Morsy says.

Currency is the exception: FX has been “the largest source of uncertainty over the past years for both developers and lenders alike,” Shata says. A USD-denominated tariff guards against a weaker EGP, but it doesn’t ensure greenbacks will be available when repayment falls due. That exposure sits with the off-taker and, behind it, the sovereign. Developers and lenders handle it through structural mitigants in the financing and project agreements, Shata says.

The state is also rethinking how it issues that backing. The government is working with the World Bank on a proposed Infrastructure Finance Guarantee Facility that would route risk cover through a defined pool instead of a fresh sovereign guarantee for every project. That matters more as the pipeline grows, since each new project adds to the guarantees outstanding. The USD 520.38 mn facility pairs USD 150 mn from the World Bank with USD 370 mn in unguaranteed commercial financing: the state covers specific project risks, and private lenders carry the rest. Renewables are among the first targets.

The model works, now it has to scale

OUR TAKE- Egypt has shown it can close large renewable projects — the question is whether it can do it at 21 GW scale. So far, it has drawn on a limited pool: DFI debt, concessional finance, guarantees, and sovereign-backed PPAs. Meanwhile, regional conflict and inflation are raising debt costs, and “heavy competition continues to drive energy prices lower, creating a more challenging business case,” Shata says. The missing piece is domestic capital, Morsy says. Creditworthy private off-takers would help, and so would local supply chains, which would cut reliance on imports and foreign-currency funding and open the door to local-currency lending.