March 2010

Wind Power, an Economic Option for Egypt?

Yasser Sherif – Environics

Based on :Clean Energy Investment in Developing Countries: Wind Power In Egypt

IISD, Oct. 2009 (El Sobki, M. - Wooders, P. - Sherif, Y.)

http://www.iisd.org/pdf/bali_2_copenhagen_egypt_wind.pdf

March 2010

Status

• Wind Resources are sufficiently mapped• Potential is clear but not effectively tapped• Government announcement of ambitious

plans• Large scale implementation needs step

change to private sector mode

March 2010

Satisfactory Developments

• First competitive bid is underway• Feed-in tariff, currently studied• First Private Development to satisfy own need

on track• Resident representatives of international

companies, visits of business development managers

• Local manufacturing capacity is being built claimed to potentially decrease capital costs by up to 25%

March 2010

Financial Viability

• There is no shortage of potential investors• A competitive bidding approach, or a

reasonable ROI insured through the FIT, should make financial sense to investors

• Not for transmission companies, though• NREA currently sells at lower than economic

generation costs, but the planned Renewable Energy Fund should fill this gap

March 2010

Is Support Economically justified?

• Should be an ECONOMIC option for Egypt as a whole?

• Electricity is the service provided• Natural Gas is the primary energy source

potentially displaced by Wind Power• On which 90% of thermal electricity relies • 63% of local consumption by Electricity sector

• Combined Cycle Generation is the rising technology of choice

March 2010

Generating Capacity, 1980-2006

0

5000

10000

15000

20000

25000

1980 1985 1990 1995 2000 2005

Cap

acity

(MW

)

CombinedCycle GasTurbineGas Turbine

Steam Turbine

Hydro

Source: EEHC annual reports

March 2010

Economic Value of Natural Gas• Known to be subsidized and to residential

users ($ 0.5 to 1.5MMBTU) as well as to power generation

• Planned to be for $3/MMBTU for energy intensive industries, $ 1.66 to non-energy intensive industries, and 1.25 for others (PM Decrees in 2007/2008)

• The right reference is obviously not the Costs of production but rather the alternative uses ( at the margin) of Natural Gas not consumed by electricity generation

March 2010

Potential uses of Natural Gas

• At the Margin• Local market for energy• Export (L.N.G or pipelines)• Feed Stock to Petrochemical Industry

• Export as L.N.G is the short term potential alternative use, as existing Capacity not fully utilized

• Take cost of liquefaction into account ($1-1.5/MMBTU based on local plant capital and operation costs)

March 2010

World Market Prices

• There is no single figure • No published figures for LNG export contracts• Figures reported to have been as low as

$2/MMBTU for some older contracts and reached $3-4.5/MMBTU for more recent ones.

• But opportunity Costs are related to future rather than historical prices.

March 2010

Volatile Market PricesMarch 2008- March 2009 March 2009- March 2010

Source: US Nymex-Henry Hub; 2009, 2010

March 2010

Wind & Natural Gas CCGTLevelised Cost Comparison

Wind GasDiscount Rate 10% 10%Economic Lifetime 20 20 years

Capital cost (installed) 1500 500 $/kW

Levelised capital cost 176           59             $/kW/year

Capacity Factor 43.6% 90%Levelised capital cost 4.61         0.74        cents/kWhNon‐fuel O&M 1.00         0.50        cents/kWhTotal 5.61         1.24        cents/kWhBalancing 0.56         ‐          cents/kWhTotal inc. Balancing 6.17         1.24        cents/kWhGeneration Efficiency n/a 55%Carbon Credit @ $20/tCO2 0.73          cents/kWhCarbon Credit @ $50/tCO2 1.82          cents/kWh

March 2010

Sensitivity to Price of Natural Gas

0

1

2

3

4

5

6

7

8

0 2 4 6 8 10

Levelised

 Gene

ratio

n Co

st (UScen

t/kWh)

Natural Gas Price ($/MMBtu)

Egyptian Electricity Generation Costs

Gas

Wind with no CO2 Credit

Wind with $20/tCO2 credit

Wind with $50/tCO2 credit

March 2010

Tipping points

• Depends on Carbon Credits• Without carbon credits, Gas prices of

$8/MMBTU• With $20/ton CO2, $7/MMBTU• With $50/ton CO2, $5/MMBTU

• CDM Carbon Credits are currently less than $20, but European Renewable Incentives are higher.

March 2010

Sensitivity to Main assumptions

Break‐even gas price, $/MMBtu

Wind with $50/tCO2   

credit

Wind load factor ‐25% 9.5            7.7                                               Wind capital cost +25% 9.8            8.6            6.9                                               Discount Rate +25% 9.4            8.2            6.5                                               Gas capital cost ‐25% 8.2            7.1            5.3                                               Base Case 7.9            6.8            5.0                                               Gas capital cost +25% 7.6            6.5            4.7                                               Discount Rate ‐25% 6.6            5.4            3.7                                               Wind load factor +25% 6.3            5.1            3.4                                               Wind capital cost ‐25% 6.1            4.9            3.2                                               

Wind with no CO2  

credit

Wind with $20/tCO2  

credit

10.7                            

March 2010

Statically…

• At today’s prices, marginally feasible economically

• But as we are planning for the future…..• Forecasts for Natural Gas Prices are

consistently above $6/MMBTU and smoothly rising from 2012 onwards.

• First private wind power development coming on line in 2013 will be in this context

March 2010

Energy Security of Supply

• The development of wind power needs to be seen within the context of fossil fuel resources in Egypt

• …And rising local demand for Energy

March 2010

Rising Electricity Demand

Evolution of the Peak Demand till 2027

18430 1964025110

3332043020

54200

010000

2000030000

4000050000

60000

2006

/200

7

2007

/200

8

2011

/201

2

2016

/201

7

2021

/202

2

2024

/202

7

Deman

d (M

W)

Source: Presentation by Dr. Galal Othman, Vice President of World Wind Energy Association,2008

March 2010

… and Hydropower Potential Exhausted

Hydro power plants installed capacity

0.00

0.50

1.00

1.50

2.00

2.50

3.00

196019621964196619681970197219741976197819801982198419861988199019921994199619982000200220042006

GW

Percentage of hydro power plants installed capacity

0%

10%

20%

30%

40%

50%

60%

70%

196019621964196619681970197219741976197819801982198419861988199019921994199619982000200220042006

Source: EEHC annual reports

March 2010

Oil Production and Reserves

Source: BP, 2010

Oil reserv es at the end of 2007

0

50

100

150

200

250

300

Saud i Arab ia Ira

qV enezue laL ib ya

N ige riaC an ada

C h in aB raz il

M ex icoA ze rba ija

nO m an

Ind iaE gyp t

In don es ia U KY em en

Sy ria P e ruTun is ia

Thou

sand

Mill

ion

barr

els

Oil Production at the end of 2007

02468

1012

Saud i A rab ia IraqVenezuelaL ibya

N igeriaCanada

Ch inaB raz il

Mexi coAze rbaijanO man

Ind iaEgyp t

In donesia UKYem en Syr ia Per uTunisi a

Thou

sand

Mill

ion

barr

els

March 2010

Natural Gas Production and Reserves

N.G. reserves at the end of 2007

05

101520253035404550

Russia

Qatar USVen

ezuela Ira

qAustr

aliaEgyptKuwait

Uzbek

istan

Netherl

andsIndia

Ukraine

Bolivia

MexicoYemenVietnam

Banglad

eshPeru

Germany

Trill

ion

cubi

c m

eter

s

Natural Gas Production at the end of 2007

00.10.20.30.40.50.60.7

RussiaSau

di Arab

iaVen

ezuela

IndonesiaEgyp

tCanad

aNetherl

ands

OmanBoliv

iaMya

nmarVietnam UK

Trill

ion

cubi

c m

eter

sSource: BP, 2010

March 2010

Dynamically…

• Oil Production/Reserves Ratio: 0.06 (compared to World Average of 0.02)

• NG Production/ Reserves Ratio:0.028 (compared to World Average of 0.01)

• As opposed to Oil, Natural Gas Production Expected to double in 2030 while demand for Electricity should triple.

• If trend continues, almost all Natural Gas produced should go to power generation

March 2010

A Change in Perspective

• Given the recent, and potential future, price shocks…. And a thinning local resource buffer

• The life of Egypt’s non-renewable resources has to be expanded

• The question becomes not WHETHER to develop wind resources but HOW to improve the economics of its development• Tap on European Renewable Incentives ?• Reduce capital costs ? Local Manufacturing?• ….Raise the REAL opportunity cost of NG ?