Gas limits Cairo’s power sector

30 September 2010

As one of the first Arab states to embrace independent power projects, Egypt once again turns to the private sector to develop up to 3,500MW of new capacity

Egypt has experienced a sudden and rapid deterioration in its power supply during 2010. Widespread blackouts over the summer were attributed to a surge in power demand coupled with growing gas feedstock constraints.

Officials announced on 23 August that peak power demand had increased by 11.5 per cent to 23,500MW, a significant rise on the 2009 performance. The power surge meant that for the first time in years, Egypt’s reserve capacity buffer fell below 2,000MW to just 1,500MW.

Fundamental issues

The demand spike was driven by extreme summer temperatures, but coincided with gas supply issues. With substantial export commitments, gas suppliers were unable to meet the surge in demand from local generators. This has been an issue faced by GCC generators, but until now not something experienced by the gas-rich North African states.

A total of 19 developers responded to the call for requests for IPP qualification earlier this year

The government responded to growing public anger at the power shortages by announcing that an additional 550MW would be made available to the national grid, with a further 700MW due by the end of the year. However, state utility Egyptian Electricity Holding Company (EEHC) will have to address more fundamental and long-term issues if this summer’s outages are not to be repeated.

Egypt power factfile, 2009
Installed generating capacity (MW)23,502
Peak power demand (MW)21,330
Growth in peak power demand (%)8
Reserve power margin (%)9
Largest generatorEEHC
Number of power customers24.7 million
Number of IPPs/IWPPs concluded3
Additional capacity requirement by 2019 (MW)19,000
Estimated cost of required capacity ($bn)25
IPP=Independent power project; IWPP=Independent water and power project. Source: MEED Insight

EEHC’s seventh five-year plan, covering the period 2012-17, is based on a peak demand growth rate of about 6 per cent a year, well below the 12 per cent demand growth experienced this year. Under this growth scenario, Egypt requires additional generating capacity of about 11,100MW, of which 5,250MW will be sourced from combined-cycle plants and 5,850MW from steam.

The scale of investment needed is well beyond domestic resources. As a result, the government is once again targeting the private sector for assistance. Egypt was one of the first Arab states to embrace private power, awarding in the late 1990s three independent power projects (IPPs) to international developers.

The programme was subsequently dropped, with Cairo contending it could build generating capacity far cheaper by securing funding from multilateral and bilateral agencies.

This time around, the government is proposing a more comprehensive approach to privatisation. Under a new electricity law, which is not expected to be issued until 2011 at the earliest, the sector will be unbundled into six generation companies and nine distribution companies under the umbrella of EEHC and Egyptian Electricity Transmission Company (EETC).

At the same time, five new IPPs providing up to 3,500MW of new capacity will be built. The first and biggest, to be located at Dairut in Asyut governorate, will have a capacity of 1,500MW. The International Finance Corporation (IFC) is to act as adviser on the IPP, which is due to be awarded in 2011.

The initial reaction to the new IPP programme has been positive – a total of 19 developers responded to the call for requests for qualification earlier this year. Private investors are also being sought for the state’s renewable energy programme. The Supreme Energy Council approved in 2007 an ambitious plan to increase the contribution of renewable energy to 20 per cent of the country’s total installed power capacity by 2020. Of this, 8 per cent is to be met through hydroelectric energy capacity and 12 per cent through wind. The largest project planned is a wind farm of up to 1,000MW on the Gulf of Suez. In addition, a 200MW solar plant is at the planning stage.

Competition for supplies

Renewed interest in renewable energy comes amid growing competition for gas supplies. Last year, Egyptian power plants consumed 26 billion cubic metres (bcm) of gas, about 60 per cent of the country’s total gas consumption of 42.5bcm. With generating capacity set to increase markedly, the figure can only rise, which in turn will put the sector on a collision course with the gas export industry. One of the key issues Cairo faces is that major gas exporters, such as the Damietta LNG plant, do not have dedicated gas supplies, but instead rely on grid gas to meet long-term sales commitments.

Transmission and distribution is also a priority for the government. Egypt has 17,515 kilometres of 66kV transmission lines and 15,647km of 220kV lines, which is increasing at an annualised 3 per cent. Recent expansion plans include construction of about 280km of 500kV double-circuit overhead transmission line in the Gulf of Suez area, as part of the wind power development project.

Egypt’s grid is already connected to Libya and Jordan and plans are now afoot to establish a link with Saudi Arabia. Interconnection of the two grids would assist both Cairo and Riyadh in meeting peak demand. Under the plan, Egypt would send Saudi Arabia 3,000MW of electricity through the connection in the afternoons and Saudi Arabia would despatch a similar amount back to Egypt in the evenings, taking advantage of the time difference in the countries’ peak usage.

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