The Finance Ministry is studying a new package of incentives to support the solar energy sector, which includes exempting solar power plant components from customs duties and value-added tax, Hatem Tawfik, secretary general of the sustainable energy division at the Cairo Chamber of Commerce and managing director of Cairo Solar, told EnterpriseAM. The proposed incentives also include exempting solar plant contracts from taxes, replicating previously applied incentives for green hydrogen projects.

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Applying the proposed tax exemptions on solar power plant components could reduce the final cost of building solar plants by up to 30%, Tawfik said. The expected payback period would be 2.5-6 years, facilitating investments for small-medium projects in the sector.

This is significant, given that prices of solar energy components have recently increased in Egypt despite the temporary global declines, regional director for the Middle East and Africa at China-based Trina Solar Ahmed El Mosallamy told EnterpriseAM. He explained that the global price drop was pushed by a reduction in subsidies provided to manufacturers in China from 13% to 9%. This decline may not reflect on the local market due to the rising of other costs and exchange rate fluctuations, El Mosallamy said.

The government is also mulling offering tax breaks, or temporary property tax exemptions, for buildings equipped with solar stations, as well as reductions or exemptions from income taxes for investors and users, according to a proposal submitted by the Sustainable Energy Development Association to the Finance Ministry seen by EnterpriseAM.

Initiatives, like the Sustainable Energy Development Association’s (SEDA) Shams Misr, will also play a part in supporting the sector. Shams Misr aims to accelerate the establishment and operation of medium-sized solar power plants of up to 50 MW for industrial, commercial, and residential projects connected to the national grid. “This move will significantly expand the demand base and create new momentum for Egypt’s solar energy market," El Mosallamy told us.

The government is looking to reduce investment costs of projects and increase competitiveness of solar energy for household and industrial use amid growing interest in reducing dependence on traditional energy sources. “Installing a 1 GW solar power plant saves 330 tons of equivalent fuel annually,” Tawfik explained.

But, incentives must be carefully designed and closely monitored in their implementation. El Mosallamy noted the importance of crafting precisely targeted incentives to ensure they reach only the right beneficiaries — whether in the form of exemptions or financing. He stressed that having committees to oversee the actual on-ground implementation of projects is essential, considering that some models are already being reviewed by independent bodies to verify the actual installation of the solar plants.

These measures are part of a broader set of proposals submitted by SEDA to the Finance Ministry, including a call to establish a new financing fund under the same name of its Shams Misr initiative. The fund aims to support the energy transition by providing concessional loans to developers and investors, whether individuals or companies, Tawfik said. The government has given a positive initial response to the proposal, he added.

Another proposal is to allocate EGP 0.01 from every KW/h from electricity bills to the proposed fund, which would provide an estimated EGP 1.7-2 bn annually at the very least. The proposals also suggest a carbon tax on factories that are heavy emitters of greenhouse gases, in addition to a tax on companies producing low-efficiency electrical equipment. The proposal also includes a carbon tax on high-emission vehicles.

Expanding the adoption of solar energy across various sectors will help reduce the burden of government subsidies for electricity, especially as the state moves forward with its gradual subsidy phase-out in line with the fiscal reform program, El Mosallamy said. Such incentives support the goal of fully liberalizing the energy market, he added.

The sector is sufficiently equipped to scale up decentralized projects and green transition efforts, we were told. Egypt currently possesses the sufficient infrastructure and technical expertise to establish decentralized solar plants with a total capacity that could reach 10 GW/h, which stands as a strategic opportunity to support the country's green transition efforts and emission reduction without having to wait for large centralized projects, Tawfik said.

The Finance Ministry is open to the proposals, and seeks to assess their financial impact and determine appropriate implementation mechanisms for them, Tawfik revealed. If approved, these incentives could stand as a turning point in the spread of rooftop solar energy systems for homes, factories, and farms — opening the door for a wider segment of users and investors to participate in the shift towards a low-carbon economy, Tawfik believes.

Incentives could pave the way for expanding local manufacturing of solar components. El Mosallamy said that the possibility of establishing a Trina Solar factory in Egypt depends on the true volume of local demand, which remains below the threshold that would incentivize local manufacturing at this stage. However, the introduction of incentives and growing market momentum could prompt the company to reconsider this direction, especially given the availability of raw materials locally, he said.

Your top green economy stories for the week:

  • Hong Kong-based United Energy Group and China’s Longi Green Energy will develop a 20 MW hybrid solar plant in Egypt under a strategic cooperation memorandum they signed. The plant will generate enough power for 6k households and contribute to emission reduction.
  • Korra Energi will build a USD 1 mn hybrid solar plant for the Esh El Mallaha Petroleum Company, which will serve one of its oil fields. The 1.4 MW project will be integrated with Korra’s existing 3.5 MW flare gas recovery project at the site.
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