Independent Power Producers or IPPs is the private investment in electricity generation in grew dramatically in developing countries during the 1990s; now a day IPPs have developed into a large market through a lot of projects and participate in the electricity market.
The privet sector participation in the electricity market in Egypt started in 1996, with a law that laid the foundations for a competitive bidding process for three IPPs that were awarded in 1998 and 1999. The three projects sell electricity to the Egyptian electricity holding company under long term contract, EEHC that are backed by a Central Bank guarantee. The natural gas is used as a fuel in all projects which is provided by the Egyptian gas monopoly at a substantial discount from market rates. The Egyptian IPPs are occasionally cited as the most competitive in the world—for example, InterGen’s (now Globeleq) SidiKrir project bid a price of US$0.0254 per kWh. Turbulence in Egypt’s IPP arrangements arrived with a 2002 economic downturn and subsequent devaluation of the Egyptian pound from 3.2 to 6 pounds against the US dollar.
According to the contract between the IPPs and the Egyptian government, all new power generation projects must secure their own customers, i.e. the state utility will no longer be the guaranteed buyer of electricity and all foreign currency debt must be sourced from abroad. The project sample in Egypt contains all three operating IPPs.
These three projects are structured substantially similarly. The only variation exists along in a few factors. First, SidiKrir was sponsored by a major US power company (Intergen), while Suez and Port Said were sponsored by the French utility Electricité de France. Second, SidiKrir obtained debt finance entirely from commercial banks, while
2.3.1 IPP frameworks and projects developed
The starting of the IPPs in Egypt was with three generation facilities, built by InterGen with Edison and EdF, respectively, the total installed capacity is about 2048 MW.
Despite large currency devaluation, there have been no renegotiations of contract terms, but there has been high equity turnover. As noted by numerous stakeholders, it is required another framework for the future instead of the current one, the proposed one will evolve to accommodate future development for additional IPPs in Egypt.
The structure of the current framework which contains the (3 IPPs), BOOT structure -20 year PPA -EEA/EEHC sole off-taker – (65-70%) take-if-tendered -Backed by Central Bank Guarantee
When the 2ndframework underdevelopment for the future investment, foreign currency must be obtained from abroad - local designers, contractors, and manufacturers must contribute substantially to projects, the local currency must be paid for local costs, bids with an increased equity-financing stake and a larger local investment component favored, [16].
2.3.2 IPPs Projects in Egypt
Egypt currently has three IPPs, with a combined capacity of approximately 2,050 MW.
2.3.2.1 Sidi Krir.
Sidi Krir power plant considered the first IPP project in Egypt with total installed capacity 682.5 MW, and the fuel used is natural gas. In 1996, a competitive bidding process was generated substantial interest; more than fifty firms were applying for pre-qualification. The project was awarded in February 1998 to a consortium consisting of Intergen and Edison Mission Energy from the United States. The winning bid was US$0.0254/kWh, which was considered the lowest electricity prices for an IPP in the developing world. The project fired on natural gas that was domestically produced and
supplied at a healthy discount by the Egyptian state gas monopoly. Domestic Egyptian banks provided most of the financing on a project basis; the Project debt is wholly private, albeit denominated in dollars. International commercial banks provided the rest of the debt, with no involvement from multilateral or bilateral lenders. The plant is presently owned by Globeleq, which was spun off the UK’s Commonwealth Development Corporation (CDC) in 2002. Intergen and Edison Mission sold their interests in SidiKrir in 2005, apparently as part of global restructuring of their power business, and not as a reflection of troubles in the project itself, [15].
2.3.2.2 Suez & Port Said.
Egypt’s second and third IPPs are Suez & Port Said, these projects are each 683MW with natural gas-fired power plants awarded to Electricite de France. The projects were awarded and developed along substantially similar lines as SidiKrir. EdF sourced its lending from the IFC and a syndicate of international banks and institutional investors;
this was the significant difference between the two projects. This difference reportedly reflects the fact that by the time the projects sought financing, Egyptian officials lacked the appetite to mobilize additional domestic lending for power plants. With European commercial banks reluctant to invest in what they deemed insufficiently environmental projects (i.e. plants were for gas-fired steam generators and not combined cycle), EdF turned to a multilateral, namely IFC to help secure additional debt. EdF, citing its plans to concentrate its assets in Europe, sold its equity in the plants in 2006; both Port Said and Suez are presently owned by KusasNusajaya, a subsidiary of the Malaysian firm Tanjong Public Limited Company, [15].
Project Size
-Table 2-1: Egypt’s IPPs, source Anton Eberhard and Katharine Gratwick
2.3.3 Future IPPs Projects in Egypt
The Egyptian electricity sector plans to develop an Independent Power Provider in Dairut, Egypt through the Egyptian Electricity Holding Company, Egyptian Electricity Transmission Company which considered the responsible entity. The purpose of the project is to meet the increasing electricity needs in the country. The total installed capacity of Dairut's combined cycle power plant is about 1,500 MW combined cycle power plant consisting of two 750 MW blocks, each comprising two GTs and one ST, with a capacity of 250 MW each. The output electricity guarantee form The Egyptian Electricity Transmission Company (EETC) which will buy it under a PPA over a period of 20 years. The natural gas will be provided from The Egyptian Natural Gas Holding (Egas). The secondary feedstock will consist of light oil. The project is expected to be completed in 2014, [17].
2.3.4 IPPs Projects Evaluation
2.3.4.1 Investment Outcomes:
The final evaluation for the IPPs projects in Egypt rated as Positive; there is no major disruptions in the construction of these projects, the operations during this period or payment have been reported. The contracts of power sales have weathered a macroeconomic shock intact, and continue to generate revenue. The only negative outcome identified was that sponsors for each project had invested at least partly on the assumption that Egypt would continue to open investment opportunities. Egypt did have plans to solicit additional projects (up to a total of fifteen IPPs), but reversed course after the cost of the projects spiraled with the devaluation, [15].
2.3.4.2 Development Outcomes
The evaluation of the rate of development of IPPs projects is Positive, The cost of the payments to the IPPs have almost doubled with the 2002-3 devaluation of the Egyptian pound, and Egyptian officials now express some dissatisfaction with the projects as being too expensive. Nonetheless, because (i) the original bids were very competitive, (ii) the IPP sector remains small, and payments manageable even if unexpectedly high, and (iii) electricity is being generated, the experience seems a positive one for Egypt.
Additionally, although the government has turned to state and multilateral sources of capital for new development, the early IPP investments have been conducted in a manner that provided valuable experience to the country, and have not unduly prejudiced the prospects for future investment, [15].
3
CHAPTER THREE: NATIONAL RENEWABLE ENERGY STRATEGY in Egypt
3.1 Introduction
Renewable Energy is one of the most potential measures to meet the challenges of increasing energy demand and the best solution for securing energy use to the next generations and the concern of environmental impact and climate change, every country all over the world build its own strategy according to the available natural resources to face the energy crisis which may face the world in the few coming years. Renewable energy offers a promising alternative to traditional energy sources in developing countries, which may face several constraints in meeting their energy requirements in future. Most of developing countries have tried to promote renewable energy but till now their efforts towards renewable energy contribution to the total energy use has not achieved the targeted as the developed countries. The investment direction still towards conventional energy technologies and it’s applications, even where commercially available energy efficient and renewable technologies are technically feasible and economically attractive, specially wind energy which take an effective steps to become more economically and commercially. The fact that renewable energy accounts for only a modest proportion in meeting the world’s commercial energy demand means that there is a missing link in their potential and their implementation. In the early of eighties the government of Egypt recognized the importance of renewable energy sources and formulated a national strategy for the development of energy conservation measures and renewable energy applications in 1982 as an integral element of national energy planning. The New and Renewable Energy Authority (NREA) was established in 1986 to be the focal point for renewable energy activities in Egypt, [18]. In February 2008, the Supreme Council of Energy in Egypt announced the strategy for the electric power based on diversifying the energy sources of production and rationalizing the use of energy and expanding use of renewable energy sources as a component of energy
provision. The strategy aims to contribution of renewable energies by 20% of the total electricity generation by the year 2020. The share from the grid-connected wind power is 12% of the total electricity generation of 31000 GWh. Also, other renewable energy technologies of hydropower will share by 4% with generated electricity 10333 GWh;
solar energy will share by 4% with total generated electricity 10333 GWh. In the past, renewable energy development in Egypt has been carried out through encouraging programs for developing the renewable energy resource, setting up specialized bodies to implement national renewable energy plans, and promoting business opportunities for renewable energy projects. Now efforts are being exerted in order to reach total capacities of 7200 MW and this will be achieved through two main paths: State-owned projects implemented by the NREA with total capacities of 2375 MW (represents 33%
of total installed capacities). These projects will be financed through governmental agreements. Private sector projects with total capacities of 4825 MW (represents 76%
of total installed capacities). Policy of increasing the participation of private sector will include two phases:
Phase I: Adopting Competitive Bids approach as the Egyptian Electricity Transmission Company will issue tenders internationally requesting private sector to supply power to build, own, operate wind farms and selling electricity for the company with price agreed upon between the company and the investor.
Phase II: Application of Feed-in-tariff system, taking into consideration the prices and experience achieved in phase I, (NREA 2010).