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Market Analysis for Gas Engine Technology in Algeria

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Market Analysis for Gas Engine Technology in Algeria Market Analysis for Gas Engine Technology in Algeria Stéphane Michaut Master of Science Thesis KTH School of Industrial Engineering and Management Energy Technology EGI-2013-049MSC EKV951 Division of Heat & Power SE-100 44 STOCKHOLM Master of Science Thesis EGI-2013-049MSC EKV951 MARKET ANALYSIS FOR GAS ENGINE TECHNOLOGY IN ALGERIA Stéphane Michaut Approved Examiner Supervisor at KTH 2013-06-04 Prof. Torsten Fransson Miroslav Petrov Commissioner Contact person at industry CLARKE ENERGY Ltd., Algeria Didier Lartigue Abstract The objective of this diploma thesis is to investigate the potential of combined heat and power plants based on gas engine technology in Algeria. This market analysis has been performed in order to identify the key markets for the newly created French subsidiary of Clarke Energy Group to expand its business in North Africa. After analyzing the structure of the Algerian energy sector and the potential of each gas engine application, three key sectors were identified. For each sector, a technical and economical analysis was conducted in order to define its potential, its constraints, and the time frame under which they could become mature markets. With a potential of 300 MW, the first targeted sector is related to the national power utility Sonelgaz and consists in small scale power plants with a nominal power output < 20 MW, in which the use of gas engines instead of gas turbines could reduce up to 50% the price of kWh generated over the lifecycle of the plant. With a total of 450 MW, the second market representing a great potential for gas engines development in Algeria is the industrial sector and in particular brick factories, in which cogeneration plants become profitable within 4 years, can save up to 40% of primary energy and generate electricity whose cost of production is 30% lower than the average grid price. Finally, the third sector identified is the associated petroleum gas from which 9% – 5.10 cubic meters – are is still being flared in Algeria while they could be used to generate up to 300 MW for the O&G utilities if only 10% of them would be recovered, reducing thus CO2 emissions⁹ and diesel costs. This report presents the method and the tools that were developed in order to analyze the economical viability of gas engine based power plants for the three targeted markets in Algeria, and the final results from the study. Master Thesis: Market analysis for gas engine technology in Algeria Student: Stéphane Michaut KTH Supervisor: Miroslav Petrov - Department of Energy Technology, ITM Company Supervisor: Didier Lartigue - Clarke Energy France June 2013 Contents CONTENTS ................................................................................................................................................. - 2 - LIST OF FIGURES ........................................................................................................................................ - 5 - LIST OF TABLES .......................................................................................................................................... - 7 - ABBREVIATIONS ........................................................................................................................................ - 8 - 1. INTRODUCTION ................................................................................................................................. - 9 - 2. ALGERIAN ENERGY SECTOR ............................................................................................................. - 10 - 2.1 ORGANIZATION OF THE SECTOR ................................................................................................................ - 10 - 2.1.1 Ministry of Energy and Mines...................................................................................................... - 10 - 2.1.2 CREG ............................................................................................................................................ - 10 - 2.1.3 ARH .............................................................................................................................................. - 10 - 2.1.4 ALNAFT ........................................................................................................................................ - 10 - 2.1.5 APRUE .......................................................................................................................................... - 11 - 2.1.6 Sonatrach .................................................................................................................................... - 11 - 2.1.7 Sonelgaz ...................................................................................................................................... - 11 - 2.2 OVERVIEW OF THE ENERGY SECTOR ........................................................................................................... - 11 - 2.2.1 Hydrocarbons .............................................................................................................................. - 11 - 2.2.1.1 Oil ....................................................................................................................................................... - 11 - 2.2.1.2 Gas ...................................................................................................................................................... - 12 - 2.2.2 Electricity ..................................................................................................................................... - 13 - 3. IDENTIFICATION OF KEY MARKETS ................................................................................................... - 16 - 3.1 GAS ENGINES APPLICATIONS..................................................................................................................... - 16 - 3.2 POTENTIAL OF EACH APPLICATION ............................................................................................................. - 16 - 4. SMALL SIZE POWER PLANTS FOR ELECTRICITY GENERATION ............................................................ - 18 - 4.1 POTENTIAL OF THE SECTOR ...................................................................................................................... - 18 - 4.1.1 Development plan of Sonelgaz for renewables ........................................................................... - 18 - 4.1.2 Development plan of Sonelgaz for fossil fueled power plants ..................................................... - 19 - 4.1.3 Development plan of Sonelgaz for small size power plants ........................................................ - 19 - 4.1.4 Advantages and challenges with gas engine technology ............................................................ - 20 - .................................................................................................................................................................. - 21 - 4.2 SONELGAZ’ COMPARISON METHOD ........................................................................................................... - 22 - 4.2.1 Technical bids .............................................................................................................................. - 22 - 4.2.1.1 Site conditions .................................................................................................................................... - 22 - 4.2.1.2 Specific heat rate ................................................................................................................................ - 22 - 4.2.2 Financial assumptions ................................................................................................................. - 22 - 4.2.2.1 Natural gas price ................................................................................................................................. - 23 - 4.2.2.2 VAT and custom duties rates .............................................................................................................. - 24 - 4.2.2.3 Discount rates ..................................................................................................................................... - 24 - 4.2.2.4 Preference margin .............................................................................................................................. - 24 - 4.2.3 Financial evaluation .................................................................................................................... - 25 - 4.2.3.1 Commercial bid................................................................................................................................... - 25 - 4.2.3.2 Cash actualization ............................................................................................................................... - 26 - 4.2.3.3 Spare parts cost .................................................................................................................................. - 27 - - 2 - Market Analysis for Gas Engine Technology in Algeria Stéphane Michaut, 2013 4.2.3.4 Cost of kWh ........................................................................................................................................ - 28 - 4.3 RESULTS OF THE ANALYSIS – SMALL POWER GENERATION PLANTS .................................................................... - 29 - 5. CHP POTENTIAL FOR THE INDUSTRY ................................................................................................ - 31 - 5.1 OVERVIEW
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