The potential for new cogeneration in Egypt is very good – the country needs new generating capacity to meet growing demand and the natural gas infrastructure is well developed. Here, Ihab Elmassry discusses Egypt’s energy context and the measures being taken by its government to encourage the growth of cogeneration.

Egypt, like many developing countries, is experiencing a rapid growth in electrical demand and consumption. Demand for electricity is increasing as more villages are electrified and as the standard of living improves. In order to sustain economic development, this electrical demand must be met. The typical way to meet the demand is to build additional central power generation stations. This is being done, and several major new power plants are in the planning and design stages. Another route is energy conservation, which is also under way throughout Egypt, especially in the industrial sector. A third solution is cogeneration. Compared with centralized power generation, which has an average thermal efficiency of about 38%, cogeneration system efficiency can be in the range of 80%-90%, according to the Egyptian Ministry of Electricity and Energy Annual Report 2004/2005.

The Egyptian energy sector

Electricity sector
Electricity was introduced in Egypt in 1893. Generation and distribution were privately owned and operated for about 70 years until 1962, when nationalization took place. At that stage, private owners had built only 3000 MW, but since then the Egyptian Ministry of Electricity and Energy has added 15,500 MW, thus continuously keeping supply ahead of demand.

Water desalination and hotels are amongst the many industrial and commercial sectors that could benefit from cogeneration in Egypt, a largely arid country looking to improve its access to water and expand its tourism (Alasdair Cameron)
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The government of Egypt has been committed to restructuring the electric power generation, distribution and transmission components of the power sector to achieve full commercial operation, and to introducing competition to minimize electricity prices. In 1998, the three electricity components were geographically reorganized to form seven vertically integrated electricity companies responsible for generation and distribution. In 2000, these companies were placed under a joint stock company, the Egyptian Electricity Holding Company (EEHC). Until mid-2001, Egyptian utility customers bought electricity on a bundled basis that provided a package of services, including generation, transmission and distribution, and a variety of energy management services.

Major restructuring began in July 2001 with the unbundling of the production, transmission and distribution functions to form 14 companies 100% owned by EEHC. Current law permits the sale of up to 49% of the shares in these companies. However, in the current EEHC structure, there are five generation companies, one transmission company and nine distribution companies, alongside the unified electricity grid of Egypt. The EEHC is responsible for:

  • the installation and operation of power generation stations
  • the transmission of electrical power through the unified power system (500, 220, 132, 66 kV)
  • the distribution of electrical power at medium and low voltages (20, 11, 0.4 kV)
  • the operation of the electrical dispatch centre.

The Egyptian Electric Utility & Customer Protection Regulatory Agency (EEUCPRA) was established in 1997 and its facilities and board of directors were defined in 2000. EEUCPRA aims to regulate, supervise and control all matters related to the electric power activities – whether in generation, transmission, distribution or consumption – in a way that ensures availability and continuity of supply so as to satisfy environmental protection, the interests of the electric power consumers, and the interest of the producer’s transmitters and distributors. EEUCPRA also aims at preparing for lawful competition in the field of electricity generation, transmission and distribution, and avoiding any monopolization within the electric utility.

Oil and gas sector

The oil and gas sector in Egypt consists of four companies and one authority. These are: Egyptian General Petroleum Corporation (EGPC), Egyptian Natural Gas Holding Company (EGAS), Egyptian Petrochemicals Holding Company (ECHEM), Ganoub El Wadi Petroleum Holding Company (GANOPE), and Egyptian general authority for mineral resources. In addition to these, there are some publicly owned, joint venture, investment and mineral resources companies.

Natural gas in Egypt

In view of the natural gas industry’s vital role to the country’s economy and according to the vision of the Ministry of Petroleum, EGAS was established as an entity focusing on the natural gas chain of activities. EGAS was established in August 2001, adopting an effective action plan to organize the activities related to Egypt’s natural gas resources and to add value to the Egyptian economy. EGAS’s objectives are:

  • to encourage investments in natural gas activities
  • to prepare action plans for the natural gas industry and related projects
  • to develop technology and economic studies for gas projects
  • to manage natural gas sales and to co-ordinate all related activities
  • to develop LNG projects individually or with national and international partners
  • to participate in exploration, development and production from gas discoveries according to laws and regulations
  • to develop the natural gas industry database
  • to study and define optimum locations for gas projects.

Egypt’s national gas grid includes a gas transmission network of about 14,350 km, including high- and medium-pressure pipelines as well as internal/external installations for industrial and domestic consumers. Following the expansion of the gas market to accommodate sales of gas produced from gas fields and gas-processing facilities, a capacity of 135 million m3 per day has been gradually established in order to transport these quantities of gas to consumption centres. To satisfy the ever increasing local demand on gas, it is essential to upgrade and expand the gas transmission network. In addition, availability of a flexible gas grid will definitely be a major support to projects that export gas as LNG or through pipelines.

Figure 1. Egypt’s high-pressure natural gas transmission network
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As Egypt is promoting natural gas for local use, the government has assigned two public and six private local distribution companies (LDC) to distribute and sell natural gas for different consumers. Figure 1 shows Egypt’s high-pressure natural gas transmission network. The eight LDCs have been given exclusive LDC franchises to distribute and sell gas indifferent geographic areas. Each LDC has a build-operate-transfer (BOT) agreement that gives the LDC a 20-year concession period, during which it is responsible for financing, building and operating the local distribution network in its designated franchise area. After the concession period expires, ownership of the network reverts back to the Government of Egypt.

Egypt’s energy outlook

Electrical demand and consumption are rapidly growing in Egypt. As new industrial/residential cities and tourism complexes are built and as the standard of living improves, demand for electricity is increasing at a rate faster than overall economic growth. Figure 2 shows Egypt’s power mix and Figure 3 shows the evolution of installed capacity at thermal power stations. According to the Ministry of Electricity and Energy’s annual reports, the average annual peak demand and total installed power growth rate are 788 MW (7%) and 1202 MW (8%), respectively. It is worthwhile to note that the average annual growth rate of government-owned and privately owned generation stations installed are 992 MW (5%) over the last five years and 455 MW (67%) over the last three years. In particular, private generation stations had 628 MW in 2001-2002 while they had 2048 MW in 2004-2005. According to EEUCPRA data, Figure 4 shows the proposed plan for central power generation. It is obvious that Egypt should install about 1800 MW a year to satisfy its electrical demand requirements. Figure 5 presents the electrical energy consumption by sector for the year 2004-2005 as a percentage of the total electrical energy consumption in Egypt.

Figure 2. Egypt’s power mix
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Figure 3. Installed capacities of all thermal power plants
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Figure 4. Proposed future plan for central power generation
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Figure 5. Electrical energy consumption by sector, 2004-2005
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Almost all central power generation stations use natural gas as primary fuel, and all combustion systems are designed to be based on two fuels – natural gas and heavy oil fuel. In 2004-2005, the proportion of central power generation stations that used natural gas as a primary fuel was about 81%. This represented about 76.4% of total fuel consumption of all power stations. Table 1 shows fuel consumption over the last two years.

Table 1. Fuel consumption at central power stations
Fuel type 2003-2004 2004-2005 Increase (%)
Heavy oil (1000 tonnes) 1213 3936 224.5
Natural gas (million m3) 16,294 15,334 -5.9 a
Light oil (tonne) 4375 28,778 557.8
Special oil (tonne) 35,026 61,324 75
Total (1000 toe) 15,261 17,028 11.6
a Decreasing natural gas consumption at the request of the Ministry of Petroleum

Natural gas in Egypt has a high quality. It has a lower heating value (LHV) of more than 37,000 kJ/Nm3 and its methane number (MN) ranges from 65% to 85%, with an average value of more than 70%. In June 2005, the proven natural gas reserve in Egypt was estimated to be 66.3 trillion cubic feet (1.9 trillion m3). Figure 6 shows natural gas use by sector, and Figure 7 shows Egypt’s energy balance in 2003-2004.

Figure 6. Natural gas use in Egypt by sector, 2003/2004 (total = 30.8 billion m3)
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Figure 7. Egypt’s energy balance in 2003/2004 (in mtoe, or million tonne oil equivalent)
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Status of cogeneration

Cogeneration in Egypt has been applied at the industrial sector; however, commercial buildings (such as office buildings, malls, etc.) have a very good potential for cogeneration applications. In 1992, the total installed cogeneration capacity was around 363 MW, most of which used steam and gas turbines. From 1992 to 1998, a very limited number of cogeneration projects were added to the existing installed capacity. This was due to economic, tariff subsidy, regulatory and institutional barriers. Two demonstration natural-gas-based CHP projects of 525 kWe (genset) and 1.8 MWe (gas turbine) capacity were implemented in 1993 and 1996, respectively.

In 1999, about 77 MW was added to the existing capacity, of which 17.5 MW was installed by a fertilizers company and 60 MW by a petrochemicals company. Both facilities are connected to the grid. In addition, in 2005 a 13 MWe gas turbine-based CHP unit was installed at an industrial plant in Cairo.

Figure 8. Current installed cogeneration capacity at various industrial applications (total = 380 MW)
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Figure 8 shows the current installed cogeneration capacity – about 380 MW – at different industrial plants (the 380 MW excludes some of the cogeneration facilities installed in the past that are now out of service). Almost all installed power is generated by cogeneration systems based on steam or gas turbines. Cogeneration in the food industry is mainly installed in sugar mills located in Upper Egypt in the south.

Potential for CHP in Egypt

Cogeneration applications have a high potential in the industrial sector, particularly in food, textile and chemical plants, where a large amount of steam is used in their industrial processes. In addition, sectors such as hotels and commercial buildings can use cogeneration for generating electricity and providing hot water or air for domestic use or for space heating. Moreover, cogeneration can be used to cover the thermal demand (cooling/heating) for commercial buildings by using absorption chillers operating on the waste heat from the prime movers of the cogeneration units.

Cogeneration presents a cheap way for producing desalinated water. Both the multi-flash desalination units and multi-effect desalination units can be attached to cogeneration units. This application has a strong potential in the Sinai and the Red Sea coasts.

A number of studies have estimated the total potential of cogeneration in Egypt. However, the most accurate one is the ‘Replication of energy conservation technologies’ study, conducted in late 1998 by Bechtel Consulting for the United States Agency for International Development (USAID). The study estimates the replication potential for energy conservation projects, including cogeneration, and covered about 200 industrial plants in Egypt. This study indicates that cogeneration offers the second-highest potential for energy-saving projects. It also indicates that many end-users require the simultaneous use of both electricity and thermal energy in the form of steam. Energy savings from cogeneration are generated by meeting electricity and steam demand on-site through the use of a single fuel source. The on-site generation of power saves additional energy by eliminating losses involved in the transmission and distribution of electricity.

Based on this study, the market for cogeneration incorporates the large capacity potential nationwide – more than 1600 MW – and the high cost of cogeneration equipment and services. It was found that cogeneration applications can represent 74% (about US$1.7 billion based on $800/kW) of the total market for equipment and services of energy conservation projects.

On average, equipment accounts for approximately 70% of the total project cost for cogeneration applications. The main equipment used in a cogeneration unit includes a prime mover (engine or turbine), electric generator, waste heat recovery boiler, and electric/thermal distribution system components including controls. The capacity of cogeneration units ranges in size. Over the last several years, ‘total energy management’ systems have been developed which contain small packaged cogeneration equipment (500 kW to 2 MW) to serve the commercial and industrial sectors.

In terms of services, cogeneration systems are complex applications and their installation requires a high level of upfront service. The main service elements include engineering, installation, project management and commissioning. Services typically represent 30% of total project costs.

Market barriers and policy incentives for CHP/CCHP

Cogeneration represents a reliable technique for both energy conservation and pollution prevention. A number of barriers for the promotion of cogeneration in Egypt are discussed below:

  • Lack of end-user awareness. A lot of efforts have been made in the area of end-user awareness, focusing on energy efficiency and cogeneration; however, little success has been achieved. The implementation of cogeneration projects will only be able to overcome the perception that they are not cost-effective by widely disseminating the savings results that cogeneration can achieve.
  • Organizational barriers. Communication channels between company management and plant engineers in both private- and public-sector companies are typically poor. Without an ongoing dialogue between company owners and plant engineers, potential gains in efficiency can be lost. In public-sector companies, the complexity of the procurement process is another organizational barrier. The purchase of needed equipment is stymied by the multi-tiered procurement system which requires numerous management approvals.
  • Poorly developed energy services sector. A cogeneration project is usually a complicated one that needs a high level of technical capability for research, design, installation and operation. Companies in the replication survey identified the lack of energy services companies as a major barrier: there is limited available assistance with project identification, installation, financing and implementation. The majority of end-users do not have the engineering capability to design and/or install cogeneration systems.
  • Cogeneration system import barriers. There is the absence of government incentives such as low bank interest rates and advantageous customs, taxes and custom duties. A cogeneration project can be viewed as an environmental project as it reduces greenhouse gases and normally has a higher efficiency than central power generation stations.
  • Policy and institutional barriers. Cogeneration units should be allowed to operate in parallel with the electric grid and/or sell back excess power to the grid. However, the sell-back price is very low, at less than the cogeneration system fuel cost. Currently industrial end-users pay an energy charge and a maximum demand charge. In case of running the cogeneration plant in parallel with the utility grid and using the grid as a back-up source, in addition to the energy and maximum demand charges, end-users have to pay a stand-by charge, which is not defined yet. Moreover, there is no connection procedure document that specifies the connection requirements to operate the cogeneration unit in parallel with the utility grid.
  • Financial barriers. A cogeneration project is usually a capital-intensive installation. The cost of a cogeneration project may vary from a fraction of a million up to tens of million depending on the size and the type of the unit. Commercial banks are unfamiliar with how to assess the risks of financing cogeneration projects. These barriers, coupled with end-users’ reluctance to use bank loans, create an environment where there is an inability to access available credit.
  • Tariff subsidy. Investments in cogeneration projects are also hindered by energy tariffs which, historically, have been heavily subsidized. By setting energy tariffs below world market levels, there is a disincentive to invest in cogeneration because the actual value is not reflected in the price paid by end-users.

Figure 9 summarizes the market barriers for cogeneration and recommendations to overcome them.

Figure 9. Market barriers and recommendations to overcome them
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Environmental impact of CHP projects

Cogeneration systems are more efficient than central power generation stations. Thus they can contribute to a reduction in air emissions, particularly carbon dioxide. For Egypt, the reduction in CO2 equivalents is about 0.5 tonne CO2 per MWh (this figure depends on the amount and type of central power generation, the fuel type, and transmission and distribution losses). The environmental benefits of cogeneration are summarized as follows:

  • Since the application of a cogeneration project will lead to fuel savings, the combustion emissions – which would be formed as a result of burning the saved fuel – will be eliminated.
  • Reduction of fuel use will conserve natural resources and maintain the fuel reserves for a longer time.
  • In gas-turbine-based cogeneration, the excess air is very high – compared with 15% for the boiler. This high excess air ensures complete combustion and consequently reduction in some harmful emissions such as carbon monoxide and unburnt hydrocarbons.
  • Application of cogeneration may add attractiveness to using natural gas instead of using liquid fuels. This switch to a cleaner fuel will reduce air pollution.
  • Natural-gas-based cogeneration can be considered as a Clean Development Mechanism (CDM) project to achieve the emission reduction target set by the Kyoto Protocol, a legal obligation for 38 industrialized countries to reduce their greenhouse gas emissions by approximately 5.2% below 1990 levels over 2008-2012. CDM allows emission reduction projects in developing countries to generate certified emission credits which can be sold to industrialized countries to help them achieve their emissions reduction targets. With cogeneration, customers can sell the greenhouse gas reductions resulting from on-site power and/or heat generation. Some steps should be taken to present these types of projects as CDM ones, including preparations of the project idea and project design. The financial analysis of considering the cogeneration project as a CDM project is highlighted in the case study below.

Financial analysis: implementing cogeneration as a CDM project in Egypt

This case study shows the feasibility of implementing a cogeneration application at an industrial plant with a maximum electric demand of 13 MWe and thermal demand of 7 MWth hot air. The application is assumed to be based on a natural-gas-fuelled gas turbine with a nominal rated power of 14 MWe, a rated electric heat rate of 10,875 kJ/kWh, an average exhaust gas flow of 48 kg/second, and an average exhaust temperature of 490°C. The cogeneration unit is assumed to cover all the plant’s thermal demand and electric baseload, about 11.5 MWe.

It is assumed that the cost for operation and maintenance of the gas turbine is about €80/hour, and this includes spare parts, lubrication oil, overhaul and maintenance. Electrical and thermal load factors are estimated to be 90% and 95%, respectively. Annual operation is 8600 hours and the natural gas has a LHV of 38,000 kJ/Nm3. The total investment cost of the cogeneration system is assumed to be 45 million EGP (€6.3 million).

According to the current electricity tariff in Egypt, large customers with more than 500 kW of contracted power are subject to an energy charge and a demand charge. However, in order to run the cogeneration unit in parallel with the utility and to use it as a stand-by, a customer would have to pay a third cost element – the stand-by charge. As this charge is not defined yet as mentioned earlier, the calculations in this case study are performed over a range of stand-by charges.

It is calculated that the project will contribute to a reduction in carbon dioxide equivalents (CO2-eq) of about 23,000 tonnes/year. The price of CO2-eq is assumed to be $5.5/tonne. Figures 10 and 11 show the results of the feasibility study with one as cogeneration only and the other as a CDM cogeneration project.

Figure 10. Net present value and internal rate of return (%) for a cogeneration project (€1 = 7.33 Egyptian pound)
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Figure 11. Net present value and internal rate of return (%) for a CDM cogeneration project
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Egypt has a very good potential for small and medium natural-gas-based cogeneration projects at industrial plants and commercial buildings. The country’s natural gas infrastructure is quite good and almost covers all industrial and major cities.

The Ministry of Electricity & Energy (MOEE) is currently implementing an Energy Efficiency Improvement and Greenhouse Gas Reduction project (EEIGHGR) funded by the United Nations Development Programme and the Global Environment Fund. This project has three components, one of which addresses cogeneration. The overall objectives of these components are:

  • to establish and train a small power group within Electricity Holding Company (EHC)
  • to establish safety and interconnection requirements for parallel connections with small producers
  • to create infrastructure for EHC to purchase electricity from small producers
  • to establish and develop materials for a training programme for customers
  • to develop industrial cogeneration and small power production projects using agricultural waste.

MOEE is addressing almost all the barriers to cogeneration. However, relevant ministries, agencies and private companies should also initate some efforts to address these barriers. EEIGHGR has already completed almost all its objectives.

The following elements should be considered when proposing cogeneration projects in Egypt:

  • Project financing. Most plant owners in Egypt will decide not to finance a cogeneration project, either because they do not have enough finances, or they prefer to invest in improving or upgrading production facilities.
  • Sell-back price. This is still very low, but as mentioned above, a new cogeneration tariff has been prepared but has not yet been approved.
  • Stand-by charge. This should be negotiated with electrical utilities, who are starting to be more open-minded to accept this. It is worthwhile to note that licences can now be obtained for the generation and distribution of electrical power.
  • Utility price (electricity and natural gas). Electricity prices have been increasing by about 5% in the last two years, and are expected to continue to increase by the same amount every year for the next three years. For industrial end-users, the price of natural gas (US$1/MBTU) therefore makes it very attractive to be used as a fuel in cogeneration projects.
  • CDM concept. Considering a cogeneration project as a CDM project will make its feasibility more attractive by creating additional revenue and income.

Ihab Elmassry is an Associate at Sindicatum Carbon Capital, North Africa & Middle East, based in Egypt. He was a cogeneration director for the Energy Efficiency Improvement and Greenhouse Gas Reduction project for about two and a half years.

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