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Towards a Sustainable Power Sector in Egypt by Dr. Hafez A. El-Salmawy Managing Director Egyptian Electric Utility and Customer Protection Regulatory Agency. Contents. Background on the Institutional Setup of the Energy Sector in Egypt

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  1. Towards a Sustainable Power Sector in EgyptbyDr. Hafez A. El-SalmawyManaging DirectorEgyptian Electric Utility and Customer Protection Regulatory Agency

  2. Contents • Background on the Institutional Setup of the Energy Sector in Egypt • Egyptian Electric Utility and Consumer Protection Regulatory Agency • Status and Development of the Power Sector Up to 20/20 • Highlights on Reforms Taking Place in Some Areas till 20/20 • Other Areas of Interest • Conclusions

  3. Historical Development of The Power Sector

  4. Institutional Structure of the Energy Sector in Egypt

  5. Institutional Structure of the Energy Sector in Egypt (Contd.) Regulatory EgyptERA

  6. Objectives: Regulates and supervises all electricity activities including: generation, transmission, distribution and supply. Ensures availability of supply to all forms of usage at the most equitable prices and considers environmental issues Ensures fair competition, transparency and nondiscrimination Protect Consumers within a scope of a balanced relation with the service providers Egyptian Electric Utility and Consumer Protection Regulatory Agency

  7. Status of The Power Sector Evolution of the Installed Capacity Mix Evolution of Fuel Consumption

  8. Evolution of Electricity Consumption Breakdown By Sector 2001/2002 2011/2012

  9. Expected Evolution of Peak Load Till 2035 Technical Assistance to Reform the Energy Sector “TARES”, EU supported Project

  10. Energy Mix in the Power Sector Based on Least Cost Scenario Technical Assistance to Reform the Energy Sector “TARES”, EU supported Project

  11. Expected Contribution of Re in the Supply Mix based on Different Scenarios Technical Assistance to Reform the Energy Sector “TARES”, EU supported Project

  12. Power Plant Installed Capacity based on Minimum Fuel Scenario Technical Assistance to Reform the Energy Sector “TARES”, EU supported Project

  13. Status and Challenges of Power Sector in Egypt • Egypt has successfully managed to secure electricity supply to 99.03% of its population • The electrical peak demand increased by an average of 7% over the last decade, it increased by more than 12% in the year 2007/2008 and 10.3% in the year 2011/2012. • The peak demand has reached 27700 MW in August 2014. • To meet the increase in demand an average annual expansion in generation and transmission as well as distribution of 2500 MW is needed over the next 20 years. • The potential for adding more hydro-generation is limited. • In 2011/2012 Installed renewable sources (mainly wind) has reached 545 MW and 140 MW Solar/Thermal (20 MW Solar) representing less than 2% of the installed capacity and generated energy from these sources represents only 1% of the electrical energy generated. • Electricity purchased from self generation and cogeneration units in industry in 2011/2012 represents only 0.07% of the total electrical energy generated. • In 2012/2013 subsidy has reached EGP 28 Billion

  14. Highlights on Reforms Taking Place in Some Areas Up to 20/20 • Tariff Reform • Development of Renewable Energy. • Market development

  15. Historical Evolution of Tariff Reform • During the period

  16. Bases for Tariff Reform Program • EgyptERA has developed the cost of service for all activities including generation, transmission and distribution over the last seven years • Over this period this report has been enhance with the support of several international consultant. • A draft proposal for the tariff reform has been developed in 2012. • An advanced study was developed in 2014 for tariff reform

  17. ELECTRICITY SUBSIDY AS PER 2011/2012 Million L.E. In addition customer services causes an additional subsidy of 1.5 Bil EGP

  18. Component of the tariff reform study • The reform plan included: • Assessment of the financial indicators of the electricity companies. • Assessment of the current tariff structure and its values base on the cost of service study. • Criteria fro tariff reform • Affordability study for residential sector • Proposed new tariff structure and values over five year program • Effect of fuel prices on tariff reform program • Communication plan for tariff reform

  19. Criteria Considered Tariff Reform Program • Elimination of sub – classification per each supply voltage as well as cross subsidy (i.e. energy intensive, glass and ceramics, industrial, others, special customers,…etc.) • All customers other than Residential customers and special cases should pay their economical cost in 3 years • Tariff to these customers shall address the impact of the customer on the system, therefore the tariff will include capacity charge, energy charge, supply charge and TOU components. • Utility consumers such as transportation, irrigation and and water treatment during an interim phase will benefit from fuel subsidy offered by the government. • As economical prices is achieved tariff will be amended base on changes in cost of supply as well as incentive regulation scheme

  20. Criteria For Tariff Reform Program(CONTD.) • For residential sector the target is to reduce the number of blocks into four blocks including blocks for; Poor, low income , break even block, block at the system marginal cost ( i.e. cost of renewable) • The subsidized blocks will be size based on the first and second poverty lines which are 25% and up to 40% respectively. of the total population (according to the frequency distribution this will be in the order of 100 kWh and 200 kWh per month) • The subsidized block will benefit from the fuel subsidy offered by the government. • The other two blocks will not benefit from the subsidized block . • Program evolution will be tuned according to the affordability assessment

  21. Base on the developed study the Cabinet has approved a five years plan for tariff reform to be completed in 2018/2019 by which subsidy will be fully lifted. • The plan was announced in the first of July 2014 and published in the official gazette.

  22. Development of Re

  23. Impact of Fuel Prices on Electricity Generation Cost * 1 US$ =7.15 L.E Fuel is currently supplied to the power sector at different Prices Local gas supply 3 US$/MMBTU (Currently represent around 70%) Local Heavy Fuel 8.7 US$/MMBTU (Currently represents around 30%) Imported gas N.A. (expected range between 12-17 US$/MMBTU) (will be around 10% as the current deficit)

  24. Feasibility of RE in Egypt • Almost one third of Electricity generated in Egypt uses fuel at a cost equal and above 9 US$.MMBTU This is equivalent to 50 TWh/ year • 10-15% of this has as fuel cost above 12 US$/MMBTU, this is not less than 15 TWh/year • The equivalent cost per kWh is 9.11 $c which has a fuel cost of 7.25 $/kWh, this may go up to 11.5 $c/kWh and 9.96 $/kWh for fuel cost at 12 US$/MMBTU. • Considering Re source where cost of wind energy varied between 7-11 $c/kWh and solar energy which can varies fro 11-18 $/kWh there will be potential for RE to be applied for at least 30% of electricity generated in Egypt in 2014. This will be much higher in the future.

  25. INTERNATIONAL POLICIES TO SUPPORT RE Policies For RE Supplementary Polices Main Polices Financial Taxes and Customs Incentives Contractual Quantitative Polices Pricing Polices Soft Loans Related to Production Power Purchase Agreements Quota (RPS) Feed in Tariff Governmental Purchases Related to Consumption TPA with Privilege in Dispatching Green Certificates Added Premium Competitive Bids Net Metering

  26. RE POLICY MAKING

  27. CRITERIA FOR SELECTING SUPPORTING POLICY

  28. PROGRAM COMPONENTS • Legal Framework: Defines policies and responsibilities • Regulatory Framework: Details the parties commitments and technical and contractual requirements • Tariff Framework: Defines both tariff structure and values • Contractual Framework: Provides standard templates for contracts • Supplementary Framework: Contains supporting mechanisms including; resource assessment, technology transfer, soft finance funds,…etc

  29. LEGAL FRAMEWORK • This include: • Public land Allocation; land allocation and usufruct rights • Mechanisms for building RE plants: Statuary, Competitive Bidding, FiT and merchant as well as define targets. • Grid responsibility for priority of dispatch and take or pay commitment • Customer responsibilities; Quota and its criteria • Customer incentives: Swapping with NG, tax credits and custom duties incentives

  30. Framework for Re Development Mechanisms Merchant Re Plants Power Purchase Agreement Feed in Tariff Competitive Bidding New& Renewable Energy Authority (NERA)

  31. REGULATORY FRAMEWORK

  32. TRADABLE GUARANTEE OF ORIGIN CERTIFICATES (TGOC) • In this approach unbundling is carried out between electricity generation for a production device and its attribute as renewable. • Electricity generation will be traded as just electricity, yet its renewable attribute will be traded through TGOC. • The owner of the GOC is the owner renewable attribute. • This system is similar to the Clean Development Mechanism (CDM), however the TGOC should express the premium cost for renewable energy above the cost of generating electricity from conventional sources

  33. TARIFF FRAMEWORK (FIT) • This include: • Tariff structure,; tariff adjustment with technology, site conditions and capacity • Value of tariff which depends on; financial terms, investments cost, competitiveness with other markets, consumers affordability. • Payment terms

  34. SITE SPECIFIC DIFFERENTIATION

  35. DESIGN APPROACHES OF FIT FOR WIND ENERGY German Model Ref site (worst site) Best site FIT FIT 5 15 Ref site(average site) Project life time French Model Years Years 5 15

  36. CONTRACTUAL FRAMEWORK • This include the following contracts • Land Use Agreement (between the plant and the land owner) • Interconnection contract ( between the plant and the grid) • Third Party Access (in case if the transmitter is not the off taker) (between the plant and the grid “commercial contract”) • Commercial contract “Power Purchase Agreement” (between the plant (supplier) and offtaker) • In case of biomass plants feed stock supply agreement (between the feed stock supplier and the plant) • Implementation Agreement (cross linked Agreement between All Parties involved in the project (plant, transmitter, land owner and purchaser)

  37. SUPPLEMENTARY FRAMEWORK • This include: • Resources assessment (Re Atlases) • Soft funds for local manufacturers and technology transfer programs. • Target land developments and infrastructure • State guarantee when it is needed

  38. Market Reform

  39. Present Status of Electricity Market Imports 6 Gen companies Public Generator Egyptian Electricity Transmission Company EETC 3 BOOTS Traders 9 Distribution Companies Distributors Large customers Connected to the Transmission network Exports Customers PHYSICAL FLOW OF POWER MONEY FLOW

  40. Main Objectives maintain electricity system reliability under conditions of high growth increase of demand, thus facilitating significant generation and network capacity additions to the system in order to meet the needs; gradual enhancement of procedures and functions promoting competition within electricity market in a way that createsa fair and attractive investment environment for new comersin electricity generation and trading. ELECTRICITY MARKET REFORM

  41. MARKET STRUCTURE

  42. Need to maintain favorable economic conditions, which may not comply with cost reflectiveness, for parts of the consumption due to social and economic policies Have also to protect fair competition conditions and real market operation for all eligible customers Create project viability conditions for private investors, who take decisions under long-term horizon and pure techno-economic criteria Re-organize institutions and functions within the existing system, capable to operate efficiently WHY MARKET SEGMENTATION?

  43. THE CONTRACTUAL RELATIONSHIP IN A COMPETITIVE MARKET

  44. Legal Issues Promulgation of new Electricity Law and by-laws Adoption of Supply Code Adoption of Market Rules and updated Network Codes Regulatory Issues Tariff reform of regulated market and relevant tariff calculation Calculation of transmission and distribution tariffs Set Ancillary Services rules, tariff methodology and tariffs Set the balancing service tariff methodology Regulation of WPT defining its specific role especially during the transition period Formulation and signing of last resort contract Preparation and signing of contracts for ancillary services Set the criteria for selecting the Competitive Market Generators TRANSITION PERIOD TO PHASE 1

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