Supporting economic growth in Tunisia

03 August 2010

Tunisia is undertaking a major expansion of its power capacity to meet rising electricity consumption. The private sector is expected to play a major role, along with nuclear energy

Tunisia energy in numbers

3,465MW: Current installed capacity from Tunisia’s 25 power plants

1,200MW: Output at proposed El-Haouaria plant

$2.5bn: Estimated investment in Tunisia’s first nuclear plant

Source: MEED

The Maghreb region is struggling to match rapidly rising power consumption with supply. Tunisia, where electricity usage is growing by around 6 per cent a year, is no exception.

STEG will remain the most important factor in the industry, but must work with new partners to meet demand

STEG official

To keep pace with demand, the state-run utility Tunisian Company of Electricity and Gas (STEG) is undertaking a major capacity building programme, part of which includes increasing private sector involvement in the provision of power in the country.

Until 1996, STEG enjoyed a monopoly over power production, distribution and pricing. In 2002, Tunisia’s first independent power project (IPP) came online at Rades. It is a 471MW combined-cycle plant. STEG provides the gas feedstock for the plant and buys the electricity produced.

Private power demand in Tunisia

The success of that project has underwritten Tunis’ appetite for private power and the role of private players in the country has grown since, with a second IPP built at El-Bibane.  STEG produced 10,813 gigawatt hours (GWh) in 2009, representing 77 per cent of total power output. This compares to a 95 per cent share in power supply the previous year.

We have to find ways of matching [supply with demand]. Nuclear energy will be an important factor

STEG official

Tunisia currently has 25 power plants with a combined installed capacity of 3,465MW. But STEG will need to add around 400MW a year of new capacity if projected demand is to be met.

“Private funding is critical to supporting energy production in Tunisia. STEG will remain the most important factor in the industry, but we must work with new partners to help meet growing demand,” says an STEG official.

Tunisia is in the midst of a programme that will see it boost production via a series of combined-cycle plants, rather than the gas-only turbines that make up most of its current stock. There are plans for new combined-cycle plants at Bizerte, Sousse and Ghannouche. Alstom was awarded the contract to build the Ghannouche plant in 2008. The 400MW facility is due for completion next year.

Tunisian power projects
Bizerte IPP350-500500Award due early 2011
El-Haouaria IPP1,2001,500Award due second quarter 2011
Sousse380-450400EPC award due in third quarter 2010
Tyna 12692EPC awarded to GE in 2007; completion due third quarter 2010
Ghannouch400529EPC awarded to Alstom in 2008; completion due early 2011
Feriana 12692EPC awarded to GE in 2007; completion due third quarter 2010
IPP=Independent power project, EPC=engineering, procurement and construction. Source: MEED Projects

The other two facilities are due on-stream by 2014. A fourth and much larger plant, the El-Haouaria IPP project on the Cap Bon peninsula, with a capacity of 1,200MW, is scheduled for completion by 2016. The scheme includes plans to export around 800MW of power to Italy via a subsea connection.

However, the IPP process in Tunisia has not been a seamless success. The proposed 350-450MW Bizerte IPP is a case in point. Bids from three consortiums came in for an end of May 2010 deadline, but varied widely in price and scope, with Germany’s Siemens and Malaysia’s Powertek submitting the lowest offer. 

Siemens and Powertek offered a price at 105.337 millimes ($0.07) per kilowatt hour (kWh) based on a power plant with a capacity of 405MW. The UK’s International Power with Japan’s Marubeni priced its offer at 124.754 millimes per kWh, based on a facility with a capacity of 423MW, while Japan’s Mitsui with the UAE’s Taqa put their offer in at 128.888 millimes per kWh, based on a plant with a capacity of 435.9MW.

Bid evaluation

“There’s such a wide variance in the bids that the Tunisians will be scratching their heads,” says one adviser on the country’s power sector. “I suspect they’re not comparing apples with apples, but apples with pears, and oranges.”

The winning bidder for the Bizerte IPP will develop the project on a build-own-operate basis under a 20-year concession, with an option of doubling capacity at a later, unspecified date. STEG will supply the gas feedstock.

Sales of electricity by economic sector 
Mining industries332,700
Food Industries550,400
Textile industry504,400
Paper industry131,600
Construction materials1,389,100
Basic metallurgy240,100
Diverse industries778,300
GWh=Gigawatt hours. Source:  STEG

Part of the difficulty over the Bizerte project relates to the fact that the Industry and Electricity Ministry is using 10-year old documents as the basis for the new IPPs, which are less relevant to the current market.

“The difficulty bidders will have is that they’ll not want too many changes as this could prejudice their bid. On other hand, they will know they might not actually be able do the deal on the basis of those documents,” the adviser says.

STEG has indicated that it will provide developers with a 20-year power-purchase agreement for the proposed Bizerte and El-Haouaria projects, but questions still remain over tolling arrangements and tariffs for the IPPs. Gas supplies will also have to be assured. STEG has offered to supply the Bizerte IPP with gas, whereas the feedstock provision for the proposed El-Haouaria project will be the responsibility of the developer.

With questions over the commercial aspects of the Bizerte IPP still to be ironed out, the ministry is likely to take its time evaluating the three bids, particularly as it has not brought advisers in on this project.

Development opportunities in the Tunisian power sector

Despite these hurdles, developers are interested in opportunities in the Tunisian power sector, so it is crucial that they get this one right. “If they can get Bizerte away, they’ll have done well and there’ll be appetite for other IPPs, but if it’s messed up developers may have alternative options to Tunisia,” says the adviser.

The El-Haouaria project’s ambitious scale presents its own set of challenges. The ministry is preparing tenders for the proposed 1,200MW capacity plant; two-thirds of its output is destined for the Italian market, under an agreement signed in 2007 with Italy’s grid company Terna. An underground cable will extend to the southern Sicilian coast, and is to include an additional 100MW of renewably generated electricity.

A request for qualification (RFQ) for the project was issued at the end of April. Some 16 companies have expressed interest in developing the estimated $1.5bn scheme, which will be let on a build-own-operate basis under a 20-30 year concession.

Alongside the IPPs, STEG is boosting capacity at its existing facilities. Expansions of the Feriana and Thyna power plants will add a combined 252MW of new capacity. Feriana started production last year and Thyna is due onstream in the third quarter of 2010.

Power plants in Tunisia depend on the country’s offshore natural gas production as their primary fuel source. The government has moved ahead with a number of gas development projects in recent years, in order to shore up feedstock availability.

The BG-operated Hasdrubal gas field came onstream in December 2009. The company is now selling 100 million cubic feet a day of gas from the reservoir. Since May of last year, Singapore-based independent Perenco has been pumping gas from the El-Franig and Baguel fields directly into the national grid.

The government is also looking to boost gas production from the south of the country. But first it will need to build the infrastructure to transport the gas to the central and northern population centres. The government is planning to lay a 320-kilometre pipeline connecting the Oued Zar gas gathering plant in the south with existing facilities in Gabes.

Traditional gas-fired power production is a core component of Tunisia’s power sector strategy. But STEG is also broadening the country’s energy production towards renewable sources and – ambitiously – to nuclear production. The Tunisian government has pledged $18m-worth of support for the development of wind farms. Three have been built in Bizerta, Jendouba and Beja, with a combined capacity of 120MW. The aim is to increase production from renewable energy to 175MW by 2010-11, with a view to providing almost 5 per cent of Tunisia’s total electricity output.

STEG launched a new subsidiary, STEG Renewable Energy last year to promote public-private partnerships for renewable energy. It is working on three main renewable projects. The first is a 25MW solar-only project that could be expanded to a 150MW integrated solar combined-cycle plant with 125MW gas-fired capacity. It is estimated to cost $85m. The second is a 100MW private solar power project, while the third is 100MW of renewable energy to be produced at the El-Haouaria IPP.

Tunisia’s nuclear ambitions

On the nuclear side, Tunisia signed a 20-year cooperation agreement with France in mid-2008. The agreement covers fundamental and applied research; safety and security of nuclear energy development; the management of nuclear waste; and a public information programme to overcome public concerns about the safety of nuclear energy. The agreement has been approved by the International Atomic Energy Agency (IAEA).

STEG is currently carrying out technical and economic feasibility studies for the first nuclear power plant and is working closely with Tunisia’s Higher Education, Scientific Research and Technology Ministry. STEG expects to complete its appraisal by 2011, after which it will issue official tenders. Several nuclear power technology companies, including Atomic Energy Canada and SNC Lavalin, also of Canada, have been approached as potential partners.

Tunisia’s first nuclear plant is expected to have a capacity of 600-1,000MW. Early estimates suggest the investment cost will be about $2.5bn. Three sites are being considered, with the aim of bringing the first reactor on line by 2020.

“Tunisia is growing quickly,” says the STEG official. “Gross domestic product growth in the first quarter of this year reached 4.5 per cent. As a result, new infrastructure projects are springing up that will consume vast quantities of energy. We have to find ways of matching that with energy supply. Nuclear energy will be an important factor.”

Through its planned investments in a broad energy mix that includes combined-cycle gas-fired plants, renewable projects and nuclear power, STEG hopes to have sufficient electricity supply to support the continued growth of the economy. That will require getting the planned IPPs up and running on schedule over the next three years.

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