The Energy Market in Egypt Tri-Ocean Carbon & Renewables

Short Paper Series (Paper #4) Written by Maggie Riad Reviewed by Ahmed Zahran October 2009

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The aim of the short paper is to provide concise and relevant info about the electricity market in Egypt; and thus to provide a more transparent and fair background for project assessment and evaluation. The paper should help familiarize the private sector and foreign investors with the national electricity structure, the market supply and demand and the existing electricity market model. Please feel free to send us your comments and feedback. A social notion to knowledge is most welcome.

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Table of Contents Introduction ........................................................................................................................ 4

Energy Sector Overview .................................................................................................. 4

BOOT Projects ................................................................................................................. 4

Public-Private Partnerships (PPP) and Public-Private Finance (PPF) ............................ 5

Demand & Supply ............................................................................................................... 5

Market Model ..................................................................................................................... 5

Current Market Status ..................................................................................................... 6

Egyptian Electricity Transmission Company.................................................................... 6

Egyptian Electricity Holding Company ............................................................................ 7

Proposed Power Sector Restructure ................................................................................8

Timeline of Sector Restructure ........................................................................................ 9

Conclusion .......................................................................................................................... 9

Footnotes .......................................................................................................................... 10

Appendix ........................................................................................................................... 13

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I. INTRODUCTION

A. Energy Sector Overview Even though Egypt is not as rich in energy resources as many of its neighbors are, Egypt still counts as one with significant resources of its own, enough to make the country a net energy exporter 1. Egypt had installed generating capacity of 17.06 GW as of 2004, with plans to add 4.5 GW of additional generating capacity by 2007 and 8.38 GW by 2012 2. Most of Egypt's electric generating capacity is thermal (natural gas) accounting to 75% with some percentage going to petroleum products (around 14%) and the remaining 11% hydroelectric coming mostly from the Aswan High Dam 3. The energy sector in Egypt especially the electricity sub-sector has been developing and growing quite fast 4. Electric power supply has been recording consistent high annual growth rate of 6-7% as a result of growing electricity demand in some sectors such as industry, agriculture and tourism. Egypt's electricity consumption is expected to grow tremendously during the next 10 years due to Egypt's increasing population and expanding economy 5. In order to meet the demand for electricity, the government promoted build-own-operate-transfer (BOOT) contracts in the late 1990s to encourage foreign entities to invest in the energy sector in Egypt developing electric capacity 6. BOOT projects have the advantage of funding large-scale public infrastructure plants without affecting the government’s financial accounts. Such projects provide the private developers with a win-win scenario as they are able to recover the high costs of construction through ownership and operation of the plants for a long fixed period (not less than 20 years) before giving it back to the government 7.

B. BOOT Projects The first BOOT project began operation in 2001 and it was a gas-fired steam power plant with two 325 MW generating units, located at Sidi Kerir on the Gulf of Suez. The BOOT contract was granted to the U.S. based InterGen (joint venture between Bechtel Enterprises and Shell Generating Ltd.) along with two local partners (Kato Investment and First Arabian Development and Investment). Electricity from the plant is priced at 14-15 Piasters per kWh and is supplied by EGAS 8. The second BOOT power project was granted to Electricite de France (EDF), for establishing two gas-fired plants to be located near Suez and Port Said. Both plants have an installed capacity of a total of 1300 MW costing around $900 million. The price for power from the EDF plants will be 18 Piasters per kWh. Both plants began commercial operation in 2003 9. In April 2007, Egypt’s Orascom Construction Industries was awarded a contract to build a 700 MW power station, al Tebbin power plant, outside Cairo that is expected to start operation in 2012. Moreover, in July the same year, General Electric and its Italian partner Techint Cimi Montubi were approved to build two gas turbine generators at the new 750 MW al Kureimat III combined cycle power plant south of Cairo 10, 11.

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C. PPP & PPF The government is also eager to develop public-private partnerships (PPP) and public-private finance (PPF) initiatives as part of its ambitious plan of augmenting its current installed capacity via public & private sector efforts as well as via renewable energy projects such as biomass, solar and wind power 12.

II. DEMAND & SUPPLY

Egypt has witnessed growth in energy demand attributed to demographic trends, increased industrial production as well as rising penetration of consumer products such as electric and electronic home devices 5. In 2008, Egypt has reached a peak demand of 21,500 MW and it is expected to reach 54,200 MW by the year 2027 13. Moving to the installed electric capacity, it reached around 22,025 MW in 2008, compared to 20,593 MW in 2005. The power generation mix consisted of 87% of power relying on oil and gas, 12% on hydro and 1% from wind and other renewable resources

14. In the period 2002-07, a total of 4,500 MW was added to existing capacity, and a further 8,650 MW is due to be added by 2012, principally from 11 new thermal plants and expansions 15. The government is working on promoting green energy aiming to achieve a target of 3% of its electricity production needs from renewable sources by 2010 with further increase in renewable energy production to reach 20% by 2020 16.

Consumption Forecasts: Although energy consumption in Egypt is low by regional standards, total energy consumption is expected to go up over the coming 2 years, at around 7.7% annually, slightly faster than the average increase in GDP growth 17. Positive economic growth will increase industrial output and energy-intensive gas and oil extraction and will eventually increase Egypt's energy consumption over the forecast period.

III. MARKET MODEL

The electricity market is organized under a single buyer market model, where the government is responsible for the electricity supply to the large customer - and consumer base leaving a minor role for the private sector to play. The electricity is sold at a regulated price solely determined by the government.

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The single buyer market model is quite constrained as all economic decisions and pricing pertaining to electricity are being decided upon by the government with limited access to private entities 18. Moreover, there is limited room for growth and development of the electricity market given the existing central planning approach to energy, lack of incentives provided to the private sector especially in the renewable energy field and existing unbalanced energy subsidies 19.

Recognizing the current energy market weaknesses, the government is planning the implementation of energy reforms promoting renewable energy and energy efficiency moving towards a liberal energy market 20.

A. Current Market Status

Egypt has untied its previously vertically integrated electricity sector into 16 electricity companies, including six generation companies, one transmission company and nine distribution companies 21.

B. EETC

The state-owned company, the Egyptian Electricity Transmission Company (EETC) is the only company licensed for electricity transmission in Egypt where it owns and operates the transmission network.

EETC purchases electrical energy from the 6 generation companies, the three BOOT thermal power plants in addition to any imported energy sources. After the purchase, EETC sells the electrical energy to the nine distribution companies, 81 large consumers that are directly connected to the high - and extra high voltage networks, in addition to 7 private distribution companies that account for less than 1% of the market. The distribution companies in turn sell electrical energy to around 24 million consumers on both the medium and the low voltage grid 22.

Figure 1: Power Sector Structure

Source: EETC presentation “Legal and Regulatory Framework” 2009

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As for export, EETC exchanges energy with neighboring countries such as Libya,

Jordan, Lebanon, Syria and Turkey via the present international gridconnected system. The interconnection has brought about the opportunity for countries’ individual markets to share electricity and has helped stabilize the individual grids serving both technically and economically 23.

In addition, Egypt was chosen in 2002 as the host country for the international coordination and control centre. The purpose of the control centre is to distribute the electricity through an integrated Mediterranean power grid plan. The plan includes the countries that have a gridconnected system with Egypt in addition to Iraq, Turkey, Tunisia, Algeria and Morocco 24.

EETC is overall accountable for the countrywide transmission of electricity. The company also guarantees that the generated power reaches the regional and local distributors through its national load distribution centers and regional control hubs 25.

C. EEHC

All electricity companies remain state-owned under the Egyptian Electricity Holding Company (EEHC). EEHC owns around 90% of the total installed generation capacity that is about 22.6 GW (BOO Prequalification presentation). Apart from the 6 generation companies owned by EEHC, there are three private BOOT projects contributing 9% of the installed generation capacity and 1% is attributed to the present wind farms and small isolated units 26. Figure 2 indicates the generation and distribution companies under the Egyptian Electricity Holding Company EEHC.

Figure 2: Generation and Distribution Companies

Source 27a: Transitional Market Plan Assessment of the Transmission System Operations Draft by KANTOR Management Consultants

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Figure 3 illustrates the relations, number and type of entities existing in the current Egyptian market scenario coordinating the different electricity activities

Figure 3: The different players involved in the electricity market in Egypt on demand and supply side

Source 27b: Presentation on the current status of the electricity market players in role and number done by the Egyptian Electric Utility and Consumer Protection Regulatory Agency (EEUCPRA)

D. Proposed Power Sector Restructure The objective of the restructure is to ultimately establish a fully competitive

electricity market, where electricity generation, transmission and distribution activities are fully uncoupled (Kantor). The proposed market will adopt bilateral contracts with a balancing and settlement mechanism that enables the Egyptian electricity market to engage with the regional interconnected network and as well as with the European Grid eventually. A detailed market transition plan points out two submarkets working in parallel, namely the regulated market and a liberal competitive market. The plan is to gradually integrate both submarkets to end up with one fully competitive energy market 28.

In the bilateral market model, market participants enter freely into contracts, and submit production schedules with their contract positions ahead of time, which enables consumers to conclude direct bilateral contracts with generation companies on a free competition basis. The transmission company receives transmission fees from the users to cover the costs associated with the electricity transmission and transfer based on voltage level, Mw and MWh components 29.

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E. Timeline of the Sector Restructure Phase 1 (January 2010-2013): In this phase all eligible EHV and HV customers

have a choice of suppliers. Eligible customers have at least 20MW demand capacity and they represent 30% of the market volume. They are free to decide between free price negotiation with generation companies based on the competitive market structure or remain in the regulated market model subject to regulated prices 30. Moreover, the balancing service will be provided by the transmission system operator at regulated prices that reflect costs (based on system marginal price determined by the unit commitment run on day ahead).

Phase 2 (2014-2020): The new features introduced in this phase are the following: All medium voltage (MV) customers will be added to the eligible customer status; thus introducing 20% more to a free competitive market. Non-eligible customers will purchase electricity from the transmission company at the regulated tariff 31. Moreover, privately owned companies are allowed into the competitive balancing system.

Figure 3: The Proposed Power Sector Restructure Source: Transitional Market Plan Assessment of the Transmission System Operations IV. CONCLUSION The electricity industry in Egypt is about to witness a paradigm shift toward unbundling its vertically integrated and mostly state owned structure into a more decentralized and incentive based composition, taking into consideration the current market needs and opportunities 32. The foreseen restructuring framework for the industry outlined in the paper considers a fully competitive scenario where electricity generation, transmission and distribution activities are fully uncoupled. The proposed market will adopt bilateral contracts with a balancing and settlement mechanism that enables the Egyptian electricity market to engage with the regional interconnected network and as well as with the European Grid eventually. The plan is to integrate and gradually converge the existing regulated market towards the foreseen competitive market to end up with one fully competitive energy market.

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V. FOOTNOTES

1 “Egypt: Energy and Electricity Forecast (Market Profile)”. Economist Intelligence Unit posted on ABQ Zawya. July 2008. Online: http://www.zawya.com/marketing. cfm?zp&p=/story.cfm/sid EIU20080901211 238796?cc

2 MBendi Information Services. “Electrical Power in Egypt Overview”. http://www.mbendi. com/indy/powr/af/eg/p0005.htm

3 Egypt Electricity. Energy Information Administration. Official Energy Statistics from the U.S. Government.

08/10/2009

http://www.eia.doe.gov/emeu/cabs/Egypt/Electricity.html 08/10/2009

4,5 “Egypt: Review of Bank Group Assistance to Electricity Sector”. The African Development Bank Group. June 2005. Online:

6 “Egypt: Energy and Electricity Forecast (Market Profile)”. Economist Intelligence Unit posted on ABQ Zawya. July 2008. Online:

http://www.afdb.org/fileadmin/uploads /afdb/Documents /Evaluation-Reports/00434436-EN-EGYPT-BGA-ELECTRICY.PDF

http://www.zawya.com/marketing. cfm?zp&p=/story.cfm/sid EIU20080901211 238796?cc

7,8,9 MBendi Information Services. “Electrical Power in Egypt Overview”. http://www.mbendi. com/indy/powr/af/eg/p0005.htm

13 “Electricity Regulatory Agency Consulting Services - Egypt”. International Resources Group (IRG) - Final Report. United States Agency for International Development (USAID) May 2005. Online:

08/10/2009 10 ARE/MEE/EEA Arab Republic of Egypt, Ministry of Electricity and Energy, Egyptian Electricity Holding Company (EEHC), Annual Reports of Electric Statistics, 2005/2006 11,12 ARE/MEE/EEA Arab Republic of Egypt, Ministry of Electricity and Energy, Egyptian Electricity Holding Company (EEHC), Annual Reports of Electric Statistics, 2006/2007

http://pdf.usaid.gov/pdf_docs/PDACF298.pdf 14 Egypt State Information Service. SIS Publication. Online:

15 Legal and Regulatory Framework – Egypt. Ministry of Electricity & Energy -Prequalification Document for the BOO Wind Power Project 250MW at Gulf of Suez. July 2009. Online:

http://www.sis.gov.eg /En/Pub/yearbook /book2007/ 110105000000000010.htm

16 Legal and Regulatory Framework – Egypt Era 2009tion. Online:

http://www.eetcom.com/pdfs/2__Legal%20and%20 Regulatory%20 Framework.pdf

http://www.sis.gov.eg/En/Pub/yearbook /book2007/ 110105000000000010.htm

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17, 19 “Egypt: Energy and Electricity Forecast”. Economist Intelligence Unit. July 2008. Zawya. Online:

18, 22 Memorandum of Understanding on Strategic Partnership on Energy between the European Union and the Arab Republic of Egypt. Online:

http://www.zawya.com/printstory.cfm?storyid=EIU2008090121123 8515&l=000000 080724

21, 26 H. Elsalmawy, H. Waheed, M. Abdel-Rahman, and H. Saleh. “The Egyptian Electricity Market in Transition”. The Egyptian Electricity Utility and Consumer Protection Regulatory Agency. Online:

http://ec.europa.eu/external_ relations/egypt/docs/mou_energy_eu-egypt _en.pdf

http://www.auptde.org/newsite/UploadFiles/ Activity paperfile/339.ppt 23, 24 “Egypt: Review of Bank Group Assistance to Electricity Sector”. African Development Bank Group. June 2005. Online:

21, 22 Inception Report. The Institutional Capacity Building of The Egyptian Electric Utility and Consumer Protection Regulatory Authority (EEUCPRA) Contract no. 143297/2007. Submitted by KANTOR Management Consultants. Online:

http://www.afdb.org/fileadmin/uploads /afdb/Documents /Evaluation-Reports/00434436-EN-EGYPT-BGA-ELECTRICY.PDF

http://www.egyptera.com/en/pdf/INCEPTION %20REPORT_final%20 draft.pdf 23, 24, 25 “Energy-policy Framework Conditions for Electricity Markets and Renewable Energies 23 Country Analyses”. Chapter Egypt. Division Environment and Infrastructure TERNA Wind Energy Program. September 2007. Online: http://www.jcee-eg.net/download.asp?path=library/en-windenergy-egypt-study-2007.pdf. 26 Elsobki, Mohamed Salah. “An Optimal Based IRP/DSM Formulation for Electric Utilities in Transition to a Liberalized Electricity Market”. Electricity Distribution. 2009 20th International Conference and Exhibition on Volume, Issue 8-11 June 2009 Page(s):1 - 4 27a “Transitional Market Plan Assessment of the Transmission System Operations Draft”. KANTOR - Framework Contract. The Institutional Capacity Building of The Egyptian Electric Utility and Consumer Protection Regulatory Authority (EEUCPRA) Online: http://www.egyptera.com/en/pdf/Transitional%20Egyptian%20Electricity%20Market %20and%20TSO_JYB_Draft.pdf 27b El Sobki, Mohamed Salah. “The Regulatory Body for organizing the electricity market and protecting the Consumer”. The Egyptian Electric Utility and Consumer Protection Regulatory Agency (EEUCPRA). Presentation given as part of the international conference “Sensing the future in energy systems: towards a sustainable energy future in Egypt - Current and Future Changes” December 2003. http://www.egyptera.com/en/ppt/ Regbody_files/frame.htm

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28, 29, 30, 31 Inception Report. The Institutional Capacity Building of The Egyptian Electric Utility and Consumer Protection Regulatory Authority (EEUCPRA) Contract no. 143297/2007. KANTOR Management Consultants. Online: http://www.egyptera.com /en/pdf/INCEPTION% 20REPORT_final%20 draft.pdf 32 Shaaban, M. “Restructuring of the Egyptian Electricity Industry” Electric Utility Deregulation, Restructuring and Power Technologies, 2004. (DRPT 2004). Proceedings of the 2004 IEEE International Conference on Volume 1, Issue , 5-8 April 2004 Page(s): 49 - 53 Vol.1

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VI. APPENDIX Table 1: Electricity Grid data

Electricity in Egypt Egyptian Electricity Grid Data

The current Electricity market structure in Egypt is formed of a power pool market structure where the transmission company is playing the role of t single buyer and seller, it purchases all the generated energy from the generation companies and sell it.

Egyptian Electricity Grid Data

Description 2007/2008 2006/2007 Variance%

• Peak load 19738 18500 6.7

• Total power Generated 125129 115407 8.4

o Hydro MVA 15510 12925 20

o Thermal MVA 95782 88862 7.8

• Power generated from Wind (Zafarana)2 831 616 34.9

• Power Purchased from (IPP’s) 14 32.2 (56.3)

• Power generated from Private Sector (BOOT) 12642 12625 0.1

• Power generated from Isolated Plants 350 347 0.9

• Net Exported Power GWh 563 347 61.3

• Power Sent from connected power plants 107808 98475 9.5

• Total fuel consumption 23562 22286 5.7

• Production Companies 20969 19689 6.5

o H.F.O 4561 4246 7.4

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o N.G 16300 15389 5.9

o L.F.O 108 54 100

• Fuel consumption (Private sector BOOT) 2593 2597 (0.2)

• Production company fuel consumption rate 218.9 221.6 (1.2)

• Fuel consumption rate (Include Private Sector BOOT) 217.3 219.6 (1)

• Thermal efficiency (Without Private Sector BOOT) 40 39.8 0.5

o N.G ratio to total fuel 79.3 80.3 (1.2)

o N.G ratio from power plants connected to gas grid 82 83.8 (2.1)

• Total Installed Capacity MW 22583 21944 2.9

o Hydro 2842 2783 2.1

o Thermal 17389 16889 2.9

o Wind 3.5 225 25.6

o Private Sector 2.47 2047 -

• Transmission Lines & Cables

o 500 kV 2479 2262 9.6

o 400 kV 33 33 -

o 220 kV 14912 14315 4.2

o 132 kV 2429 2476 (1.5)

o 66 kV 16986 16695 1.7

o 33 kV 2713 2724 (0.4)

• Transformers Capacities

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o 500 kV 7765 7765 -

o 220 kV 28850 27060 6.6

o 132 kV 3427 3541 (3.2)

o 66 kV 35223 33904 3.9

o 33 kV 1769 1784 (0.8)

Source: The Electric Utility and Consumer Protection Regulatory Agency http://www.egyptera.com/en/electricity_current.htm

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Map 1: The National Electricity Grid of Egypt in the Beginning of 2004

Source: The Electric Utility and Consumer Protection Regulatory Agency http://www.egyptera.com/en/electricity_egymap.htm