By Lin Noueihed and Ola Noureldin

CAIRO (Reuters) - When Egypt announced plans to develop renewable power in 2014, investors piled in, drawn by year-round sunshine and chronic electricity shortages. Two years on, many projects have stalled, hitting confidence among foreign investors Egypt sorely needs.

Developers who prequalified for solar and wind projects under attractive feed-in-tariff (FiT) schemes say they face delays and currency risks while wrangling with the government over contract terms has complicated efforts to secure financing.

Some foreign firms now say they will shelve projects at a time when Egypt is seeking to boost foreign investment to ease a hard currency shortage that is choking the economy and to diversify after gas shortages caused blackouts in 2013 and 2014.

One such company is Italy's Enel Green Power, which prequalified in 2015 for one solar and two wind projects under Egypt's FiT schemes and entered a build-own-operate tender for a 250 megawatt wind project.

"Continuous uncertainty from the local authority in managing the process as well as delays in assigning contracts, have lead EGP to freeze its business development operations in the country," an Enel spokeswoman said.

A source from another consortium of foreign investors that prequalified for a solar FiT project said Egypt's insistence on domestic arbitration in any dispute had prompted a multilateral lender that was co-financing the project to withdraw.

"I can't believe they would do this to foreign investors and big lenders when Egypt needs them," said the source. "The feed-in-tarrifs were high, but the whole thing has turned into an Egyptian soap opera. No one knows what's going on and they don't seem to care."

Egypt's New and Renewable Energy Authority did not respond to Reuters requests for comment. Its chairman Salah El-Sobky was quoted in Al Shorouk newspaper this week as saying the Electricity Ministry was taking the developers' concerns into consideration but was not responsible for their funding.

Egypt announced in 2014 ambitious plans to develop renewable energy, originally targeting 4.3 gigawatts of wind and solar projects to be installed over three years.

The International Finance Corporation, an arm of the World Bank, said last year Egypt's renewable energy projects could require $8 billion in capital investment over the next four years, a significant opportunity for investors and lenders.

Egypt had aimed to meet 20 percent of its energy needs from renewable sources by 2020, but has pushed that back to 2022.

FEED-IN FLAP

Government plans included a 1.8 gigawatt solar park in Benban, Upper Egypt, to be developed for $3 billion and operated under a FiT arrangement.

In 2014, Egypt said it would pay $0.13 per kilowatthour (kWh) to plants with 500 kilowatts to 20 megawatts capacity and $0.14/kWh to those with 20 to 50 MW capacity during phase one.

The competitive rates piqued investor interest. The scheme was hailed as an investment bright-spot for Egypt, which has suffered a shortfall in foreign currency since the 2011 uprising which ousted Hosni Mubarak but scared off foreign investors and tourists, sources of hard currency it needs to finance imports.

But the euphoria faded as capital controls imposed in early 2015 made it harder for foreign firms -- which would invest in dollars but be paid in Egyptian pounds -- to repatriate profit.

Developers said they were willing to accept currency risks as Egypt's FiT was higher than others in the region. A dispute over the seat of arbitration has proven harder to overcome.

International arbitration is a standard requirement for many international lenders and has caused some to freeze funding for phase one, sources at four such institutions said.

At least two developers who were set to receive IFC funding told Reuters it had pulled out. An IFC source confirmed it could not proceed for now due to the arbitration issue.

The IFC told Reuters it was "supportive of the government's agenda of promoting private-led renewable energy projects in Egypt" and would invest "next fiscal year".

Atter Hannoura, head of public-private partnerships at the Finance Ministry, said Egypt wants arbitration to be held at the Cairo Regional Center for International Commercial Arbitration.

"This is still international arbitration as this is an independent body," he told Reuters. "When people prequalified this was the government position already. When the international financial institutions got involved it became an issue."

Developers and lenders said they suspected the government was dragging out the process because it now judged the FiT as too high and was hoping to offer lower rates in round two.

The cost of solar components has plummeted since Egypt set its current tariff, which applies only if companies close a deal by Oct. 28. Many look likely to miss the deadline.

Since announcing its renewable plans, Egypt has also commissioned megaprojects from firms like Siemens, which dwarf FiT schemes and, analysts say, have sapped the urgency to push through. Sobky has told local media phase one would go ahead.

Industry experts say no more than 12 firms would go through. Some developers say they will not return but others, along with international lenders, are now looking to phase two.

(Reporting by Lin Noueihed, editing by David Evans)