Gas Engines Thesis PDF

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% – 5.10⁹ 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 emissions 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 OF THE SECTOR ...................................................................................................................... - 31 -

5.2 DEVELOPMENT OF AN EXCEL ANALYTIC TOOL BASED ON ANNUAL CONSUMPTION ................................................ - 31 -
5.2.1 SONELGAZ’ billing ........................................................................................................................ - 31 -
5.2.1.1 Electricity rates ................................................................................................................................... - 32 -
5.2.1.2 Gas rates ............................................................................................................................................. - 33 -
5.2.2 Incentives and subsidies .............................................................................................................. - 34 -
5.2.2.1 Feed-in tariffs ..................................................................................................................................... - 34 -
5.2.2.2 Subsidies ............................................................................................................................................. - 35 -
5.2.3 Engine choice............................................................................................................................... - 35 -
5.2.4 Electrical and thermal annual gains ............................................................................................ - 37 -
5.2.4.1 Energy balance, single engine power plant ........................................................................................ - 37 -
5.2.4.2 Energy balance, multiple engine power plant .................................................................................... - 39 -
5.2.4.3 Annual savings on energy bill ............................................................................................................. - 41 -
5.2.5 Oil and Maintenance costs .......................................................................................................... - 43 -
5.2.5.1 Oil cost ................................................................................................................................................ - 43 -
5.2.5.2 Maintenance costs ............................................................................................................................. - 43 -
5.2.6 Analytical tools: Payback Time, Net Present Value, Rate of Return, Cost of kWh....................... - 44 -
5.2.6.1 ROI, NPV, IRR ...................................................................................................................................... - 44 -
5.2.6.2 Cost of kWh ........................................................................................................................................ - 44 -
5.3 RESULTS OF THE ANALYSIS ....................................................................................................................... - 45 -
5.3.1 Influence of electrical and thermal efficiencies on profitability .................................................. - 47 -
5.3.2 Influence of plant size on profitability: economies of scale ......................................................... - 49 -
5.3.3 Influence of cogeneration type on profitability ........................................................................... - 50 -
5.3.3.1 Hot air ................................................................................................................................................. - 50 -
5.3.3.2 Hot water............................................................................................................................................ - 50 -
5.3.3.3 Steam.................................................................................................................................................. - 50 -
5.3.3.4 Impact on profitability ........................................................................................................................ - 52 -
5.3.4 Single vs multiple engine power plant: influence of flexibility and grid reliability on profitability- 53
-
5.3.4.1 Value of grid stabilization ................................................................................................................... - 53 -
5.3.4.2 Value of grid independence................................................................................................................ - 55 -
5.3.4.3 Last kWh produced ............................................................................................................................. - 56 -
5.3.5 Influence of electricity and gas rates evolution on profitability .................................................. - 57 -
5.3.5.1 Sonelgaz prices increase ..................................................................................................................... - 57 -
5.3.5.2 Introduction of feed-in tariffs ............................................................................................................. - 59 -
5.3.6 Application to a similar market: Tunisia...................................................................................... - 60 -
5.4 EXAMPLES OF OPERATIONAL CHP PLANTS .................................................................................................. - 63 -
5.4.1 Applications to the brickyard industry: the TAFNA example ....................................................... - 63 -
5.4.2 Application to the food industry: the Nejma oil refinery example .............................................. - 64 -
5.5 PROJECTED CHP PLANTS ......................................................................................................................... - 65 -
5.5.1 Application in the tertiary sector: Algiers’ Mosque trigeneration project ................................... - 65 -
5.6 CONCLUSION ........................................................................................................................................ - 67 -
6. ELECTRICITY PRODUCTION AS AN ALTERNATIVE TO GAS FLARING .................................................... - 68 -

6.1 OVERVIEW OF THE SECTOR ...................................................................................................................... - 68 -
6.2 LIMITS OF THE ANNUAL CONSUMPTION – BASED MODEL ................................................................................ - 71 -
6.3 DEVELOPMENT OF AN EXCEL ANALYTIC TOOL BASED ON INSTANTANEOUS LOAD .................................................. - 71 -
Market Analysis for Gas Engine Technology in Algeria -3-
6.3.1 Implementation of derating ........................................................................................................ - 71 -
6.3.1.1 Influence of fuel gas composition....................................................................................................... - 71 -
6.3.1.2 Influence of temperature and altitude ............................................................................................... - 72 -
6.3.1.3 Response to temperature variations .................................................................................................. - 73 -
6.3.2 Multiple engine power plant: response to load variations .......................................................... - 75 -
6.3.3 Maintenance hours: role of stand-by engine .............................................................................. - 76 -
6.3.4 Annual revenues .......................................................................................................................... - 76 -
6.4 RESULTS OF THE ANALYSIS FOR THE INDUSTRY .............................................................................................. - 77 -
6.4.1 Influence of temperature on profitability .................................................................................... - 77 -
6.4.1.1 Without power output guaranteed .................................................................................................... - 77 -
6.4.1.2 With power output guaranteed ......................................................................................................... - 77 -
6.4.2 Influence of load variation and differences between models ...................................................... - 79 -
6.5 RESULTS OF THE ANALYSIS FOR THE O&G SECTOR ........................................................................................ - 81 -
6.5.1 Influence of fuel input: diesel, flare gas and natural gas ............................................................ - 81 -
6.5.1.1 on power output ................................................................................................................................ - 82 -
6.5.1.2 on power plant profitability ............................................................................................................... - 82 -
6.5.2 Influence of load variations on profitability ................................................................................ - 84 -
6.5.3 Study case: Waha flare gas project, Tunisia................................................................................ - 85 -
7. CONCLUSIONS ................................................................................................................................. - 86 -
7.1 DRIVERS AND INHIBITORS ........................................................................................................................ - 86 -

7.2 S.W.O.T. ANALYSIS ............................................................................................................................... - 87 -
7.3 DISCUSSION .......................................................................................................................................... - 88 -
BIBLIOGRAPHY ........................................................................................................................................ - 89 -

List of Figures
Figure 2-1: Oil in Algeria - Production and consumption .................................................................. - 12 -
Figure 2-2: Gas in Algeria - Producion and Consumption ................................................................. - 12 -
Figure 2-3: Production capacity installed in Algeria (MW)................................................................ - 13 -
Figure 2-4: Electricity production in Algeria (TWh) ........................................................................... - 13 -
Figure 2-5: Primary sources for electricity generation ...................................................................... - 14 -
Figure 2-6: Evolution of electrical demand ....................................................................................... - 14 -
Figure 2-7: Sonelgaz net result 2011 by branch ................................................................................ - 15 -
Figure 3-1: Gas engines applications ................................................................................................. - 16 -
Figure 4-1: Contribution of renewable energies for power generation............................................ - 18 -
Figure 4-2: Structure of the national power generation ................................................................... - 18 -
Figure 4-3: Diesel-fired power plants - 5 year plan ........................................................................... - 19 -
Figure 4-4: Small gas-Fired Power plants - 5 year Plan ..................................................................... - 20 -
Figure 4-5: Comparison gas turbine / gas engine.............................................................................. - 21 -
Figure 4-6: Derating and part load efficiency of gas turbines and gas engines ................................ - 21 -
Figure 4-7: World natural gas prices ($/MMBtu - Estimated 2013 ................................................... - 23 -
Figure 4-8: Value actualization curves .............................................................................................. - 24 -
Figure 5-1: Algerian industries localisation ....................................................................................... - 31 -
Figure 5-2: Ge Jenbacher power range ............................................................................................. - 36 -
Figure 5-3: Calculation of unserved energy - Production and load curves ....................................... - 40 -
Figure 5-4: Feasability results - cost of kWh over 15 years ............................................................... - 47 -
Figure 5-5: Influence of electrical and thermal efficiencies on cost of kWh ..................................... - 48 -
Figure 5-6: Influence of plant size on cost of kWh ............................................................................ - 49 -
Figure 5-7: Production of steam @ 8 bars - 2 MW engine ................................................................ - 51 -
Figure 5-8: Influence of cogeneration on cost of kWh ...................................................................... - 52 -
Figure 5-9: Single vs multi engine CHP plant - cost of kWh .............................................................. - 54 -
Figure 5-10: Single vs multiple CHP plant - Cost of kWh for 100% availability ................................. - 56 -
Figure 5-11: Single vs multiple engine CHP plant - Last kWh produced ........................................... - 57 -
Figure 5-12: Influence of Sonelgaz rates increase on cost of kWh ................................................... - 58 -
Figure 5-13: Influence of feed-in Tariffs on ROI ................................................................................ - 60 -
Figure 5-14: Comparison Algeria / Tunisia - Cost of kWh in Algeria ................................................. - 61 -
Figure 5-15: Comparison Algeria / Tunisia - Cost of kWh in Tunisia ................................................. - 62 -
Figure 5-16: Comparison Algeria / Tunisia - 20 year revenues ......................................................... - 62 -
Figure 5-17: Tafna example – Layout and realisation ....................................................................... - 64 -
Figure 5-18: Nejma example - 3D layout and PID ............................................................................. - 65 -
Figure 5-19: Algiers Mosque project ................................................................................................. - 66 -
Figure 5-20: Algiers Mosque Project - Cost of kWh .......................................................................... - 67 -
Figure 6-1: Flare gas reduction projects in Algeria ............................................................................ - 69 -
Figure 6-2: Associated gas volumes produced and flared in Algeria ................................................ - 69 -
Figure 6-3: Algeria flares ................................................................................................................... - 70 -
Figure 6-5: flare gas recovery with gas engine .................................................................................. - 70 -
Figure 6-6: Composition, LHV and MN of some gases ...................................................................... - 72 -
Figure 6-7: Natural gas - Composition and KHV of some fields ........................................................ - 72 -
Figure 6-8: Derating at higher temperatures and altitudes - Normal version .................................. - 73 -
Figure 6-9: Dearting at higher temperatures and altitudes - Hot country version ........................... - 73 -
Figure 6-10: Response to temperature variations - Normal version ................................................ - 74 -
Figure 6-11: Response to temperature variations - Hot country version ......................................... - 74 -
Figure 6-12: Response to the load - Multi engine power plant - Winter case .................................. - 75 -
Figure 6-13: Response to the Load - Multi engine power plant - Summer case ............................... - 76 -
Figure 6-14: Influence of derating - 15 year revenue........................................................................ - 78 -
Figure 6-15: Influence of derating - Cost of kWh .............................................................................. - 79 -
Figure 6-16: Comparison between models - Load variations............................................................ - 80 -
Figure 6-17: Comparison between models - 15 year revenue .......................................................... - 80 -
Figure 6-18: Fuel input - Emissions ................................................................................................... - 81 -
Figure 6-19: Fuel input - Cost of kWh ................................................................................................ - 84 -
Figure 6-20: Fuel Input – 15 year revenue ........................................................................................ - 84 -
Figure 6-21: Waha site location ........................................................................................................ - 85 -
Figure 6-22: Waha site design and realisation .................................................................................. - 85 -

List of Tables
Table 2-1: IPPs in Algeria ................................................................................................................... - 15 -
Table 3-1: Market segmentation by energy production type ........................................................... - 16 -
Table 3-2: Market segmentation by gas input type .......................................................................... - 17 -
Table 4-1: Technical bids caracteristics ............................................................................................. - 22 -
Table 4-2: Power generation - Financial assumptions ...................................................................... - 23 -
Table 4-3: Preference margin - Example ........................................................................................... - 25 -
Table 4-4: Commercial bids - EPC of the power plant ....................................................................... - 25 -
Table 4-5: Cash actualization of commercial bids ............................................................................. - 27 -
Table 4-6: Spare parts cost actualization .......................................................................................... - 28 -
Table 4-7: Sonelgaz attribution criterion - price of kWh ................................................................... - 29 -
Table 4-8: Cost comparison - In Amenas - 6 x 5 MW ........................................................................ - 29 -
Table 4-9: Cost comparison - Illizi - 3 x 5 MW ................................................................................... - 30 -
Table 4-10: Cost comparison - El Golea - 3 x 10 MW + 2 x 5 MW ..................................................... - 30 -
Table 5-1: Electricity rates for medium and high voltage customers in Algeria ............................... - 32 -
Table 5-2: Calculation of electricity bill ............................................................................................. - 33 -
Table 5-3: Medium pressure gas rates in Algeria .............................................................................. - 33 -
Table 5-4: Calculation of gas bill ........................................................................................................ - 34 -
Table 5-5: resume of CHP characteristics .......................................................................................... - 37 -
Table 5-6: Electrical production of the CHP - Annual consumption model....................................... - 38 -
Table 5-7: Thermal production of the CHP - Annual consumption Model........................................ - 39 -
Table 5-8: Calculation of unserved energy - 4 engine power plant .................................................. - 40 -
Table 5-9 : Calculation of unserved energy ....................................................................................... - 41 -
Table 5-10: Comparison of annual energy costs - 4,5 MW industry ................................................. - 42 -
Table 5-11: Analytical tools – Cost of kWh – 4,5 MW industry ......................................................... - 45 -
Table 5-12: Feasibility results – Example of final analysis ................................................................. - 46 -
Table 5-13: Influence of electrical and thermal efficiencies on ROI ................................................. - 48 -
Table 5-14 : Influence of Plant Size on ROI ....................................................................................... - 49 -
Table 5-15: Calculation of steam production - 2 MW engine ........................................................... - 51 -
Table 5-16: Influence of cogeneration type on ROI .......................................................................... - 52 -
Table 5-17: Single vs multiple engine CHP plant - Value of grid stabilization ................................... - 54 -
Table 5-18: Single vs multiple engine CHP plant – Value of grid independence ............................... - 55 -
Table 5-19: Influence of Sonelgaz rates increase on ROI .................................................................. - 58 -
Table 5-20: Influence of feed-in tariffs on ROI .................................................................................. - 59 -
Table 6-1: Estimated flared volumes from satellite data .................................................................. - 68 -
Table 6-2: Influence of temperature variations on profitability without power output restrictions - 77 -
Table 6-3: Influence of temperature variations on profitability with minimum power output
restriction .......................................................................................................................................... - 78 -
Table 6-4: Comparison of both models ............................................................................................. - 79 -
Table 6-5: Fuel input - Compared Profitability .................................................................................. - 83 -
Table 7-1: Algerian gas engine market - Drivers and inhibitors ........................................................ - 86 -
Table 7-2: Algerian gas engine market - S.W.O.T. analysis ............................................................... - 87 -

Abbreviations
CHP Combined Heat and Power
LHV Lower Heating Value
HHV Higher Heating Value
MN Methane Number
PID Piping and Instrumentation Diagram
ROI Return on Investment

NPV Net Present Value
IRR Internal Rate of Return
OH Operating Hours
MPR Maximum Power Reached
PAD Power At Disposal
FAD Flow At Disposal
EPC Engineering, Procurement and Construction

OPEC Organization of the Petroleum Exporting Countries
O&G Oil and Gas
GGFR Global Gas Flaring Reduction
SWOT analysis - Strengths, Weaknesses, Opportunities, Threats

1. Introduction
General Electric is through its Jenbacher division a global leader in gas engine manufacturing. They
produce since 1957 reciprocating engines ranging from 330kWe to 9.5MWe electrical output which
are known worldwide for their increased operational efficiency, greater reliability, reduce
maintenance costs and enhanced capability to operate on both natural gas and gases with lower
calorific value or unusual composition, such as landfill, biogas, coal mine methane, flare gas, coke
oven gas and syngas from gasification process.
Clarke Energy is a world leader in the design, turnkey installation and long term maintenance of gas
engines in power generation and co-generation applications. As the largest independent GE
Jenbacher distributor, they have been successfully distributing its product for 18 years in more than
10 countries. Exclusively focused on gas engines, they have an installed base of over 2,500 MW which
represents 20% of GE Jenbacher’s fleet and the largest stock holding outside the factory.
As part of its global growth and geographical expansion plan, Clarke Energy through its French
subsidiary decided to extend towards to North Africa. After successful start of Tunisian activities in
2008 with turnkey projects delivered in three key applications – waste food biogas, associated
petroleum gas, industrial natural gas CHP – Clarke Energy asked for a further expansion in North
Africa and became 2011 exclusive distributor and service provider for GE Gas Engines products in
Algeria.
As the largest country in Africa and one of the major gas producers in the world, Algeria is a
promising country. Powering almost 80% of national electrical needs, General Electric started
activities there more than 40 years ago and is promised to a golden age after successfully winning a
8,4 GW deal. But with 97% of its electricity being produced from natural gas, mostly with low
efficiency simple cycle gas turbines, Algerian reserves are rapidly depleting and the need for
efficiency arose. In this framework, developing gas engine solutions with 45% electrical efficiency and
up to 90% total efficiency is meaningful, and a deeper market analysis was needed to determine
where and how Clarke Energy could develop the gas engine business by combining its worldwide
know how with Algerian market specificities.
This paper presents the Algerian energy sector, the market assessments made for Algeria and the
three key markets for which the overall potential amounts to more than 1000 MW: small size power
plants for grid feeding, CHP applications for the industry and APG plants for flare gas reduction. It
presents the tools developed to evaluate the potential of each of these sectors, and ultimately the
S.W.O.T. analysis of Clarke Energy as the newly appointed GE Jenbacher distributor in Algeria.

2. Algerian Energy Sector
2.1 Organization of the sector
2.1.1 Ministry of Energy and Mines
The Ministry of Energy and Mines is the ministry in charge of the energy sector. It is responsible for
implementing relevant policies and strategies regarding production, transport and commercialization
of all hydrocarbons, mine and energy resources. It is also responsible for implementing adequate
policies regarding renewable energy and energy efficiency.
As 97% of Algeria’s export revenue comes from the hydrocarbons sector, the Ministry of Energy and
Mines plays a key role in the country’s economy. It has a strong regulation role, by ensuring energy
sector provides sufficient short term revenues for the country’s development needs while optimizing
the long term production; and also by controlling domestic prices to make energy stay affordable for
its population.
After many years of being state-run businesses, electricity sector and hydrocarbons sector were both
liberalized in 2001 and 2005 in order for public companies to focus on their core businesses
production, transport and commercialization. Independent authorities CREG, ARH and ALNAFT were
created and entitled to implement and monitor application of energy policies draft by the Ministry,
while public companies Sonelgaz and Sonatrach became “simple” economic players among other
private players allowed to enter the energy market.
2.1.2 CREG
CREG is the Energy and Gas Regulation Committee. It was created 2002 following the liberalization of
electricity and gas distribution sector to endorse the responsibility of public service and provide
guidance when it comes to electricity and gas national needs. Main task of this committee is thus to
make sure Algerian population is provided with reliable electricity and gas at an affordable price. It
makes yearly review of domestic consumptions, identifies possible pathways for middle-term
evolution (10 years) and indicates additional production capacities to be installed in order to satisfy
these needs. It decides the tariffs for end use customers and provides guidance for environmental
regulation.
2.1.3 ARH
ARH is the Hydrocarbon Regulation Authority. It was created 2005 following the liberalization of
hydrocarbon sector and has the same prerogatives as the CREG: provide guidance for satisfying
domestic demand of hydrocarbons. It monitors the development of retailing infrastructures, controls
market prices and provides environmental recommendations.
2.1.4 ALNAFT
ALNAFT is the National Agency for the Valorization of Hydrocarbons. It was also created 2005
following the liberalization of hydrocarbon sector. It is responsible for optimizing the use of Algerian
hydrocarbon resources by giving exploration authorizations, monitoring both production and
remaining resource levels and finally approving exploitation contracts and development plans.
Though liberalized in 2005, market of hydrocarbons still remains “chasse gardée” of the national
- 10 - Market Analysis for Gas Engine Technology in Algeria
company of hydrocarbons Sonatrach, with an obligation enforced in 2006 for all investments made in
this sector (exploration, production, transport or refining) to be done in partnership with Sonatrach
having a minimum 51% share in the capital.
2.1.5 APRUE
APRUE is the Agency for the Promotion and Rationalization of Energy Use. They are implementing
and financing measures to promote energy efficiency within four main sectors: industry, building,
lighting and transport.
2.1.6 Sonatrach
2011 ranked Sonatrach 12th petroleum company in the world, and 5th natural gas exporter in the
world. It was created following Algeria’s independence to run all hydrocarbon activities in the
country. With a turnover of $72 billion, it is also the first company in Africa. As a state company, it
had the monopoly and exclusivity over all activities related to exploration, production, transportation
and commercialization until 2005 when the market was liberalized. Since 2005, Sonatrach is
considered as an industrial group with public interest, that is an economical player among others.
Major activities of Sonatrach are oil and gas exploration and production, transport through
canalizations and commercialization on national territory as well as abroad through its four ports
located along the Mediterranean sea, which brings 97% of Algeria’s export revenue and ensures on
its own the Algerian economic growth.
2.1.7 Sonelgaz
Also created after the independence, the 100% state owned company Sonelgaz was sole responsible
for the production, transport and commercialization of electricity in Algeria, and also had monopoly
over transport and distribution of natural gas until 2002 liberalization law. While introducing
competition in electricity sector, this law also gave Sonelgaz its actual status of an industrial group
constituted by several independent branches, each of them with an obligation to results. It also
paved the way for private electricity production and for an electricity market in Algeria, with new
entities such as market operator and system operator to be created within Sonelgaz.
2.2 Overview of the energy sector

2.2.1 Hydrocarbons
2.2.1.1 Oil
Algeria is an important player of the OPEC since 1969. With proved reserves amounting to 12,2 Gbl in
2011 and a production of 1 729 000 bl/day, it ranks 15th in the world for oil reserves, 3rd oil producer
in Africa and 18th oil producer in the world. Sonatrach produces, transports, processes and
commercializes the Algerian oil on national territory and abroad. As shown in Figure 2-1, current
production keeps declining since 2007.
Market Analysis for Gas Engine Technology in Algeria - 11 -

FIGURE 2-1: OIL IN ALGERIA - PRODUCTION AND CONSUMPTION
Oil
2500
2000
10.3 barrles / day
1500
1000
500
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Oil Production (10.3 barrels/day) Oil Consumption
2.2.1.2 Gas
With proved reserves amounting to 4500 Gm3 and yearly production of 78 Gm3, Algeria ranked
2011 1st gas producer in Africa, and 10th gas producer in the world. As shown in Figure 2-2 below,
natural gas production also keeps declining since 2007. While Sonatrach produces natural gas, its
transport and distribution for national use are under Sonelgaz authority. End of 2011 gas penetration
rate was 47,4 % and most industrial zones were connected through a 20 000 km-long network. Cost
of gas is also the lowest in Mediterranean region, with an average price of 0,18 €cent/kWh for
industrial medium pressure use.
FIGURE 2-2: GAS IN ALGERIA - PRODUCION AND CONSUMPTION
Gas
100
90
80
70
Gm3/year
60
50
40
30
20
10
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Natural gas production Natural gas consumption

2.2.2 Electricity
End of 2011 Sonelgaz had connected 99% of its population to electricity through a large
interconnected system in the North of the country and some isolated grids in the South. As showed
in the graphs below, the overall capacity installed in Algeria doubled between 2001 (5 600MW) and
2011 (11 400 MW), while electricity production reached 48,3 TWh. Energy mix entirely relies on fossil
sources, with gas being the primary source used for 97% of electricity production (see Figure . The
market being driven by the tremendous increase of the demand (+ 14% in 2012 when only 6% to 8%
was expected, mostly due to steadily higher penetration of air conditioning systems), Sonelgaz
launched an emergency plan in 2012 to double again the installed capacity by 2020, while having no
other choice than proceeding to regional grid shedding in order to preserve system integrity during
summer peak demand.
FIGURE 2-3: PRODUCTION CAPACITY INSTALLED IN ALGERIA (MW)
12 000
10 000
8 000
6 000 Independant producer

Sonelgaz (SPE)
4 000
2 000
0
1980 1990 2001 2007 2008 2009 2010 2011
FIGURE 2-4: ELECTRICITY PRODUCTION IN ALGERIA (TWH)
60
50
40
30 Independant producer
Sonelgaz (SPE)
20
10
0
1980 1990 2007 2008 2009 2010 2011

FIGURE 2-5: PRIMARY SOURCES FOR ELECTRICITY GENERATION
1% 1%
1%
20%
Steam turbine
32% Gas turbine

Combined cycle
Hydro
Diesel
Hybrid
45%
FIGURE 2-6: EVOLUTION OF ELECTRICAL DEMAND
12000 16.00%
14.00%
10000
12.00%
8000
10.00%
6000 8.00%
6.00%
4000
4.00%
2000
2.00%
0 0.00%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Peak power demand (MW) Demand increase compared to previous year (%)
Following 2002’s liberalization law, seven independent producers (see table below) entered the
market with an increasing share in Algeria’s electricity generation fleet. However, if from a legal
perspective the market is now opened it is de facto entirely regulated and Sonelgaz still has
monopoly over all activities. It is the unique buyer, the unique retailer and the system operator.
Sonelgaz produces around 75% of Algerian electricity, and has consequent shares in the remaining
25%, either through direct participation or through the entity AEC (Algerian Energy Company), a joint
venture between Sonelgaz (50%) and Sonatrach (50%) created in 2001 whose goal is to produce and
commercialize electricity. Moreover, these independent producers were not chosen by market
mechanisms but through call of tenders. The electricity produced is also not bought given market
mechanisms, but under long term purchasing agreement terms.

TABLE 2-1: IPPS IN ALGERIA
Name Company shares Commissioning Output Type

Kahrama AEC 95%, John Burrow Ltd 5% 2005 336 MW Gas turbine
SKS Sonelgaz 50%, Sonatrach 30%, AEC 20% 2006 825 MW Combined Cycle
SKB Sonelgaz 51%, Sonatrach 49% 2007 484 MW Gas turbine
SKH SNC Lavalin 51%, Sonelgaz Sonatrach AEC 49% 2009 1200 MW Combined Cycle
SPP1 Abener 51%, Neal 20%, Cofides 15%, Sonatrach 14% 2011 150 MW Hybrid CSP / Gas
SKT Sonelgaz 51%, Sonatrach 49% 2012 1200 MW Combined Cycle
SKD Sonelgaz 51%, Sonatrach 49% 2013 1200 MW Combined Cycle
Finally, retail tariffs are regulated by the state in order to maintain social peace with the lowest cost
in Mediterranean region (2,3 €cent for industrial use), which leads Sonelgaz into a critical position
every year: 2011 reached Sonelgaz a deficit of 10,7 millions €, with two distribution branches being
bankrupt under the meaning of the Commercial Code. This leads to the necessary obligation for the
state to compensate for these losses and subsidize price of electricity.
FIGURE 2-7: SONELGAZ NET RESULT 2011 BY BRANCH
Conclusion: Algeria has a state structured energy sector. Though some measures were taken to
liberalize these activities, national companies like Sonelgaz and Sonatrach still have a de facto
monopoly – or at least a complete control – over production, transport, distribution and
commercialization of oil, gas and electricity. Algerian economy entirely relies on its hydrocarbons
resources, with oil and gas providing both energy to the country at the lowest cost in the region, and
comfortable export revenues. As hydrocarbon production declines and for the country to embrace
sustainability and ensure a positive commercial balance in the future, Algeria has to think about
smarter consumption models, develop renewables and local manufacturing instead of imports.

3. Identification of Key Markets
In order to investigate the potential of gas engine technology in Algeria, the first step is to identify
the key markets for which a deeper analysis will have to be conducted given country’s specificities.
To do so, gas engine usual applications will be highlighted, then some basic information will be
collected in order to investigate the potential for each market segment in Algeria, and finally a SWOT
analysis will be conducted.
3.1 Gas engines applications

The figure below shows the main applications of gas engines in the world.
FIGURE 3-1: GAS ENGINES APPLICATIONS
3.2 Potential of each application

For each of these applications it has to be defined if this is a target market regarding company’s
development wishes in Algeria, what the importance of each of these sectors has in this country, and
what is the amount of customers in each of these sectors.
TABLE 3-1: MARKET SEGMENTATION BY ENERGY PRODUCTION TYPE
Target No. of
Segment market Potential customers
Power production Electricity Yes High High
Cogeneration Yes Med Med
Trigeneration Yes Med Med
Quadgeneration Yes Low Low
Remote generation Yes High High

TABLE 3-2: MARKET SEGMENTATION BY GAS INPUT TYPE
Target No. of
Gas type Segment Sub-segment market Potential customers
Natural gas Electricity generation Yes High Low
Commercial Offices Yes High High
Airports Yes Med Low
Universities Yes Low Low
Data Centres Yes Low Low
Residential No Low Low
Industrial Agrochemical Yes Low Low
Bricks Yes High High
Ceramics Yes High Med
Coal No None None
Construction Yes Low Low
Dyes and
chemicals No Low Low
Engineering Yes Low Low
Food processing Yes High High
Glass Yes Med Med
Oil and gas Yes High Low
Packaging Yes Low Low
Paper Yes Med Med
Pharmaceuticals Yes Med Med
Rubber No None None
Steel No None None
Textile Yes Low Low
Greenhouse No None None
Hospitals Yes Med Low
Peaking station Yes Low Low
Biological gas Biogas Agricultural No None None
Dairy No None None
Distillery No None None
MBT-AD No None None
Waste No None None
Sewage gas Yes Med Low
Landfill gas Yes Med Low
APG / flare gas Yes High Low
Coal gas Coal seam methane No None None
Working mine methane No None None
Abandoned mine methane No None None
Special gas Gasification Syngas No None None
Wood gas No None None
Pyrolysis Waste pyrolysis No None None
Steel production gas Blast furnace gas No Low Low
Converter gas No Low Low
Coke gas No Low Low
Coal gasification No None None
Conclusion: this market segmentation leads to identifying three key sectors representing high
development potential of gas engines: industrial sector for CHP application, power generation sector
for grid feeding, and Oil&Gas sector for associated petroleum gas use.

4. Small size power plants for electricity
generation
4.1 Potential of the sector
4.1.1 Development plan of Sonelgaz for renewables
Algeria’s development plan for renewables is one of the most ambitious in the world. It comprises
the installation of a total capacity of 22 000MW of renewables (PV, CSP and wind) between 2011 and
2030, with 12 000MW dedicated to national consumption generating 40% of Algeria’s need in
electricity, and 10 000MW dedicated to export.
FIGURE 4-1: CONTRIBUTION OF RENEWABLE ENERGIES FOR POWER GENERATION
FIGURE 4-2: STRUCTURE OF THE NATIONAL POWER GENERATION

In the first phase (2011-2013) available technologies are to be tested through pilot projects, while
the deployment of the program will start during the second phase (2014-2015) and the large scale
deployment is due to take place from 2016 on.
4.1.2 Development plan of Sonelgaz for fossil fueled power plants

As seen in Part 2, electricity demand is acutely rising in Algeria. Over the past few years, both in
terms of energy and in terms of peak power the average increase was between 6% and 8% per year
(see Figure 2-6). But in 2011 and 2012, this increase reached 14%, which led Sonelgaz into a critical
situation, where grid sheddings became necessary to preserve the stability of the grid. Consequently,
Sonelgaz decided to launch, in addition to the 4000 MW planned for 2017, an additional emergency
plan of 7x1200 MW combined cycle power plants. This mega deal (8400 MW) was won by General
Electric and will ensure the company’s further development in Algeria for at least the next 20 years,
with gas turbines to be commissioned by 2015 and complete combined cycles to be commissioned by
2017. Altogether Algeria will double its fossil fueled power production fleet within 5 years.
Unfortunately the side effect of this demand driven emergency program is that renewable
development program has been delayed, mostly due to the need for human resources allocation to
the mega deal project.
4.1.3 Development plan of Sonelgaz for small size power plants

Except in some particular cases, power plants above 50 MW are generally using gas turbines, due to
the higher power output that can be reached per machine. Hence, the market analysis will focus on
small size power plants. These small plants are all located in the south, feeding isolated networks
with gas turbines whenever gas is available, or with diesel generators when there is no connection to
the gas network. Figure 4-3 and Figure 4-4 show the 5-year development plan for these regions.
FIGURE 4-3: DIESEL-FIRED POWER PLANTS - 5 YEAR PLAN

FIGURE 4-4: SMALL GAS-FIRED POWER PLANTS - 5 YEAR PLAN
Additional capacity to be installed by 2017 is 140 MW of diesel fueled plants, and 501 MW of gas
turbines compared to 2011’s fleet. Among these 501 MW, 198 MW are already in the construction
phase, but the remaining 303 MW are still in the tendering phase. This represent a strong potential if
gas engines are not only competitive compared to gas turbines, but also if Sonelgaz accepts to open
up to a new technology that has so far never been used in Algeria.
4.1.4 Advantages and challenges with gas engine technology

Figure 4-5 and Figure 4-6 give basic comparison data between the three technologies: gas engines,
gas turbines and diesel engines. While gas engines considerably reduce investment costs, they also
reduce the fuel gas consumption by 25% (better efficiency). Only maintenance costs are somehow
higher, but this is also to be balanced by a higher life time before major overhaul.
A critical point and crucial advantage for gas engines development in Algeria is also their very low
derating compared to gas turbines. While the power output of a turbine starts going down from its
ISO rating after 15°C, gas engines will keep up to full load until 45°C. In regions characterized by their
desert and hot conditions, and where peak load happens during hottest times of the year, this would
considerably reduce oversizing of power plants since available power at all times would approach
installed power.

FIGURE 4-5: COMPARISON GAS TURBINE / GAS ENGINE
FIGURE 4-6: DERATING AND PART LOAD EFFICIENCY OF GAS TURBINES AND GAS ENGINES
Though gas engines seem to suit particularly well to the southern regions, some challenges specific
to Algeria prevented their development. During the 70’s and the 80’s the gas engine technology
wasn’t mature enough to penetrate the Algerian market. Then in the 90’s while many developing
countries started using them, Algeria went through a decade of terrorism during which dual fuel
(ability to run both on gas and heavy duty oil in case gas delivery is compromised) became the main
requirement, with which GEJ gas engines cannot comply.
Added to the plentiful and cheapness of gas, the reluctance to technological change and the
bureaucracy that characterizes Algeria explain why so far gas engine has not been used in this
country.

4.2 Sonelgaz’ comparison method
When issuing a tender, Sonelgaz also issues a model in which each bid will be compared to the
others. The comparison tool must be clear, fair and easily understandable by all bidders so that
integrity of Sonelgaz cannot be questioned. Many factors such as currencies, efficiencies, payment
schedule, etc… have to be implemented.
In this part will be explained how Sonelgaz compares bids and how to build the corresponding Excel
tool. The values taken below are those of a gas turbine and a gas engine manufacturer bidding for a 2
x 25 MW project. The results of both bids are then showed in Part 4.3.
4.2.1 Technical bids

Once the evaluation committee validates the technical bid, only few parameters need to be taken
into account in the comparison method.
TABLE 4-1: TECHNICAL BIDS CARACTERISTICS
OFFER TYPE Gas turbine Gas Engine

Guaranteed power output at site conditions kW 32 440 25 421
Number of units 2 2
Total guaranteed power output at site conditions kW 64 880 50 842
Specific heat rate LHV at site conditions kJ/kWh 11 773 8 333
Time until commissioning Months 27 16
4.2.1.1 Site conditions

As previously explained temperature and altitude will strongly affect the power output of the plant.
For an exact approach the evaluation method would need to implement both temperature and
altitude responses of proposed equipment like it will be detailed in Part 6, in order to count precisely
the amount of kWh produced. However for the sake of simplicity, the only value that will be used in
this evaluation model is the guaranteed power output at site conditions.
4.2.1.2 Specific heat rate

In this model, efficiency is taken into account by determining the specific heat rate of each
equipment. A gas engine with 43,2% electrical efficiency will have a specific heat rate of 8333
kJ/kWh, while a gas turbine with 30,6% electrical efficiency will have a specific heat rate of 11 773
kJ/kWh.
4.2.2 Financial assumptions

After successful technical evaluation, the unique criterion for awarding the deal is the lowest cost of
kWh produced during the amortization period of the power plant. Some assumptions have hence to
be clearly stated in order to calculate this cost.

TABLE 4-2: POWER GENERATION - FINANCIAL ASSUMPTIONS
Unit Values
OFFER TYPE Gas turbine Gas Engine
Amortization period Years 20 20
Discount rate foreign currency % 6% 6%
Discount rate dinar % 6% 6%
VAT rate % 17% 17%
Average annual use of available capacity hours/year 6 000 6 000
Cost per thermie (based on natural gas price : 4,25 $/MMBTU) c$/thermie 1 1,687 1,687
Operation cost and maintenance cost ( % of investment / year) % 2,0% 2,0%
Rate of custom duties % 5% 5%
Preferential margin on goods and services of Algerian
% 25% 25%
origin ,
4.2.2.1 Natural gas price

Efficiency of equipment proposed in the bids have to be taken into account by Sonelgaz in its
evaluation. By identifying the cost of natural gas supply, Sonelgaz can effectively compare a low-
efficient but cheap equipment to a high-efficient but costly equipment.
Market price in Algeria (i.e. price for Sonelgaz to buy gas from Sonatrach) is around 4,25$/MMBtu.
This value is very low compared to world prices (see Figure below), with a price level almost as low as
in the US where domestic prices dramatically fell with shale gas development.
Meanwhile, this value is almost 7 times higher than the price to which natural gas is being sold to
industries: 0,18 DZD/Th = 0,25 c$/Th = 0,63 $/MMBtu, which explains why Sonelgaz has a recurrent
deficit.
FIGURE 4-7: WORLD NATURAL GAS PRICES ($/MMBTU - ESTIMATED 2013
1
thermie is the unit in which natural gas is accounted in Algeria. 1 th = 1 Mcal.
4.2.2.2 VAT and custom duties rates
In order to account for all expenses, Sonelgaz also includes VAT at a 17% rate and custom duties. For
most equipment a 15% rate is the rule, but when it concerns energy facilities like power plants a
specific rate at 5% was set.
4.2.2.3 Discount rates

Over the amortization period (generally 20 years), different amounts will be paid to the bidders at
different times: this include payment terms of the proposed plants, but also spare parts that will
have to be bought in order to maintain it operational. In order to properly compare these cash flows
for Sonelgaz, future value of a payment has to be compared to its actual value. The following
discount formula is hence used throughout the model:
𝐹𝑉
𝐴𝑉 =
(1 + 𝑟)𝑛
𝐴𝑉 : Actual value [DA-$-€]

𝐹𝑉 : Future value [DA-$-€]
𝑟 : Actualisation rate [%]
𝑛 : Number of years []
FIGURE 4-8: VALUE ACTUALIZATION CURVES
1
0.9
0.8
0.7
Actual value
0.6 Actualisation rate 0,5%

0.5
Actualisation rate 2%
0.4
0.3 Actualisation rate 6%
0.2 Actualisation rate 10%
0.1
0
0 3 6 9 12 15 18 21 24 27 30 33 36 39 42 45 48
Date of payment
The graph above highlights the difference induced by payment schedules of bidders: with a 6%
actualization rate, a payment made after 12 months will represent 94% of its actual value, while a
payment made after 36 months will represent only 84% of its actual value. This method will hence
privilege the bidder who has the best payment schedule (the one with higher amounts to be paid at
the end of the construction period).
4.2.2.4 Preference margin

In 2011 a new law was enforced in Algeria in order to privilege domestic companies. For all public
calls of tender a 25% preference margin is granted during the financial evaluation phase. For supply
contracts, a 25% margin is given to products manufactured locally. For service contract, a 25% margin
is given to Algerian companies whose capital is mainly owned by Algerians. This margin doesn’t apply

to Algerian companies whose capital is mainly owned by foreigners, and for mixed groups (Algerian
company jointly bidding with a foreign company) this 25% percentage is diminished accordingly to
the percentage held by the Algerian side.
During the financial evaluation, this preference margin is implemented by increasing the prices of
other financial bids from corresponding percentage, as showed in the table below.
TABLE 4-3: PREFERENCE MARGIN - EXAMPLE
Bidder 1 Bidder 2 Bidder 3 Bidder 4

Foreign share 100% 40% - -
National share - 60% 100% 100%
Preference margin 0% 15% 25% 25%
Financial bid (1) 1000 1100 1300 1200
Preference margin (2) 0 165 325 300
Total (1) + (2) from other bidders : 1790 1725 1765 1690
In the example above, Bidder 1 did not increase other bidders’ price while Bidder 2 increased other
bidders’ price of 15%, and Bidder 3 of 25%. Even though Bidder 4 doesn’t have the best financial
offer, it wins the call of tender thanks to the preference margin.
In practice, this law did not let a chance to foreign companies to win tenders when there were local
companies with same competencies. It had a small effect on diesel based power plants projects since
there are many Algerian distributors. But it had no effect on gas fired power plants projects since all
gas turbine manufacturer or EPC contractors were foreign companies.
4.2.3 Financial evaluation

Once principal financial assumptions have been stated and sent to the bidders, three tables must be
filled in when bidding: commercial bid for furniture, installation and commissioning of the plant,
detailed payment schedule and commercial bid for long-term furniture of spare parts.
4.2.3.1 Commercial bid

The table below contains two bids of EPC contractors for 2 x 25 MW, one with gas turbines and the
other with gas engines.
TABLE 4-4: COMMERCIAL BIDS - EPC OF THE POWER PLANT
Commercial offers (excluding spare parts)

OFFER TYPE Gas Turbine Gas Engine
Currency € US $ DZD € US $ DZD
Exchange rate / DZD 101,20 73,49 1,00 101,20 73,49 1,00
Gross Bid (Foreign Currencies) 74 086 826 21 384 671 - 70 379 892 - -
VAT (17%) 12 594 760 3 635 394 - 11 964 582 - -
Gross Bid + Preference Margin (Dinars) - - 2 512 465 313 - - 196 200 000
VAT (17%) - - 427 119 103 - - 33 354 000
Custom duties (5%) in Dinars 326 264 659 61 669 985 - 320 502 744 - -
The difference in terms of initial investment is to be balanced by the effective output of the plant: in
the example above, gas turbine manufacturer offered 32 MW turbines which mostly explains the
price difference. Most of the time these supplementary MW are taken into account by Sonelgaz, so
that a manufacturer who doesn’t have the product with the exact power output requested in the
tender won’t be penalized over another.
Another factor influencing the price of the equipment is the derating at site conditions: as previously
explained, if design temperature is 45°C (and this is the case for most of southern sites in Algeria) the
turbine proposed in the tender will have at least a 30% derating compared to nominal output while
gas engine output would be at 100% of its nominal value, with direct consequence being a turbine
size – and cost – 30% oversized.
In that case the evaluation model will not take into account the additional capacity available at
temperatures lower than 45°C (turbine case only), since this additional capacity is in practice never
used: the peak demand happens to be during hottest days, when country-widespread air
conditioners are switched on. Gas engine will hence have a further advantage, which is being
dimensioned on the exact power demand during hot days.
4.2.3.2 Cash actualization

Commercial bids needs to be actualized / discounted according to the method explained in Part
4.2.2.3 and to the payment schedule of the bidder. Below is the payment schedule of gas turbine EPC
bidder, and the corresponding cash actualization.

TABLE 4-5: CASH ACTUALIZATION OF COMMERCIAL BIDS
Actualisation of costs : Bidder 1, Gas turbine

DINARS 2 512 465 313 EURO 74 086 826 DOLLAR US 21 384 671
% Discount rate Discounted total % Discount rate Discounted total % Discount rate Discounted total
0,00% 1,000 0 0,00% 1,000 0 0,00% 1,000 0

10,00% 0,995 250 029 500 10,00% 0,995 7 372 795 10,00% 0,995 2 128 108
0,04% 0,990 995 273 0,83% 0,990 608 978 0,00% 0,990 0
0,02% 0,986 495 226 0,42% 0,986 306 665 0,00% 0,986 0
0,02% 0,981 492 827 0,42% 0,981 305 179 0,00% 0,981 0
0,02% 0,976 490 440 0,42% 0,976 303 701 0,00% 0,976 0
0,50% 0,971 12 201 610 0,42% 0,971 302 230 0,00% 0,971 0
0,50% 0,967 12 142 506 0,42% 0,967 300 766 0,00% 0,967 0
0,59% 0,962 14 258 752 0,27% 0,962 192 413 0,00% 0,962 0
2,86% 0,957 68 783 886 3,71% 0,957 2 631 089 0,20% 0,957 40 941
3,25% 0,953 77 784 885 4,06% 0,953 2 865 357 0,23% 0,953 46 854
6,99% 0,948 166 486 954 34,08% 0,948 23 935 557 0,23% 0,948 46 627
5,20% 0,943 123 253 015 11,10% 0,943 7 758 149 6,01% 0,943 1 212 470
4,31% 0,939 101 662 938 3,80% 0,939 2 643 078 0,37% 0,939 74 283
4,47% 0,934 104 926 235 10,73% 0,934 7 427 065 0,37% 0,934 73 923
3,52% 0,930 82 226 235 0,30% 0,930 206 647 0,37% 0,930 73 565
3,52% 0,925 81 827 934 0,15% 0,925 102 823 0,37% 0,925 73 209
4,49% 0,921 103 871 509 0,20% 0,921 136 433 3,13% 0,921 616 307
7,96% 0,916 183 254 372 1,87% 0,916 1 269 474 0,66% 0,916 129 327
5,06% 0,912 115 926 566 0,33% 0,912 222 940 0,52% 0,912 101 400
4,90% 0,907 111 717 115 0,34% 0,907 228 583 0,50% 0,907 97 028
4,89% 0,903 110 949 071 0,38% 0,903 254 237 0,50% 0,903 96 558
4,92% 0,899 111 089 009 0,50% 0,899 332 902 0,50% 0,899 96 090
4,95% 0,894 111 224 987 0,57% 0,894 377 670 0,50% 0,894 95 625
3,12% 0,890 69 765 858 0,43% 0,890 283 529 0,31% 0,890 59 000
1,82% 0,886 40 499 616 0,27% 0,886 177 168 0,18% 0,886 34 092
1,38% 0,881 30 559 749 0,27% 0,881 176 309 1,84% 0,881 346 810
0,71% 0,877 15 646 609 3,74% 0,877 2 430 381 63,22% 0,877 11 858 203
10,00% 0,873 219 307 284 10,00% 0,873 6 466 868 10,00% 0,873 1 866 618
Total Dinar 2 321 869 962 Total Euro 69 618 986 Total Dollar 19 167 036
Total DZD 234 967 899 844 Total converted to DZD 7 045 281 215 Total converted to DZD 1 408 612 320
Using a cash flow actualization method gives the “real” cost of the power plant: while total bided
investment needed for 2 x 25 MW gas turbines is around 11 581 000 000 DZD, “real” cost for
Sonelgaz is around 7% lower (total = 10 776 000 000 DZD)
4.2.3.3 Spare parts cost

The table below contains the spare parts cost for 20-year preventive maintenance of the 2x25MW
gas turbine plant. These amounts are to be actualized according to the same method in order to
account for these costs in the evaluation model.

TABLE 4-6: SPARE PARTS COST ACTUALIZATION
Cost of spare parts : Bidder 1, Gas turbine

Spare parts costs TOTAL DZD
Year Total DZD VAT Custom Duties
(with actualisation)
€ USD DZD
1 (Warranty) 0 0 0 0 0
2 (Warranty) 0 0 0 0 0
3 3 505 417 257 618 003 43 795 060 12 880 900 231 462 291
4 0 0 0 0 0
5 5 340 250 392 462 449 66 718 616 19 623 122 313 827 081
6 3 505 417 257 618 003 43 795 060 12 880 900 194 340 203
7 0 0 0 0 0
8 0 0 0 0 0
9 8 845 667 650 080 452 110 513 677 32 504 023 411 752 224
10 0 0 0 0 0
11 0 0 0 0 0
12 3 505 417 257 618 003 43 795 060 12 880 900 137 002 174
13 0 0 0 0 0
14 5 340 250 392 462 449 66 718 616 19 623 122 185 753 767
15 3 505 417 257 618 003 43 795 060 12 880 900 115 029 667
16 0 0 0 0 0
17 0 0 0 0 0
18 8 845 667 650 080 452 110 513 677 32 504 023 243 715 509
19 0 0 0 0 0
20 0 0 0 0 0
TOTAL SPARE PARTS (1 unit) 1 832 882 915
This table will allow the model to take into account differences in lifetime before major overhaul:
while major overhaul for gas turbine generally takes places after 48 000 OPH (= 8 years of operation),
the overhaul for gas engines will be necessary after 60 000 OPH.
In the cost calculation over 20 years of operation, gas turbines will thus need two major overhauls
while gas engines will only need one.
4.2.3.4 Cost of kWh

Final stage of the evaluation model is to sum actualized costs of investment, fuel gas, operation and
maintenance and divide them by total energy generated over the amortization period in order to
calculate the price of kWh produced by each bidder’s power plant. Bidder with conform technical bid
and lowest of kWh will win the tender.

TABLE 4-7: SONELGAZ ATTRIBUTION CRITERION - PRICE OF KWH
Cost of kWh and kW installed
Unit Gas Turbine Gas Engine

Total actualised investment with VAT and custom duties DA 12 995 577 935 9 071 775 519
Total spare parts over 20 years DA 3 665 765 830 2 442 222 647
Cost of investment per kWh DA 3,318 2,927
Cost of gas per kWh DA 3,485 2,467
Cost of operation per kWh DA 0,761 0,672
Cost of spare parts per kWh DA 0,936 0,788
Cost of kW installed DA / kW 200 299 178 431
Average actualised cost of kWh DA / kWh 8,50 6,85
RANKING 2 1
In our example of a 2 x 25 MW power plant, the bid based on gas engine technology outweighs the
bid based on gas turbine technology by approximately 20%. For this particular plant, Sonelgaz finally
decided to cancel the call of tender because only two companies submitted bids.
4.3 Results of the analysis – small power generation plants

In 2009 three contracts for small power generation plants were awarded in southern Algeria to a gas
turbine manufacturer. In order to evaluate the potential of gas engine in these regions, same
approach as in Part 4.2 was conducted and prices at which the tenders were attributed were
compared to prices at which similar power plants with gas engine technology could have been built.
The three tables below show the comparison results.
TABLE 4-8: COST COMPARISON - IN AMENAS - 6 X 5 MW

RANKING 2 1

TABLE 4-9: COST COMPARISON - ILLIZI - 3 X 5 MW

RANKING 2 1
TABLE 4-10: COST COMPARISON - EL GOLEA - 3 X 10 MW + 2 X 5 MW

RANKING 2 1
For these three power plants ranging from 5 to 10 MW units, the cost of kWh reached with a gas
engine technology would approximately be 50% lower than what was awarded in 2009. For 25 MW,
this difference gets down to 20%. In practice this is the upper limit above which gas turbine starts to
be competitive.
Conclusion: for small generation units < 25 MW, gas engine can generate electricity with a higher
efficiency, a smaller derating and a better flexibility than what has been developed so far in Algeria,
for almost half the price of production. This tells how relevant gas engine technology is for southern
regions of Algeria, and how promising its development is. However some concerns remain and explain
why Sonelgaz executives are still reluctant to allow use of gas engines for these regions: dual fuel
requirement, longstanding experience in gas turbine maintenance, bureaucracy and reluctance to
technological change are some of the few obstacles that Sonelgaz will have to overcome for gas
engine manufacturers to start doing business in this market.

5. CHP potential for the industry
5.1 Overview of the sector
Industry accounts for 16% of Algeria’s final energy consumption, the APRUE says. Main industries
are: O&G related industries transforming by products of oil production (fertilizers), drink and food
processing industries like the giant company Cevital (oil refinery, sugar refinery, mills), raw
construction material like brick, ceramic, tile and cement factories and finally some pharmaceutical
groups. Other industry types are starting to rise up like steel, packaging or car manufacturing
industries, but these are not spread out nor significant players throughout the country. Imports and
low maintenance production lines are still privileged.
In terms of power consumption, the industrial sector represents around 25% of the demand, i.e
around 3000 MW, increasing at a 8,3% rate. This power requirement is spread throughout the
country as shown in the map below, and around one third of these 3000 MW are connected to an
important heat demand for the need of the process.
FIGURE 5-1: ALGERIAN INDUSTRIES LOCALISATION
Out of these energy intensive industries, APRUE estimates that the potential for cogeneration
applications in Algeria amounts to 450 MW. In order to study in more details what the key industries
are for gas engine based CHP plants, an analytic tool has been developed.
5.2 Development of an Excel analytic tool based on annual consumption

In order to identify the factors influencing the profitability of gas engine based CHP plants in Algeria
and draw conclusions over the potential of the industrial sector, an Excel simulation file was made
based on the variation of each of the following items.
5.2.1 SONELGAZ’ billing

Due to governmental regulation to avoid any protest from the population, Sonelgaz electricity and
gas rates have remained unchanged since 2005, leading to a deficit in Sonelgaz’ operating budget of

55 billiards DA (~550 M€) in 2011. The prices of energy have hence been steadily subsidized by the
state, like most of primary resources (gasoline, sugar, oil, wheat, etc).
5.2.1.1 Electricity rates

Electricity penetration rate in Algeria was around 98% in 2011. As in most countries, SONELGAZ
applies different rates to low, medium and high-voltage customers. The medium and high voltage
rates are showed in the table below, and for most of the industries whose power needs are between
500 kW and 15 MW the rate E41 applies:
TABLE 5-1: ELECTRICITY RATES FOR MEDIUM AND HIGH VOLTAGE CUSTOMERS IN ALGERIA
Reactive
Active Power Power At Max Power Monthly
Power
SONELGAZ Disposal Reached Fee
ELECTRICITY NIGHT DAY PEAK Malus Bonus
RATES (2005) 𝐶1 𝐶2 𝐶3 𝐺 𝐺 𝑃1 𝑃2 𝐹
(cDA / kWh) (cDA / kVARh) (DA/kW/month) (DA/kW/month) (DA/month)
E31 49,19 113,9 550,7 25,84 5,168 31,61 157,88 421 177,73
E32 114,1 114,1 114,1 25,84 5,168 84,12 421,15 421 177,73
E41 85,33 161,5 726,7 37,94 7,588 21,54 96,79 32 227,79
E42 150,5 150,5 726,7 37,94 7,588 32,25 150,48 429,71
E43 85,33 356,9 356,9 37,94 7,588 32,25 128,8 429,71
E44 313 313 313 37,94 7,588 32,25 150,48 429,71
E51 106,4 191,1 716,3 29,85 0 286,44
E52 157,2 157,2 716,3 29,85 0 66,40
E53 106,4 429,9 429,9 14,81 0 66,40
E54 417,9 417,9 417,9 4,37 0 0,00
Sonelgaz’ method for monthly power billing within the industry follows the formulas below:
3
𝑖
𝑃𝑃𝑒𝑥𝑐𝑙.𝑉𝐴𝑇 = � 𝐶𝑒𝑙,𝑐𝑜𝑛𝑠 . 𝐸𝑖𝑒𝑙,𝑐𝑜𝑛𝑠 + 𝐺. �𝐸𝑟,𝑐𝑜𝑛𝑠 − 0,5. 𝐸𝑒𝑙,𝑐𝑜𝑛𝑠 � + 𝑃𝐴𝐷. 𝑃1 + 𝑀𝑃𝑅. 𝑃2 + 𝐹
𝑖=1
𝑃𝑃𝑖𝑛𝑐𝑙.𝑉𝐴𝑇 = 1,07 ∗ 𝑃𝑃𝑒𝑥𝑐𝑙.𝑉𝐴𝑇 + 0,02. 𝐸𝑒𝑙,𝑐𝑜𝑛𝑠
𝑃𝑃𝑒𝑥𝑐𝑙.𝑉𝐴𝑇 : Power Price excluding VAT [DA]

𝑃𝑃𝑖𝑛𝑐𝑙.𝑉𝐴𝑇 : Power Price including VAT [DA]
𝑖
𝐶𝑒𝑙,𝑐𝑜𝑛𝑠 : Unitary cost of active power for each pricing period (Night, Day, Peak) [DA/kWh]
𝑖
𝐸𝑒𝑙,𝑐𝑜𝑛𝑠 : Active power consumed during each pricing period (Night, Day, Peak) [kWh]
𝐺 : Unitary cost of reactive power, bonus if tan 𝜑 < 0,5. [DA/kVAh]
𝐸𝑟,𝑐𝑜𝑛𝑠 : Total reactive power consumed during the month, 𝐸𝑟 = tan 𝜑 . 𝐸𝑒𝑙 [kVAh]
𝐸𝑒𝑙,𝑐𝑜𝑛𝑠 : Total active power consumed during the month, 𝐸𝑒𝑙 = ∑3𝑖=1 𝐸𝑒𝑙 𝑖
[kWh]
𝑃𝐴𝐷 : Subscribed power at disposal [kW]
𝑃1 : Unitary price of power at disposal [DA/kW]
𝑀𝑃𝑅 : Maximum power reached during the month [kW]
𝑃2 : Unitary price of maximum power reached [DA/kW]
𝐹 : Monthly fixed fee [DA]
Night, Peak and Day periods are defined as follow:
- Night : each day of the year between 10.30 PM and 06.00 AM
- Day : each day of the year between 06.00 AM and 05.30 PM, and between 09.00 PM and
10.30 PM
- Peak : each day of the year between 05:00 PM and 09:00 PM
The average cost of electricity for an industry with constant power needs over the day is hence
2,32 DA ~ 2,32 cts€ / kWh , to which must be added PAD, MPR, reactive power and taxes. The figure
below shows the Excel sheet developed to calculate the electricity bill, for each of the electricity
rates mentioned above.
TABLE 5-2: CALCULATION OF ELECTRICITY BILL
5.2.1.2 Gas rates

The gas penetration rate approaches 57% in 2011 and most of the industries can have access to this
(very) cheap kind of energy. Rates for medium and high pressure customers are shown in the table
below, and for most of the industries with boilers, air dryers, ovens, etc... whose consumption is way
over the limit of 25 Nm3/hour the rate 21 or 21T applies:
TABLE 5-3: MEDIUM PRESSURE GAS RATES IN ALGERIA
Thermal Energy Flow At Disposal Monthly Fee

SONELGAZ GAS RATES
𝑇1 𝐹1 𝐹
(cDA / Thermie) (DA / month /Thermie/h) (DA/month)
21 17,87 10,8 6 854,55
21T 18,49 11,16 7 092,45
22 37,07 2,63 685,42
23 32,45 0,324 28,50

The billing method is the same as for electricity, but with a constant price over the day:
𝑃𝐺𝑒𝑥𝑐𝑙.𝑉𝐴𝑇 = 𝐶𝑔𝑎𝑠,𝑐𝑜𝑛𝑠 . 𝐸𝑡ℎ,𝑐𝑜𝑛𝑠 + 𝐹𝐴𝐷. 𝐹1 + 𝐹
𝑃𝐺𝑖𝑛𝑐𝑙.𝑉𝐴𝑇 = 1,07 ∗ 𝑃𝐺𝑒𝑥𝑐𝑙.𝑉𝐴𝑇 + 0,0015. 𝐸𝑡ℎ,𝑐𝑜𝑛𝑠
𝑃𝐺𝑒𝑥𝑐𝑙.𝑉𝐴𝑇 : Gas Price excluding VAT [DA]

𝑃𝐺𝑖𝑛𝑐𝑙.𝑉𝐴𝑇 : Gas Price including VAT [DA]
𝐶𝑔𝑎𝑠,𝑐𝑜𝑛𝑠 : Unitary cost of thermal energy [DA/Thermie]
𝐸𝑡ℎ,𝑐𝑜𝑛𝑠 : Thermal energy consumed the month [Thermie]
𝐹𝐴𝐷 : Subscribed flow at disposal [Thermie/h]
𝐹1 : Unitary price of flow at disposal [DA/Thermie/h]
𝐹 : Monthly fixed fee [DA]
The average cost of gas for an industry with significant thermal needs is hence around 0,1849 DA ~
0,1849 cts€ / Thermie (HHV) = 0,1767cts€ / kWh (LHV). Despite this very low price level, gas is still
about 13 times cheaper than electricity for industrial use: this will ensure a good profitability of CHP
plants based on gas engines in Algeria. The figure below shows the Excel sheet developed to
calculate the gas bill, for each of the gas rates mentioned above.
TABLE 5-4: CALCULATION OF GAS BILL
5.2.2 Incentives and subsidies
5.2.2.1 Feed-in tariffs

The law n°02-01 of February 2002 the 5th, and the executive decree n°04-92 of March 2004 the 25th,
introduced significant incentives for CHP plants in Algeria. Price levels of electricity produced by CHP
plants < 50 𝑀𝑊𝑒 and fed into the grid were set as a percentage of the average price observed on the
market of electricity production with the following rules:
- 160% of electricity market price if 20% of primary energy consumption is recovered as heat

- 120% of electricity market price if 15% to 20% of primary energy consumption is recovered
as heat
- 80% of electricity market price if 10% to 15% % of primary energy consumption is recovered
as heat
- 0% if less than 10% of primary energy consumption is recovered as heat (self consumption
only)
For electricity produced with biogas sources such as sewage and landfill gas, price levels for feeding
the grid was set at 200% of electricity market price.
In reality, this decree has never been applied and the market of decentralized CHP plants for
electricity production never took up. Another decree is currently under consideration by the
regulating committee, but as long as no new incentive schemes have officially been published, CHP
plants can only be used for self consumption.
5.2.2.2 Subsidies
Even though no feed-in tariff has been applied yet for renewables and CHP plants, a large fund for
promoting the rational use of energy was voted by the Law of Finance 2000 and adopted by the
Decree n°2000-116 of May 2000 the 29th.
The revenues of this fund come from the above mentioned taxes on energy consumption and are set
at the following levels:
- 0,0015 Da/ thermie for natural gas

- 0,02 DA / kWh for electricity
Although expected to come, no tax has been established yet for other energy sources such as oil,
LPG, etc... Those amounts are directly collected by Sonelgaz and Sonatrach, and are redistributed by
the national agency APRUE, responsible for sharing this fund into four main programmes of energy
use rationalization within:
- the industrial sector

- the residential sector
- the lighting sector
- the transport sector
For the industry, as soon as thermal energy is recovered the CHP plant becomes eligible for and the
APRUE agency offers to give the following subsidies:
- 30% of feasibility studies costs capped to 4 million DA ~ 12 000 €

- 70% of installation costs capped to 10 million DA ~ 70 000 €
The query has to be done by the client and is submitted to final approval by a committee of experts.
5.2.3 Engine choice

Whereas in Europe heating networks are often supplied by CHP plants, which results in dimensioning
the engine on thermal needs and feeding the national grid with the produced electrical power, there
is no grid feeding possibility in Algeria (or better said, no grid selling possibility). Hence, the engine is
always dimensioned by the electrical load on site. The GE Jenbacher engines used by Clarke Energy
range from 250kW to 4,4 MW, as shown in the graph below :
FIGURE 5-2: GE JENBACHER POWER RANGE
They are split into four “types” depending on the size and the number of cylinders:
- type 2 for 2L cylinder, available with 08 cylinders, power range 250 – 330 kW
- type 3 for 3L cylinder , available with 12, 16 and 20 cylinders, power range 500 – 1100 kW
- type 4 for 4L cylinder, available with 12, 16, and 20 cylinders, power range 800 – 1500 kW
- type 6 for 6L cylinder, available with 12, 16, 20 and 24 cylinders, power range 1,5 – 4,4 MW
A 9L 24 cylinder engine is also under development (the J920 engine), for a power output of almost 10
MW and an electrical efficiency of 48,7%, but would not be available before 2014 in North Africa.
Other factors that could influence, as a second criterion, the choice of the engine are:
- electrical efficiency (ranges from 39% to 45%)

- thermal efficiency (ranges from 42% to 47%)
- voltage output at the alternator outlet (400V, 5,5kV, 10kV)
- auxiliaries consumption (ranges from 20 to 144 kW)
- specific installation, maintenance and overhaul cost
In order to compare the impact of the variation of each factor, a database of prices and technical
characteristics has been implemented, and three similar Excel sheets (Option 1, Option 2 and Option
3) were created with the following table. By changing the factors in each option, it will be possible to
analyse the results.

TABLE 5-5: RESUME OF CHP CHARACTERISTICS
CHP PLANT 3
Engine type 1 JMS 612 GS-N/LC F111

Number of engines 1
Maintenance cost € HT / h xxxxx
Major overhaul € HT xxxxx
Engine type 2 None
Number of engines -
Maintenance cost € HT / h -
Major overhaul € HT -
Annual Availability Guaranteed % 95%
Cost of installed kW € HT / kW xxx
Subsidies € xxx
CO2 Certificates
Interest rate of the loan 3,00%
Total duration of the loan 7 years

Thermal Energy Use Hot Air
Grid feeding NO
Gas consumption kWh PCI 4 674
Power Output (gross, cos phi =1) kW 2 000
Power Output (net) kW 1 897
Thermal Energy Output kW 2 094
Electrical Efficiency % 42,79%
Thermal Efficiency % 44,80%
Annual Operating Hours 8 322
5.2.4 Electrical and thermal annual gains

Based on both electricity and gas bills of a customer, and after choosing the right engine given site
conditions, the annual energy balance can easily be made. From the energy balance, annual savings
can be calculated by applying the relevant energy rates.
5.2.4.1 Energy balance, single engine power plant

Assuming the electrical load to be constant over the day (which is the case for most of the industries
with 24H/24 production), the monthly electrical production of the CHP can be calculated with the
following formula, taking into consideration the availability guaranteed :
𝑛 𝑛
𝐼𝐹 𝑃𝑒𝑙 𝑛𝑒𝑡,𝑝𝑟𝑜𝑑 . 𝐻𝑛 . 𝐴 < 𝐸𝑒𝑙,𝑐𝑜𝑛𝑠 𝐸𝑒𝑙,𝑝𝑟𝑜𝑑 = 𝑃𝑒𝑙 𝑛𝑒𝑡,𝑝𝑟𝑜𝑑 . 𝐻𝑛 . 𝐴
𝑛 𝑛 𝑛
𝐼𝐹 𝑃𝑒𝑙 𝑛𝑒𝑡,𝑝𝑟𝑜𝑑 . 𝐻𝑛 . 𝐴 > 𝐸𝑒𝑙,𝑐𝑜𝑛𝑠 𝐸𝑒𝑙,𝑝𝑟𝑜𝑑 = 𝐸𝑒𝑙,𝑐𝑜𝑛𝑠 .𝐴
𝑃𝑒𝑙 𝑛𝑒𝑡,𝑝𝑟𝑜𝑑 : Net electrical output of the CHP [kW]

𝐻𝑛 : Number of hours in the considered month n [hours]
𝐴 : Availability guaranteed as % of total running hours [%]
𝑛
𝐸𝑒𝑙,𝑐𝑜𝑛𝑠 : Monthly electrical consumption of the factory [kWh]
𝑛
𝐸𝑒𝑙 𝑝𝑟𝑜𝑑 : Monthly electrical production of the CHP [kWh]

The thermal production, determined by the electrical load, is then calculated by using both electrical
and thermal efficiency of the CHP, and the efficiency of existing boilers (or air dryers if applicable):
𝑛 𝜂𝑡ℎ 𝑛 𝑛 𝑛 𝜂𝑡ℎ
𝐼𝐹 𝐸𝑒𝑙 𝑝𝑟𝑜𝑑 . < 𝐸𝑡ℎ,𝑐𝑜𝑛𝑠 𝐸𝑡ℎ,𝑟𝑒𝑐 = 𝐸𝑒𝑙,𝑝𝑟𝑜𝑑 .
𝜂𝑒𝑙 𝜂𝑒𝑙
𝑛 𝜂𝑡ℎ 𝑛 𝑛 𝑛
𝐼𝐹 𝐸𝑒𝑙 𝑝𝑟𝑜𝑑 . 𝜂 > 𝐸𝑡ℎ,𝑐𝑜𝑛𝑠 𝐸𝑡ℎ,𝑟𝑒𝑐 = 𝐸𝑡ℎ ,𝑐𝑜𝑛𝑠,𝑢𝑠
𝑒𝑙
with
𝜂𝑒𝑙 : Electrical efficiency of the CHP [%]

𝜂𝑡ℎ : Thermal efficiency of the CHP [%]
𝜂𝑏 : Existing boiler efficiency [%]
𝑛
𝐸𝑡ℎ,𝑟𝑒𝑐 : Thermal energy recovered during month n [kWh]
𝑛
𝐸𝑡ℎ,𝑐𝑜𝑛𝑠 : Thermal energy consumption during month n [kWh]
𝑛 𝑛 𝑛
𝐸𝑡ℎ,𝑐𝑜𝑛𝑠,𝑢𝑠. : Usable thermal energy needs of the factory, 𝐸𝑡ℎ,𝑐𝑜𝑛𝑠,𝑢𝑠 = 𝐸𝑡ℎ,𝑐𝑜𝑛𝑠 . 𝜂𝑏 [kWh]
Example: 2 MW constant consumption, single engine JMS 612 power plant
The following table contains the results of this calculation for a factory with a 2 MW constant power
need, on which a 2 MW single engine (JMS 612) power plant is installed, with the characteristics
given above. The amount of kWh produced by the CHP corresponds to 90,1% of the annual needs.
TABLE 5-6: ELECTRICAL PRODUCTION OF THE CHP - ANNUAL CONSUMPTION MODEL
Needs
CHP 3 Needs with CHP
without CHP
Electrical Real
Missing
energy, electrical Excess of
electrical
Effective Actual potential energy electrical
Off energy
Month Days Hours running electrical production produced energy
days (bought
hours consumption (T<40°C, (T<40°C, (sold to
from
100% 95% Sonelgaz)
Sonelgaz)
availability) availability)
kWhe kWh e kWh e kWh e kWh e
Jan 31 0 744 706,8 1 488 000 1 411 342 1 340 775 147 225 0
Feb 28 0 672 638,4 1 344 000 1 274 761 1 211 023 132 977 0
March 31 0 744 706,8 1 488 000 1 411 342 1 340 775 147 225 0
Apr 30 0 720 684 1 440 000 1 365 815 1 297 524 142 476 0
May 31 0 744 706,8 1 488 000 1 411 342 1 340 775 147 225 0
Jun 30 0 720 684 1 440 000 1 365 815 1 297 524 142 476 0
Jul 31 0 744 706,8 1 488 000 1 411 342 1 340 775 147 225 0
Aug 31 0 744 706,8 1 488 000 1 411 342 1 340 775 147 225 0
Sept 30 0 720 684 1 440 000 1 365 815 1 297 524 142 476 0
Oct 31 0 744 706,8 1 488 000 1 411 342 1 340 775 147 225 0
Nov 30 0 720 684 1 440 000 1 365 815 1 297 524 142 476 0
Dec 31 0 744 706,8 1 488 000 1 411 342 1 340 775 147 225 0
Total 365 0 8760 8322 17 520 000 16 617 417 15 786 546 1 733 454 0
90,1% 9,9%
Based on the a thermal consumption of 1500 Nm3/h and on an existing boiler efficiency of 90% for
the factory, about 14,1% of the factory thermal needs will be produced by the CHP set given engine
efficiencies as above.

TABLE 5-7: THERMAL PRODUCTION OF THE CHP - ANNUAL CONSUMPTION MODEL
Thermal
Thermal energy recovered Gas consumption
needs
Thermal Real Gas input
energy, thermal equivalent
Thermal
Actual potential energy Thermal to thermal
energy Actual gas CHP gas Total gas
thermal production recovered energy energy
produced consumption consumption consumption
needs (T<40°C, (T<40°C, lost recovered
by boilers
100% 95% (with
availability) availability boilers eff.)
kWh th kWh th kWh th kWh th kWh th kWh th PCI kWh th PCI kWh th PCI kWh th PCI
9 933 049 1 557 936 1 403 792 0 8 529 257 11 036 721 1 559 768 3 133 392 12 610 344
8 971 786 1 407 168 1 267 941 0 7 703 845 9 968 651 1 408 823 2 830 160 11 389 988
9 933 049 1 557 936 1 403 792 0 8 529 257 11 036 721 1 559 768 3 133 392 12 610 344
9 612 628 1 507 680 1 358 508 0 8 254 120 10 680 698 1 509 453 3 032 314 12 203 559
9 933 049 1 557 936 1 403 792 0 8 529 257 11 036 721 1 559 768 3 133 392 12 610 344
9 612 628 1 507 680 1 358 508 0 8 254 120 10 680 698 1 509 453 3 032 314 12 203 559
9 933 049 1 557 936 1 403 792 0 8 529 257 11 036 721 1 559 768 3 133 392 12 610 344
9 933 049 1 557 936 1 403 792 0 8 529 257 11 036 721 1 559 768 3 133 392 12 610 344
9 612 628 1 507 680 1 358 508 0 8 254 120 10 680 698 1 509 453 3 032 314 12 203 559
9 933 049 1 557 936 1 403 792 0 8 529 257 11 036 721 1 559 768 3 133 392 12 610 344
9 612 628 1 507 680 1 358 508 0 8 254 120 10 680 698 1 509 453 3 032 314 12 203 559
9 933 049 1 557 936 1 403 792 0 8 529 257 11 036 721 1 559 768 3 133 392 12 610 344
116 953 100 425
18 343 440 16 528 514 0 129 948 488 18 365 015 36 893 158 148 476 631
640 126
14,1% 85,9%
5.2.4.2 Energy balance, multiple engine power plant

The previous method is valid as soon as a single engine power plant is under consideration and with a
constant load over the day: with a guaranteed availability of 95%, the plant produces either 95% of
electrical needs, or 95% of its maximum production potential (case when the load is higher than the
power output of the CHP).
For a multiple engine power plant, the achieved amount of kWh produced has to be calculated
differently since other engines keep running when one is under maintenance. Hence, a basic method
consists in calculating the “unserved energy” with a probabilistic approach, and integrating the
difference between power production curve and site load curve.
𝐸𝑁𝑆𝑛 = � [𝑃𝑒𝑙,𝑝𝑟𝑜𝑑 (𝑡) − 𝐿𝑒𝑙,𝑐𝑜𝑛𝑠 (𝑡)]. 𝑑𝑡

𝑡
𝐸𝑁𝑆𝑛 : Energy Not Served for the month n [kWh]

𝑃𝑒𝑙,𝑝𝑟𝑜𝑑 (𝑡) : Power production curve of the CHP [kW]
𝐿𝑒𝑙,𝑐𝑜𝑛𝑠 (𝑡) : Load curve of the site [kW]
Example: 4,5 MW constant electrical consumption, 4-engine power plant
The following table contains each engine’s net output and availability.

TABLE 5-8: CALCULATION OF UNSERVED ENERGY - 4 ENGINE POWER PLANT
TOTAL INSTALLED POWER

Engine Installed Power Installed
Type Availability
Number (gross) Power (Net)
1 JMS 612 GS-N/LC F111 2000 1897 95,0%
2 JMS 612 GS-N/LC F111 2000 1897 95,0%
3 JMS 320 GS-N/LC C05 1063 1007 95,0%
4 JMS 320 GS-N/LC C05 1063 1007 95,0%
0 None 0 0 0,0%
0 None 0 0 0,0%
TOTAL 6126 5809
In this example, the guaranteed availability of each engine is 95%, and maintenance of each of them
will be scheduled to take place separately. Hence the following graph and tables can be used:
FIGURE 5-3: CALCULATION OF UNSERVED ENERGY - PRODUCTION AND LOAD CURVES
Load covered by the CHP (january)

Load Net Available Power Real production curve
7000
6000
5000
4000
[kW]
3000
2000
1000
0
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
5
100
[% of time]
The production curve never exceeds the load curve since there is no grid feeding.

TABLE 5-9 : CALCULATION OF UNSERVED ENERGY
ENS CALCULATION
% of time 5 … 80 85 90 95 100
Load (January) kW 4500 … 4500 4500 4500 4500 4500
Net Avail.
kW 5809 … 5809 4801 4801 3912 3912
Power
Real El. Prod. kWh/h 4500 … 4500 4500 4500 3912 3912
Missing Energy kWh/h 0 … 0 0 0 29 29
Average electrical Average missing

CHP prod. Grid cons.
energy needed energy
kWh / h kWh / h % of needs % of needs

4500 59 98,7% 1,3%
While a 2-MW engine is under maintenance, (4500 kW - 3912 kW)* 5 % = 29 kWh/h have to be
imported from the grid. If the factory runs 8760 hours/year and the engine has a guaranteed
availability of 95%, the average ENS at the end of the year will be 29 kWh/h * 8760 h/year = 254 040
kWh/year.
The result of the calculation gives a percentage of 98,7% of factory needs covered by the CHP, while
the previous method would have given a percentage of 95%. The calculation method has hence a
great influence on final energy balance, as well as on final savings analysis.
5.2.4.3 Annual savings on energy bill
5.2.4.3.1 Electricity value

In this model, the load of the plant was considered as constant over the day (which has been
observed, for the targeted industries, as very close to reality). Hence, the cost of each kWh that has
to be bought from the grid is easily calculated by applying the following formula:
∑3𝑖=1 𝐶𝑖𝑒𝑙,𝑐𝑜𝑛𝑠 . 𝐻𝑖
𝐶𝑒𝑙,𝑎𝑣𝑔 =
∑3𝑖=1 𝐻𝑖
𝐶𝑒𝑙,𝑎𝑣𝑔 : Average cost of active power bought from the grid [DA/kWh]
𝑖
𝐶𝑒𝑙,𝑐𝑜𝑛𝑠 : Unitary cost of active power for each pricing period (Night, Day, Peak) [DA/kWh]
𝐻𝑖 : Number of hours when each rate applies [h]
The value of electricity produced (annual gain) is simply calculated by multiplying the amount of kWh
produced by 𝐶𝑒𝑙,𝑎𝑣𝑔 : 𝑉𝑒𝑙 = 𝐸𝑒𝑙,𝑝𝑟𝑜𝑑 . 𝐶𝑒𝑙,𝑎𝑣𝑔
Application : for most industries in Algeria, the rate E41 applies, and 𝐶𝑒𝑙,𝑎𝑣𝑔 = 2,318 DA/kWh. In the
4,5 MW plant example above where 98,7 % of the needs were covered by the CHP, 𝐸𝑒𝑙,𝑝𝑟𝑜𝑑 =
38 904 527 𝑘𝑊ℎ . The annual electricity gain is
𝑉𝑒𝑙 = 2,32 x 38 904 527 = 90 211 000 DA ~ 902 000 €/year. With the previous calculation

method, only 95% of the electrical needs were covered for an annual gain of 868 817 000 €. This is
more than 30 000 € / year difference!
5.2.4.3.2 Thermal value

The calculation of the value for thermal energy produced follows the same rule and must include the
efficiency of existing boilers.
Application : for most industries in Algeria, the rate 21T applies and 𝐶𝑡ℎ,𝑎𝑣𝑔 = 𝐶𝑔𝑎𝑠,𝑐𝑜𝑛𝑠 =
18,49 cDA/thermie = 17,67 cDA/kWh (LHV). In the same example as above, with a factory
consumption of 1500 Nm3/h and a boiler efficiency of 90%, the CHP plant can produce 𝐸𝑡ℎ,𝑝𝑟𝑜𝑑 =
41 940 173 kWh, which represents 17,9% of final thermal needs. The value of thermal energy is
𝐸 .𝐶
hence 𝑉𝑡ℎ = 𝑡ℎ,𝑝𝑟𝑜𝑑 𝑡ℎ,𝑎𝑣𝑔�𝜂 = 8 234 254 𝐷𝐴 ~ 82 000 €/𝑦𝑒𝑎𝑟
𝑏
5.2.4.3.3 Fuel gas cost

The calculation of fuel gas costs follows almost the same formula as the thermal energy produced.
Application : with rate 21T, fuel consumption in example above was 𝐸𝑡ℎ,𝑐𝑜𝑛𝑠. = 92 453 821 𝑘𝑊ℎ.
𝑉𝑔𝑎𝑠,𝑐𝑜𝑛𝑠. = 𝐸𝑡ℎ,𝑐𝑜𝑛𝑠. . 𝐶𝑡ℎ,𝑎𝑣𝑔 = 16 336 600 𝐷𝐴 ~ 163 000 €/𝑦𝑒𝑎𝑟
For each of the three economical calculations above, a more precise analysis can be conducted by
adding or retrofitting the modifications of MPR, PAD and FAD due to the introduction of the CHP
plant. This has been taken into consideration in the model, though minor influence on the results.
5.2.4.3.4 Total cost

Given the previous calculation, the following table was created for each option, resuming the annual
energy costs for an industry.
TABLE 5-10: COMPARISON OF ANNUAL ENERGY COSTS - 4,5 MW INDUSTRY
Energy balance without CHP plant

Annual electrical consumption kWh 39 420 000
Average cost DA HT/kWh 2,6751
Annual cost Electricity DA HT/year 105 450 672
Annual gas consumption Th PCS/year 124 173 000
Existing boiler efficiency % 90%
Thermal needs of the factory kWh th PCI/year 116 953 640
Average cost DA HT/Th PCS 0,1849
Annual cost Gas DA HT/year 25 053 497
TOTAL COST ELEC + GAS DA HT/year 130 504 169

Energy balance with CHP plant
Annual Elec. Production (with 100% availability) kWh/year 50 882 688
Annual Elec. Production (real) kWh/year 38 904 527
Electrical Energy missing kWh/year 515 473
Electrical Energy that could be sold into the grid kWh/year 9 434 026
Percentage of electricity excess sold into the grid % 19 %
Feed in tariff DA HT/kWh 0,00
Value of sold electricity DA HT/kWh -
Average Electricity rate for missing power DA HT/kWh 2,3188
Annual cost Electricity DA HT/kWh 6 041 533
Gas consumption Nm3/h 14 558
Thermal Output (100% availability) kWh PCI/ year 57 851 040
Thermal Output (real) kWh PCI/ year 41 940 173
Annual gas consumption of CHP Plant kWh PCI/ year 92 453 821
Total gas consumption of the factory kWh PCI/ year 175 802 117
Gas price DA HT / Th PCS 0,1849
Annual cost Gas for CHP Plant DA HT/ year 16 447 495
Annual gain on thermal consumption of the factory DA HT/ year 8 290 154
Annual cost Gas DA HT/ year 33 958 538
TOTAL COST ELEC + GAS DA HT/ year 40 000 071
In this example (industry with 4,5 MW constant electrical needs, consuming 1500 Nm3/h of natural
gas, on wich a 4-engine power plant is installed), the annual earnings are hence around 900 000 €/
year.
5.2.5 Oil and Maintenance costs

From annual savings on energy bill must be retrieved maintenance and consumables (mainly oil)
costs.
5.2.5.1 Oil cost

In this paper, the following figures were considered in order to calculate the cost of oil along engines’
life cycle:
- Specific oil consumption for GE Jenbacher gas engines: 0,3 [g/kWh]

- Oil density : 0,887 [kg/l]
- Oil price : 3,5 [€/l]
The cost of oil is hence considered as a fixed cost, around 11,84 cDA / kWh produced.
5.2.5.2 Maintenance costs

Life time of GE gas engine before major overhaul is 60 000h. In this paper, three variables were taken
into consideration:
- operating costs: it is the cost of labour needed for operating the engine on a daily basis. They
are very low in Algeria, because the engine can basically run by itself without much
surveillance and because of low labour costs.

- the cost of preventive and curative maintenance. It is the sum of all minor maintenance
operations that have to be carried out during these 60 000 hours of operation, remote
assistance, spare parts and labour, usually accounted in € per operating hour.
- the cost of major overhaul after 60 000h of operating hours.
These costs highly depend on engine type. As mentioned above, the costs mentioned and used in this
paper have voluntarily been changed for confidentiality purposes.
5.2.6 Analytical tools: Payback Time, Net Present Value, Rate of Return, Cost of kWh
From the previous calculations can be highlighted important indicators for estimating the profitability
of a project.
5.2.6.1 ROI, NPV, IRR

The annual gross income is the sum of all cash flows : annual gains compared to current operation,
from which are retrieved annual maintenance and oil costs. The Return On Investment (ROI) or
payback time is the time after which annual gross incomes “repay” the original investment,
calculated as the initial investment minus subsidies divided by annual gross income.
The Net Present Value is used in capital budgeting for estimating long-term projects profitability by
taking into consideration the present value of money at the time of the investment, to the present
value of money in the future. It uses hence the series of cash flows, with a discount rate. It is an
indicator of how much value adds a project to a company. Higher is the NPV, better is the project.
The Internal Rate of Return (IRR) is the rate that makes the NPV equal to zero. It is an indicator of the
efficiency of an investment (how fast a project adds value to a company), whose result has to be
greater than a minimum rate set by rational investors.
In the industrial sector, these three indicators can be used by the owner of the factory to defend the
viability of a project to the bank and get a loan. In most cases though, industrial groups in Algeria
have enough cash to auto finance their projects.
5.2.6.2 Cost of kWh

Rather than projects indicators, industries are usually more interested by cost of production of the
kWh, which is a physical variable that can be easily compared to Sonelgaz prices. For each variable
(investment, loan costs, maintenance costs, overhaul, input gas, oil cost, thermal gains, eventual feed
in revenue, etc...) the value over a certain period is divided by the amount of kWh produced over the
same period.
The time frame usually considered in this paper is 15 years ( 2 x 7,5 years in order to include the
major overhaul in the analysis), considering that the CHP plant will work all the year round (8760
hours). In France, the cogeneration period covers only November – April, and the CHP plant operates
only 6000 hours / year : the period considered would rather be 24 years.
The financial analysis conducted for each option is described in the table below.

TABLE 5-11: ANALYTICAL TOOLS – COST OF KWH – 4,5 MW INDUSTRY
Financial analysis
Annual Balance Sheet

Investment DA - 310 326 800
Annuity DA / year - 49 205 294
Annual gains on energy consumption DA / year 90 504 098
Grid feeding revenues DA / year -
Maintenance costs DA / year - 32 871 900
Operating costs DA / year - 200 000
Annual gross income DA / year 57 432 198
Decision tools
Internal rate of return (IRR) % 13,6%
Payback time Years 5,40
Net Value after 15 years DA 133 188 278
Cost of kWh over 14,4 years 119 999 hours

Electricity produced kWh 560 983 459 / kWh
Investment DA 310 326 800 55,32
Loan DA 34 110 255 6,08
Maintenance costs DA 473 996 050 84,49
Major Overhaul @ 60 000 OH DA 136 600 000 24,35
Fuel gas costs DA 235 541 606 41,99
Oil costs DA 66 407 287 11,84
Thermal energy recovered DA - 124 243 744 -22,15
Feed in revenues DA - 0,00
TOTAL DA excl. VAT 1 132 738 253 201,92
Sonelgaz HT DA excl. VAT 267,51
Sonelgaz TTC DA incl. VAT 288,23
5.3 Results of the analysis

When presenting the results of a feasibility study within the industry, the final analysis is always
divided into three parts:
- Energy balance sheet
- Financial balance sheet
- Profitability of the CHP plant
- A complete example is shown below for and industry with 4 MW electrical needs and 1500
Nm3/h thermal needs. A CHP plant with 2 x 2 MW engines was considered (prices modified
for the purpose of the paper):

TABLE 5-12: FEASIBILITY RESULTS – EXAMPLE OF FINAL ANALYSIS
ENERGY BALANCE SHEET OPTION 1

Average Power Needed 4 000 kW
Installed Power 4 000 kW
Engine type 2 x JMS 612
Electricity
Current Sonelgaz consumption 35 040 000 kWe
Future CHP plant production 31 573 092 kWe
Future Sonelgaz consumption 3 466 908 kWe
Gas
Current Sonelgaz consumption 129 948 488 kWth
Future CHP plant consumption 73 786 316 kWth
Future CHP plant thermal production -36 730 030 kWth
Future Sonelgaz consumption 167 004 774 kWth
FINANCIAL BALANCE SHEET OPTION 1

Without CHP plant
Cost of Electricity 93 776 901 DA
Cost of Gas 25 053 497 DA
TOTAL 118 830 398 DA
With CHP plant
Cost of Electricity 12 389 755 DA
Cost of Gas 18 519 240 DA
CHP plant gas consumption 13 126 554 DA
TOTAL 44 660 039 DA
ANNUAL GAINS ON ENERGY 74 170 359 DA
PROFITABILITY OPTION 1
Investment -253 000 000 DA
Subsidies -7 000 000 DA
Annual gains on energy consumption 74 170 359 DA
Grid feeding revenues 0 DA
Maintenance costs -16 644 000 DA
Operating costs -200 000 DA
Annual gross income 57 326 359 DA
Cost of kWh
Sonelgaz 268 cDA
CHP plant 166 cDA
Decision tools
Internal rate of return 19,4%
Payback time (1) 4,41 Years
Net Value after 15 years 216 556 326 DA

FIGURE 5-4: FEASABILITY RESULTS - COST OF KWH OVER 15 YEARS
Cost of kWh over 15 years

CHP plant 1: Sonelgaz: Sonelgaz:
166 cDA 268 cDA 288 cDA
290.00
280.00
270.00
260.00
250.00
240.00
230.00
220.00
210.00
200.00
190.00
180.00 Oil
170.00
160.00
150.00 Fuel gas
140.00 incl. VAT
130.00 excl. VAT
120.00 Overhaul @60k
110.00
100.00
90.00 Maintenance
80.00
70.00
60.00 Loan
50.00
40.00
30.00 Investment
20.00
10.00
0.00
-10.00 Thermal energy
-20.00 recovered
-30.00
For the purpose of this paper and for readability reasons, only the profitability results will be
analysed and the four key variables highlighted (ROI, NPV, IRR, Cost of kWh) in the rest of this
chapter.
5.3.1 Influence of electrical and thermal efficiencies on profitability

Efficiency of a generator is usually one of the most important criterions, above all in countries where
fuel is expensive. In this section the following input data were used:
- Electricity rate E41, gas rate 21T

- Industry with 2000kW constant active power consumption, 1500 Nm3/h gas consumption
- 85% reactive power consumption, PAD = 2600kW, MPR = 2800kW
- three options, each of them with a 2-MW engine installed with varying efficiencies as follow :

TABLE 5-13: INFLUENCE OF ELECTRICAL AND THERMAL EFFICIENCIES ON ROI
PROFITABILITY OPTION 1 OPTION 2 OPTION 3

Average Power Needed 2 000 kW 2 000 kW 2 000 kW
Installed Power 2 000 kW 2 000 kW 2 000 kW
Engine type 1 1 x JMS 612 1 x JMS 612 1 x JMS 612
η electrical 40,81% 42,79% 44,68%
η thermal 46,37% 44,80% 44,30%
Cost of kWh
Sonelgaz 269 cDA 269 cDA 269 cDA
CHP plant 167 cDA 167 cDA 166 cDA
Decision tools
Internal rate of return 23,3% 23,4% 23,7%
Payback time (1) 3,77 Years 3,77 Years 3,73 Years
Net Value after 15 years 113 216 050 DA 113 578 589 DA 115 746 106 DA
FIGURE 5-5: INFLUENCE OF ELECTRICAL AND THERMAL EFFICIENCIES ON COST OF KWH

CHP plant 1: CHP plant 2: CHP plant 3: Sonelgaz: Sonelgaz:
167 cDA 167 cDA 166 cDA 269 cDA 290 cDA
290.00
280.00
270.00
260.00
250.00
240.00
230.00
220.00
210.00
200.00
190.00
180.00 Oil Oil Oil
170.00
160.00 Fuel gas Fuel gas
150.00 Fuel gas
140.00 incl. VAT
130.00 excl. VAT
120.00 Overhaul @60k Overhaul @60k Overhaul @60k
110.00
100.00
90.00
80.00 Maintenance Maintenance Maintenance
70.00
60.00
50.00 Loan Loan Loan
40.00
30.00
20.00 Investment Investment Investment
10.00
0.00 Thermal energy Thermal energy
-20.00 recovered recovered recovered
As can be seen in the previous graph, efficiencies (both electrical and thermal) have a very small
impact on ROI, NPV and IRR, mostly due to low fuel gas costs in Algeria. The cost of electricity
production is very much similar between a 40% electrical efficient power plant and a 44% electrical
efficient power plant and the difference between these both plants in terms of annual income is
insignificant (less than 3000€/year!).
Conclusion: the engine choice in Algeria would rather not be based on efficiencies but will rely more
on initial investment and maintenance costs.

5.3.2 Influence of plant size on profitability: economies of scale
The bigger the cheaper (proportionally): same rule prevails for gas engines. In this section the
following input data were used:

- Industry with 1MW, 2MW and 4MW constant active power consumption, 1500 Nm3/h gas
consumption
- 85% reactive power consumption,
- 1-MW, 2-MW, 4-MW engines installed, running at full load 95% of the year
TABLE 5-14 : INFLUENCE OF PLANT SIZE ON ROI
ENERGY BALANCE SHEET OPTION 1 OPTION 2 OPTION 3

Engine type 1 1 x JMS 320 GS-N/LC C05 1 x JMS 612 GS-N/LC F111 1 x JMS 624 GS-N/LC G111
Cost of kWh
Decision tools
FIGURE 5-6: INFLUENCE OF PLANT SIZE ON COST OF KWH

290.00
280.00
270.00
260.00
250.00
240.00
230.00
220.00
210.00
200.00
190.00 Oil
180.00 Oil
170.00 Oil
160.00 Fuel gas
140.00 incl. VAT
130.00 Overhaul @60k excl. VAT
120.00 Overhaul @60k Overhaul @60k
110.00
100.00
90.00 Maintenance
80.00 Maintenance Maintenance
70.00
60.00
50.00 Loan Loan
40.00 Loan
30.00
20.00 Investment Investment Investment
10.00

The size of the plant has obviously a strong effect on the variables: IRR and ROI are better for a 4-
MW plant than for a 1-MW plant (the investment pays back faster), and on the long term the 4-MW
plant will obviously bring more value to the company (NPV higher).
The capital cost part is around 15% lower for a 4-MW plant than for a 1-MW plant (proportionally),
and maintenance costs around 10%. As electrical efficiency goes up with the size, fuel gas costs are
also lower of some 5%.
Conclusion: the result of all this is a cost of production per kWh 7,04 % cheaper in the case of a 4-MW
plant compared to a 1-MW plant.
5.3.3 Influence of cogeneration type on profitability

When it comes to gas engine based CHP plants, the figure below shows the two main points where
heat can be recovered:
- Engine cooling water circuit, at low temperature (70°C / 90°C customer side)
- Exhaust gases at high temperature (around 400°C), whose direct use is conditioned by the
quality of fuel input gas and might need treatment
Three main uses of this available heat exist.
5.3.3.1 Hot air

It consists in transferring the heat of engine cooling water into hot air with a water/air heat
exchanger, combined with the direct use of exhaust gases into the client’s process. Very low capital
costs, high heat recovery efficiency (>50%). All usable heat can usually be recovered.
5.3.3.2 Hot water

Engine cooling water can be used directly, further heated in an exhaust gas heat exchanger. Higher
capital costs due to the use of the heat exchanger on exhaust gases, lower heat recovery efficiency
due to the fact that exhaust gases can’t be cooled down lower than 120°C in order to avoid
apparition of condensate. All usable heat can usually be recovered.
5.3.3.3 Steam
Engine cooling water is used to preheat the feed water which will then be evaporated in an exhaust
gas boiler. High capital cost, higher maintenance and operation costs due to the necessary
monitoring of a pressurized system, lower heat recovery efficiency since the evaporating point goes
up as the steam pressure increases.
A 2-MWe engine will for instance produce 1 134 kg/h of steam @4 bars, with an exhaust gas thermal
output of 760 kW, while the production @8 bars is only 980 kg/h and the thermal output 666 kW.

TABLE 5-15: CALCULATION OF STEAM PRODUCTION - 2 MW ENGINE
Steam prod. JMS 612 4 bars 8 bars

T°C water in : 15,00 °C 15,00 °C
T°C water out : 90,00 °C 90,00 °C
Cp water avr 15°C - 90°C : 4,1955 kJ/kg 4,1955 kJ/kg
Exhaust mass flow rate : 11 456 kg/h 11 456 kg/h
T°C exhaust gas : 390,00 °C 390,00 °C
Cp exhaust gas : 1,1040 kJ/kg 1,1040 kJ/kg
T°C feed water : 90,00 °C 90,00 °C
Enthalpy h1' : 377,00 kJ/kg 377,00 kJ/kg
T°C vap : 143,62 °C 170,41 °C
Enthalpy h2' : 604,67 kJ/kg 720,94 kJ/kg
2737,60 2767,50
Enthalpy h2'' :
kJ/kg kJ/kg
Pinch point : 30,00 °C 30,00 °C
Cooling exhaust down to : 173,62 °C 200,41 °C
P th exhaust gas : 760 kW 666 kW
Steam prod. : 1 134 kg/h 980 kg/h
For gas engines, the exhaust gas temperature is relatively low (around 400°C) which lowers the
amount of steam that can be produced. Furthermore the shares of “power available at low
temperature for water pre heating” / “power available at high temperature for water evaporating” is
generally around 60% / 40%. Hence, a gas engine can only vaporize a small part of the produced hot
water at 90°C, and when there is no further need for warm water the remaining available heat at low
temperature is lost and has to be dissipated through air coolers.
The example below shows the recoverable thermal output of a 2 MWe engine producing steam at 8
bars. Only 752 kW can be used, the remaining 1332 kW are lost.
FIGURE 5-7: PRODUCTION OF STEAM @ 8 BARS - 2 MW ENGINE

5.3.3.4 Impact on profitability
In this section the following input data were used:

- Same 2-MWe engine installed, with different heat recovery modes
TABLE 5-16: INFLUENCE OF COGENERATION TYPE ON ROI
PROFITABILITY OPTION 1 OPTION 2 OPTION 3 OPTION 4

Average Power Needed 2 000 kW 2 000 kW 2 000 kW 2 000 kW
Installed Power 2 000 kW 2 000 kW 2 000 kW 2 000 kW
Engine type 1 1 x JMS 612 1 x JMS 612 1 x JMS 612 1 x JMS 612
Heat production NO HOT AIR HOT WATER STEAM
η electrical 42,79% 42,79% 42,79% 42,79%
η thermal 0,00% 53,17% 44,59% 16,09%
η total 42,79% 95,96% 87,38% 58,88%
Cost of kWh
Sonelgaz 269 cDA 269 cDA 269 cDA 269 cDA
CHP plant 188 cDA 161 cDA 167 cDA 185 cDA
Decision tools
Internal rate of return 19,2% 25,3% 23,4% 19,1%
Payback time (1) 4,35 Years 3,54 Years 3,77 Years 4,38 Years
Net Value after 15 years 81 656 024 DA 123 716 593 DA 113 437 457 DA 86 124 002 DA
FIGURE 5-8: INFLUENCE OF COGENERATION ON COST OF KWH

CHP plant 1: CHP plant 2: CHP plant 3: CHP plant 4: Sonelgaz: Sonelgaz:
188 cDA 161 cDA 167 cDA 185 cDA 269 cDA 290 cDA
290.00
280.00
270.00
260.00
250.00
240.00
230.00
220.00
210.00
200.00
190.00 Oil
180.00 Oil Oil Oil
170.00
160.00 Fuel gas Fuel gas Fuel gas
150.00 Fuel gas
140.00 incl. VAT
120.00 Overhaul @60k Overhaul @60k Overhaul @60k
110.00
100.00
90.00
80.00 Maintenance Maintenance Maintenance Maintenance
70.00
60.00
50.00 Loan Loan Loan
40.00 Loan
30.00
20.00 Investment Investment Investment Investment
10.00
0.00 Thermal energy
-20.00 recovered recovered
-30.00

The table and graph above clearly show that:
- Best ROI, IRR and NPV are achieved with CHP plant using hot air. The ceramic industry (brick
factories, ...) has hence the best potential for gas engine use in Algeria.
- Hot water use also has a good potential
- Steam production alone has a very limited potential within current framework. It increases
the initial investment cost of almost 10%, complicates the project (special authorizations
needed for pressurized systems) and the operation of the plant for a limited added value:
the final amount of steam usually doesn’t match industrial needs, and ROI, IRR and NPV are
the same as with a simple power plant with no heat recovery system!
Conclusion: industrial applications using hot air will be first targeted for CHP use. For other
applications, generating set will be privileged.
5.3.4 Single vs multiple engine power plant: influence of flexibility and grid reliability
on profitability
One of the challenges within the industry is to explain that CHP plants and Sonelgaz are not
competing against but rather helping each other: CHP plants will help resolve locally the necessary
load shedding during peak periods by adding a decentralized power plant at the consumption point.
On the other hand, having access to the grid will considerably lower the capital cost needed for the
CHP plant, by being the backup solution when the CHP plant is under maintenance.
Industries in Algeria are all connected to the grid. If the risk of load shedding is 50% without CHP
plant, after installing a 95% available CHP plant this risk goes down to 50% * 5% = 2,5% of the time.
The question is then:
- what added value does this stabilization represent for the customer in terms of production ?
- does this 2,5 % risk justifies the installation of an additional gas engine in order to get up to
100% availability ?
5.3.4.1 Value of grid stabilization


- Three options as follow : 4 x 1 MW, 2 x 2 MW, 1 x 4 MW

TABLE 5-17: SINGLE VS MULTIPLE ENGINE CHP PLANT - VALUE OF GRID STABILIZATION

Guaranteed power 100% of the time 3 189 kW 2 000 kW 0 kW
% of load covered by CHP 95,1% 90,1% 91,1%
Cost of kWh
Decision tools
Value of grid stabilization 26 000 000 DA 12 000 000 DA 10 000 000 DA
Payback time (2), with consideration
3,06 Years 3,06 Years 3,05 Years
of grid stabilization value
The best economical option is of course installing a single engine 4-MW CHP plant. By accounting an
additional gain of 100 000€/year due to grid stabilization, the ROI goes down to 3 years.
With the 4 x 1 MW plant, 3 MW will be available 100% of the time and the added value for the
customer of having a 3 MW guaranteed power has to go up to 260 000€/year in order to get a 3-year
ROI, which is rarely the case.
The 2 x 2-MW option represents a good intermediate, with a 50 % load guaranteed (2 000 kW) 100%
of the time, and an additional added value of 120 000€/year instead of 100 000€/year in order to get
a 3-year ROI.
FIGURE 5-9: SINGLE VS MULTI ENGINE CHP PLANT - COST OF KWH

290.00
280.00
270.00
260.00
250.00
240.00
230.00
220.00
210.00
200.00 Oil
190.00
180.00 Oil
170.00 Oil
Fuel gas
160.00 Fuel gas
150.00 Fuel gas
140.00 incl. VAT
110.00
100.00
90.00 Maintenance
70.00
60.00
50.00 Loan
40.00 Loan Loan
30.00 Investment
20.00 Investment Investment
10.00
0.00 Thermal energy Thermal energy Thermal energy
-10.00
-30.00

Conclusion: when access to the grid is possible, which is the case for most industries in Algeria, a
single engine power plant will be more competitive.
5.3.4.2 Value of grid independence

Being 100% independent from the grid has its cost: an additional engine has to be installed in order
to cover the load while one of the base load engines is under maintenance. In this section the
following input data were used:

- Industry with 4 000kW constant active power consumption, 1500 Nm3/h gas consumption
- No access to the grid (100 % CHP availability required)
- Three options as follow : 5 x 1 MW, 3 x 2 MW, 2 x 4 MW
TABLE 5-18: SINGLE VS MULTIPLE ENGINE CHP PLANT – VALUE OF GRID INDEPENDENCE

Guaranteed power 100% of the time 4 252 kW 4 000 kW 4 035 kW
Engine type 1, base load 4 x JMS 320 2 x JMS 612 1 x JMS 624
Engine type 2, back up 1 x JMS 320 1 x JMS 612 1 x JMS 624
% of load covered by CHP 100% 100% 100%
Cost of kWh
Decision tools
Value of grid stabilization 40 000 000 DA 40 000 000 DA 40 000 000 DA
Payback time (2), with consideration
3,19 Years 3,05 Years 4,02 Years
of grid stabilization value

FIGURE 5-10: SINGLE VS MULTIPLE CHP PLANT - COST OF KWH FOR 100% AVAILABILITY

290.00
280.00
270.00
260.00
250.00
240.00
230.00 Oil
220.00
210.00 Oil
200.00 Oil Fuel gas
190.00
160.00
140.00 Overhaul @60k incl. VAT
130.00 excl. VAT
120.00 Maintenance
110.00
90.00
80.00 Loan
70.00
60.00 Loan Loan
50.00
40.00 Investment
20.00
10.00
-10.00
-30.00
The best option when it comes to securing 100% of the electrical needs is OPTION 2 (3 engines, with
a unit power capacity equivalent to 50% of the load). The capital cost is lower than OPTION 3 (for a 4-
MW plant 100% guaranteed, only 6 MW are installed instead of 8 MW in scenario 3), and the
maintenance costs are lower than in OPTION 1 (3 engines instead of 5). The added value of being
independent from the grid has to be more than 400 000€/year for the ROI to go down to 3 years.
Conclusion: having a 100% independent power plant impacts the ROI of approx. 1,5 year, going up
from 3,76 years to 5,15years (OPTION 2).
5.3.4.3 Last kWh produced

The following graph compares the cost of production for a 2 x 2 MW plant without back up, the cost
of production of the backup engine, and the total cost of a 3 x 2 MW plant.

FIGURE 5-11: SINGLE VS MULTIPLE ENGINE CHP PLANT - LAST KWH PRODUCED

CHP plant Back up Total
without back up: production cost: average cost: Sonelgaz: Sonelgaz:
720.00
670.00
620.00
Oil
570.00 Fuel gas
520.00 Maintenance
470.00
Loan
420.00
370.00
320.00
270.00
220.00 Investment Oil
170.00 Oil Fuel gas
Fuel gas Overhaul @60k incl. VAT
Maintenance
70.00 Maintenance
Loan
Loan
Therm. Energy Therm. Energy Therm. Energy
-30.00
Conclusion: the additional cost induced by having a backup engine in order to be 100% independent
from the grid strongly impacts the cost of production of these additional kWh. These “last kWh
produced” are not competitive anymore, and when possible it is better to get them from the grid.
5.3.5 Influence of electricity and gas rates evolution on profitability
5.3.5.1 Sonelgaz prices increase

Sonelgaz electricity and gas rates have remained unchanged since 2005, making annual losses of
550 M€. Early June ’12, the management announced that a 50% electricity rate increase would be
needed in order to establish financial breakeven, redevelop the infrastructures as needed in the 8
GW emergency plan to be implemented by 2017, and finally secure the grid. But the government is
still reluctant to authorize such an increase given the political and social impact it would have, and
prefers balancing these losses with the revenues from oil export.
This situation will not last forever, and it is important to measure the impact of this gas and
electricity rate increase on the Algerian gas engine market. In this section the following input data
were used:
- Electricity rate E41, gas rate 21T, with potential increase of 50 % each
- three options, each of them with a 2-MW engine installed with varying efficiencies as follow :

TABLE 5-19: INFLUENCE OF SONELGAZ RATES INCREASE ON ROI
PROFITABILITY OPTION 1 OPTION 2 OPTION 2 OPTION 3

Average Power Needed 2 000 kW 2 000 kW 2 000 kW 2 000 kW
Installed Power 2 000 kW 2 000 kW 2 000 kW 2 000 kW
Engine type 1 1 x JMS 612 1 x JMS 612 1 x JMS 612 1 x JMS 612
Electrical rate increase + 0% + 0% + 50% + 50%
Gas rate increase + 0% + 50% + 0% + 50%
Cost of kWh
Sonelgaz 269 cDA 269 cDA 403 cDA 403 cDA
CHP plant 165 cDA 175 cDA 165 cDA 175 cDA
Decision tools
Internal rate of return 24,4% 22,1% 47,6% 45,6%
Payback time (1) 3,64 Years 3,91 Years 2,05 Years 2,13 Years
Net Value after 15 years 116 978 589 DA 100 241 187 DA 302 295 370 DA 285 557 969 DA
FIGURE 5-12: INFLUENCE OF SONELGAZ RATES INCREASE ON COST OF KWH

CHP plant 1: CHP plant 2: CHP plant 2: CHP plant 3: Sonelgaz: Sonelgaz:
440.00
420.00
400.00
380.00
360.00
340.00
320.00
300.00
280.00
260.00
240.00
220.00 incl. VAT
200.00 Oil Oil excl. VAT
180.00 Oil Oil
Fuel gas Fuel gas
140.00
120.00 Overhaul @60k Overhaul @60k Overhaul @60k Overhaul @60k
100.00
80.00 Maintenance Maintenance Maintenance Maintenance
60.00
40.00 Loan Loan Loan Loan
20.00 Investment Investment Investment Investment
Thermal energy Thermal energy
-20.00 recovered recovered recovered recovered
-40.00
A gas rate increase has a limited impact on key variables due to its relatively small share in the total
cost of production per kWh. A 50% increase would only increase the cost of production with 6%, and
the difference on ROI is less than 4 months.
On the opposite, an electricity rate increase would have a very strong impact on the gas engine
market in Algeria: a 50% increase would decrease the ROI down to two years, and would triple the
NPV after 15 years.
Conclusion: the inevitable increase in Sonelgaz electricity rates will largely impact the gas engine
business in Algeria in a positive way, while a gas rate increase won’t really harm its potential.
5.3.5.2 Introduction of feed-in tariffs

As explained in Part 5.2.2.1, feed-in tariffs were determined in the law n°02-01 of February 2002 the
5th but are still not enforced. Hence, no legal framework actually allows a small private producer to
install its own power plant and export into the grid.
A revision of the application decree is currently under study, and should be enforced by the end of
year 2012. It is important to measure the impact of this gas and electricity feed in tariff on the
Algerian gas engine market. In this section the following input data were used:
- Electricity rate E41, gas rate 21T, with feed-in tariff at 160% of electrical market price
TABLE 5-20: INFLUENCE OF FEED-IN TARIFFS ON ROI
ENERGY BALANCE SHEET OPTION 1 OPTION 2 OPTION 3

Feed in tariff 160% NO NO
Cost of kWh
Decision tools

FIGURE 5-13: INFLUENCE OF FEED-IN TARIFFS ON ROI

290.00
280.00
270.00
260.00
250.00
240.00
230.00
220.00
210.00
200.00 Oil
190.00
180.00 Oil Fuel gas
170.00
160.00 Oil
150.00 Fuel gas
140.00 Overhaul @60k incl. VAT
Fuel gas excl. VAT
130.00
100.00 Maintenance
90.00
70.00
60.00
50.00 Loan
40.00 Loan Loan
30.00 Investment
10.00
-10.00
-30.00
Oversizing the engine is not economically interesting at the moment (better ROI, IRR and NPV for
OPTION 2 - 2000kW than for OPTION 3 - 2677kW). It is the reason why CHP plants currently offered
are based on the average power consumption and not the maximum peak power observed. Once the
feed-in tariffs will be enforced it will become attractive to dimension the plant on the maximum peak
power consumed.
Conclusion: the introduction of a feed-in tariff of 160% will not only influence the choice of engine
type, but will also leverage the profitability of gas engine based CHP plants by decreasing the ROI
with approximately 1 year.
5.3.6 Application to a similar market: Tunisia

Due to lower hydrocarbons resources in Tunisia, energy prices are much higher than in Algeria.
Though the three targeted markets are somehow similar (CHP for the industry, production for the
national grid and Oil&Gas for flare gas application), profitability will widely vary between both
countries.
- Industry with 2000kW constant active power consumption

- 2 MW engine with same CAPEX and OPEX
- Comparison between Algerian rates and Tunisian rates

Figures 5-13 and 5-14 show the costs of gas engine generated kWh in both Algeria and Tunisia
compared with local electricity providers (Sonelgaz in Algeria and STEG in Tunisia). Figure 5-15 shows
the 20-year revenue for an industry investing in the same CHP plant in each of both countries.
FIGURE 5-14: COMPARISON ALGERIA / TUNISIA - COST OF KWH IN ALGERIA
Cost of kWh over 20 years - Algeria (cDZD)

OPTION 1 : 174,62 OPTION 2 : 150,13
750.00
650.00
550.00
450.00
Sonelgaz Peak
350.00 726.68
250.00
Oil Oil
Overhaul @60k Overhaul @60k
Sonelgaz Day
Maintenance Maintenance Sonelgaz Night 161.47
50.00
85.33
Investement Investement
Thermal gains
-50.00

FIGURE 5-15: COMPARISON ALGERIA / TUNISIA - COST OF KWH IN TUNISIA
Cost of kWh over 20 years - Tunisia (mDNT)

OPTION 1 : 91,43 OPTION 2 : 51,53
150.00
100.00
Oil Oil
STEG Peak
STEG Day 154.00
140.00
Fuel gas Fuel gas
50.00 STEG Night
99.00
Overhaul @60k Overhaul @60k

Maintenance Maintenance
0.00 Investement Investement
Thermal gains
-50.00
FIGURE 5-16: COMPARISON ALGERIA / TUNISIA - 20 YEAR REVENUES
20 year revenues
14 000 000 €
12 000 000 €
10 000 000 €
8 000 000 €
6 000 000 €
4 000 000 €
2 000 000 €
0€
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
-2 000 000 €
Genset Tunisia CHP Tunisia Genset Algeria CHP Algeria
These graphs clearly show three consequences of having much higher energy prices in Tunisia than in
Algeria:

1. Gas is 8 times more expensive in Tunisia than in Algeria (cost in Tunisia is 29 mDNT/Th = 145
cDZD/Th, while cost in Algeria is 18 cDZD/Th). Disadvantage is hence a cost of kWh produced
in Tunisia more than 3 times higher than in Algeria (91 mDNT = 457 cDZD in Tunisia,
compared to 175 cDZD in Algeria) in case power only is used. On the other hand, impact of
using heat is extremely significant in Tunisia - it reduces this cost of kWh of almost 45% while
it hardly reduces this cost of 15% in Algeria - .
 Interest for cogeneration applications will be higher in Tunisia
2. Electricity is about 3 times more expensive in Tunisia than in Algeria (average value of STEG
kWh excluding fixed costs is 130 mDNT = 650 cDZD, while average Sonelgaz cost is 230
cDZD). But what is important to notice here is the relative gas engine generated cost of kWh
compared to the local provider: in Tunisia, gas engine will generate cheaper kWh whatever
the pricing period of the day, while in Algeria a gas engine CHP plant will only be competitive
during Day and Peak period. During Night time, it is cheaper to buy electricity from the grid
as shown in Figure 5-13.
 Electricity generated by CHP plants will be more competitive in Tunisia than in Algeria
3. ROI and long term revenues are significantly better in Tunisia since electricity generated by
gas engine based CHP plants is more competitive. When a 2 MW plant will make a 2,5 M€
benefit after 20 years in Algeria, the same plant will generate 13 M€ in Tunisia. While the
mean value for ROI is 4,5 years in Algeria, it goes down to 1,2 year in Tunisia…
 Investing in a CHP plant in Tunisia will be much more profitable than in Algeria.
Conclusion: as already mentioned in Part 5.3.5, countries with higher electricity prices will be more
profitable for CHP plants - even when gas prices are higher as well -. This is why Tunisia is a mature
market for CHP plants, with a gas engine installed base of more than 15 machines and an advanced
legislative framework, while Algeria is at its very first steps regarding energy efficiency.
5.4 Examples of operational CHP plants

5.4.1 Applications to the brickyard industry: the TAFNA example
First GE Jenbacher engine in Algeria was commissioned 2009 in the brick factory Tafna. With a total
power output of 2,18 MWe, this engine runs parallel to the grid and ensures stability of power supply
to the whole factory, even in case of grid shortages. The thermal output is 2,6 MWth is entirely being
sent in the prechamber of the kilns to lower the humidity content of the clay before entering the kiln,
for a total efficiency of 91%. After almost 30 000 OPH, average cost of kWh produced is already as
low as 2,96 DZD given to the client’s calculation.

FIGURE 5-17: TAFNA EXAMPLE – LAYOUT AND REALISATION
5.4.2 Application to the food industry: the Nejma oil refinery example
First GE Jenbacher engine in the industry in Tunisia was commissioned 2010 in the oil refinery Nejma.
With an electrical output of 1,1 MWe, it covers the manufacture’s needs with reliable electricity
while feeding the grid with excess production. With a total thermal output of 1062 kW, it provides
700 kg/h of steam at 3 bars to the process as well as 27m3/h of hot water at 90°C, for a total
efficiency of 83%.

FIGURE 5-18: NEJMA EXAMPLE - 3D LAYOUT AND PID
5.5 Projected CHP plants

5.5.1 Application in the tertiary sector: Algiers’ Mosque trigeneration project
By 2015 four engines will be commissioned as part of the Grand Mosque project in Algiers. This
mosque, the third largest in the world, will include a trigeneration plant composed of 4 gas engines, 1
peak boiler, 3 absorption chillers and 2 compression chillers providing electricity, heat and cooling
water for the entire building. Each 1 MWe engine will provide 1200 kW of thermal energy used to
heat water until 95°C, which will be further used whether for heating or for cooling the building
through the absorption chillers. By delivering a cooling capacity of more than 3000 kWth, the
trigeneration plant will not only deliver stable power but also reduce the power demand of the
compression chillers by almost 1200 kWe, with a total efficiency of 85,3%.
FIGURE 5-19: ALGIERS MOSQUE PROJECT
As showed in the graph below, the whole plant should achieve a kWh as low as 1,4 DZD when
cooling, and 1,9 DZD while heating. Expected ROI of the plant is 5,5 years due to the massive
investment needed.

FIGURE 5-20: ALGIERS MOSQUE PROJECT - COST OF KWH
Cost of kWh (cts DZD)

OPTION 1 OPTION 2 Operator Operator Operator Operator
740.00
720.00
700.00
680.00
660.00
640.00
620.00
600.00
580.00
560.00
540.00
520.00
500.00
480.00
460.00
440.00
420.00
400.00
380.00
Sonelgaz, Peak
360.00 726.68
340.00
320.00
300.00
280.00
260.00
240.00
220.00
200.00 Oil 11.84 Oil 11.84
180.00 Gas Gas
43.34 43.34
160.00
Overhaul 18.78 Overhaul 18.78 Sonelgaz,
140.00
mean cost
120.00 264.48
100.00 66.00 66.00
Sonelgaz, Day
80.00
161.47
60.00
Investment Investment Sonelgaz, Night
40.00 85.33
72.08 72.05
20.00
0.00 Thermal gains
-20.00 Elec. consumption -22.35
-40.00 gains
-72.04
-60.00
-80.00
5.6 Conclusion
The entry point for industrial market penetration in Algeria will be the ceramic industry with power
needs > 1 MW, with an average 3,5-year return on investment. For other applications, it is preferable
to offer a generating set only, with an average 4,5-year return on investment, except for the tertiary
sector where trigeneration applications can achieve attractive kWh price, though with longer ROI.
Given the good electrification rate of industrial zones in Algeria, low cost single engine CHP plants
connected to the grid will be preferred for industrial applications while the flexibility and reliability of
multiple engine power plants will be reserved for Oil & Gas applications.

6. Electricity production as an
alternative to gas flaring
6.1 Overview of the sector
Around 140.10⁹ cubic meter of gas were flared in 2011 in the world according to the world bank and
NOAA satellite data, representing about 30% of EU annual gas consumption and more than 400.10⁶
tons of CO₂ (1,2% of worldwide emissions). Only 10 countries are responsible for 72 % of this flared
volume, out of which Algeria is 7th (see table below).
TABLE 6-1: ESTIMATED FLARED VOLUMES FROM SATELLITE DATA 2
Volumes in bcm 2007 2008 2009 2010 2011

Russia 52.3 42.0 46.6 35.6 37.4
Nigeria 16.3 15.5 14.9 15.0 14.6
Iran 10.7 10.8 10.9 11.3 11.4
Iraq 6.7 7.1 8.1 9.0 9.4
USA 2.2 2.4 3.3 4.6 7.1
Algeria 5.6 6.2 4.9 5.3 5.0
Kazakhstan 5.5 5.4 5.0 3.8 4.7
Angola 3.5 3.5 3.4 4.1 4.1
Saudi Arabia 3.9 3.9 3.6 3.6 3.7
Venezuela 2.2 2.7 2.8 2.8 3.5
China 2.6 2.5 2.4 2.5 2.6
Canada 2.0 1.9 1.8 2.5 2.4
Libya 3.8 4.0 3.5 3.8 2.2
Indonesia 2.6 2.5 2.9 2.2 2.2
Mexico 2.7 3.6 3.0 2.8 2.1
Qatar 2.4 2.3 2.2 1.8 1.7
Uzbekistan 2.1 2.7 1.7 1.9 1.7
Malaysia 1.8 1.9 1.9 1.5 1.6
Oman 2.0 2.0 1.9 1.6 1.6
Egypt 1.5 1.6 1.8 1.6 1.6

Total top 20 132 124 127 118 121
Rest of the world 22 22 20 20 19
Global flaring level 154 146 147 138 140
As part of its global flaring reduction policy, Algeria joined the GGFR created in 2006 to reduce global
quantities of flared gas within the O&G sector. As such, Algeria invested huge amounts of money and
2
Source : NOAA satellite data
developed more than 40 projects related to flare gas reduction – mainly reinjection – so that they
came down from almost 78,6% of associated gas being flared in 1973 to only 9% in 2011, earning the
2012 world bank prize of “Global Gas Flaring Reduction”.
FIGURE 6-1: FLARE GAS REDUCTION PROJECTS IN ALGERIA
FIGURE 6-2: ASSOCIATED GAS VOLUMES PRODUCED AND FLARED IN ALGERIA

However even if the percentage of non-recovered associated gases has been drastically reduced,
Algeria still flares about 5.10⁹ cubic meters of gas every year around its upstream sites. These
remaining flares are mostly remote oil and gas production facilities flaring “small” quantities of gas,
making it hard to be transported or injected back into the field because of the high initial cost of the
infrastructures. For these sites, power generation with gas engines could be an option to reduce the
flare and the CO₂ emissions with high efficiency equipment and thus preserving natural gas
resources. If only 10% of Algeria’s current flared volume would be used for generating power, the
potential of this sector would be :
FIGURE 6-3: ALGERIA FLARES
Nm3 kWh
5.109 � �∗10%∗13,5 � � ∗40% [ŋ𝑒𝑙 ]
year Nm3
ℎ𝑜𝑢𝑟𝑠 = 308 𝑀𝑊𝑒 ….
8760 � �∗1000
𝑦𝑒𝑎𝑟
FIGURE 6-4: FLARE GAS RECOVERY WITH GAS ENGINE
As O&G application are often more critical in terms of reliability, the model needs to be further
improved in order to take into account others inputs such as other heating values than natural gas
one, derating due to temperature and response of the plant to load variations. This model will be
further detailed in the following Part.
6.2 Limits of the annual consumption – based model
Some assumptions were made in Part 5. in order to develop a simple model for CHP plants in Algeria.
This model was developed by considering the average energy consumption over the year instead of
considering the instantaneous load of the site. The result is then a CHP plant which is dimensioned
on the average power need, not on the maximum power need.
For industries connected to the grid, this approach is reasonable and offers the best ROI. The only
requirement for the customer is to define the priority loads of the factory during grid shedding.
When it comes to remote locations or industries that are not connected to the grid, the CHP plant
will run in “island mode” and a more precise approach has to be conducted in order to deliver the
needed power under all circumstances: altitude and temperature curve over the year shall be
considered for calculating the derating at all time, and the load curve and its variations has to be
carefully studied in order to determine the number of engines and the eventual use of a bank load.
6.3 Development of an Excel analytic tool based on instantaneous load

6.3.1 Implementation of derating
The derating of a gas engine is mainly connected to three factors:
- Composition of fuel gas

- Altitude of the site
- Temperature of the air entering the combustion chamber
6.3.1.1 Influence of fuel gas composition

When it comes to combustion with gas engines, the following criteria must be considered:
- Heating value
- Methane number
- Laminar flame speed
- Ignition limits
While heating values (Lower or Higher) indicate the energy content of a gas, the methane number
determines the knocking resistance of a gas. As can be observed in the following graphs, these
parameters highly depend on the composition of the input fuel gas, and from these parameters can
be determined whether a pre-treatment or a derating of the engine will be necessary. For flare gas in
particular, MN widely varies between 30 and 90 depending upon its composition.

FIGURE 6-5: COMPOSITION, LHV AND MN OF SOME GASES
140 40
CO
120 35
CO2
and Methane Number
30
100
Composition [%]
LHV [kWh/Nm3]
N2
25
80 H2
20
60 C4H10
15
40 C3H8
10
20 C2H6
5
CH4
0 0
MN
LHV
FIGURE 6-6: NATURAL GAS - COMPOSITION AND KHV OF SOME FIELDS
120
14 H2S
100
12 CO
80 10 CO2
Composition [%]
LHV [kWh/Nm3]
N2
8
60 H2
6
C4H10
40
4 C3H8
20 C2H6
2
CH4
0 0
Groningue Urengoï Lacq Hassi R'Mel Frigg LHV
(Netherlands) (Russia) (France) (Algeria) (North Sea)
In this paper, fuel composition is considered as constant over the year. Natural gas and flare gas are
the only gases considered, with LHV of 9.5 and 13.5 kWh/Nm3 respectively, and MN of 80 and 50
respectively. The necessary derating with flare gas will be considered to be 30 %. This will be used in
Part 6.5.
6.3.1.2 Influence of temperature and altitude

In our study, units are not mobile so that site altitude will remain constant over the year. Only
temperature variations will be taken into account and implemented in the model. Although exact
derating is engine specific, the following graph shows a possible response of the engine to altitude
and temperature variations.

FIGURE 6-7: DERATING AT HIGHER TEMPERATURES AND ALTITUDES - NORMAL VERSION
110
Percentage of Nominal Output [%]
1,5% / °C 2% / °C
100
90
80
70
60
50
20 25 30 35 40 45
Air Intake Temperature [°C]
0m 500 m 1000 m 1500 m
For hot or tropical countries, replacement of turbocharger can modify the response of the engine
and give the following curves.
FIGURE 6-8: DEARTING AT HIGHER TEMPERATURES AND ALTITUDES - HOT COUNTRY VERSION
110
Percentage of Nominal Output [%]
2% / °C
100
90
80
70
60
50
20 25 30 35 40 45
Air Intake Temperature [°C]
0m 500 m 1000 m 1500 m
6.3.1.3 Response to temperature variations

The following graphs give the responses of both “normal version” engines and “hot country” engines
to temperature variations in 4 cities in Algeria: Alger and Sétif are both in the North of the country,
but at different altitudes, and Biskra and In Amenas are in the Southern part of the country.

FIGURE 6-9: RESPONSE TO TEMPERATURE VARIATIONS - NORMAL VERSION
JMS 616 - 2,67 MW - July 14th 2011

4 000 50
3 800 45
40
3 600
35
3 400
30
Power output [kW]
Temperature [°C]
3 200 25
3 000 20
2 800 15
10
2 600
5
2 400
0
2 200 -5
2 000 -10
Alger - 25m Sétif - 1038m Biskra - 87m In Amenas - 562m

FIGURE 6-10: RESPONSE TO TEMPERATURE VARIATIONS - HOT COUNTRY VERSION
JMS 616 - 2,67 MW - July 14th 2011

4 000 50
3 800 45
40
3 600
35
3 400
30
Power output [kW]
Temperature [°C]
3 200 25
3 000 20
2 800 15
10
2 600
5
2 400
0
2 200 -5
2 000 -10

As can be seen in these graphs, using a hot country version with modified turbocharger has a very
positive impact on engine power output (on average 7,5% less derating) and thus on technical
feasibility of the projects. In reality, a better derating than 2%/°C can be achieved, but for the

purpose of this paper, the “worse case” scenario will be considered. Derating due to temperature will
be taken at 2%/°C above 40°C @ 0m, and from 1000m on above sea level, an additional derating of
1,5%/100m will be considered.
6.3.2 Multiple engine power plant: response to load variations

Gas engines are designed to operate without modification of their maintenance schedule between
50% and 100% load. Exceptionally the load can go down to 40%, but lower than this value the engine
should be stopped. The plant has hence to be designed to respond to load variations based on the
following criteria:
𝑖 𝑖 (t)��
∀ t, i 𝐿𝑡𝑜𝑡 (𝑡) > �(𝑚𝑖𝑛 𝑃𝑒𝑙,𝑛𝑜𝑚 ) ∗ �1 − 𝐷% /2
𝑛
𝑖 𝑖 (t)�
∀t 𝐿𝑡𝑜𝑡 (𝑡) < �� 𝑃𝑒𝑙,𝑛𝑜𝑚 � ∗ �1 − 𝐷%
𝑖=0
𝐿𝑡𝑜𝑡 (𝑡) : Site load at instant t [kW]

𝑖
𝑃𝑒𝑙,𝑛𝑜𝑚 : Nominal power output of engine i [kW]
𝑖 (t)
𝐷% : Derating of engine i at instant t [%]
The following graphs show the responses of a 3 x 2 MW engine plant in Island mode (no connection
to the grid) to load variations between 1 and 5 MW in the winter and in the summer:
FIGURE 6-11: RESPONSE TO THE LOAD - MULTI ENGINE POWER PLANT - WINTER CASE
WINTER
6 000 50
45
5 000 40
35
4 000 30
Power output [kW]
Temperature [°C]
25
3 000 20
15
2 000 10
1 000 0
-5
0 -10
0:00
0:30
1:00
1:30
2:00
2:30
3:00
3:30
4:00
4:30
5:00
5:30
6:00
6:30
7:00
7:30
8:00
8:30
9:00
9:30
10:00
10:30
11:00
11:30
12:00
12:30
13:00
13:30
14:00
14:30
15:00
15:30
16:00
16:30
17:00
17:30
18:00
18:30
19:00
19:30
20:00
20:30
21:00
21:30
22:00
22:30
23:00
23:30
Engine 1 [kW] Engine 2 [kW] Engine 3 [kW] Load [kW] Temperature [°C] Poly. (Temperature [°C])

FIGURE 6-12: RESPONSE TO THE LOAD - MULTI ENGINE POWER PLANT - SUMMER CASE
SUMMER
6 000 50
45
5 000 40
35
4 000 30
Power output [kW]
Temperature [°C]
25
3 000 20
15
2 000 10
1 000 0
-5
0 -10
0:00
0:30
1:00
1:30
2:00
2:30
3:00
3:30
4:00
4:30
5:00
5:30
6:00
6:30
7:00
7:30
8:00
8:30
9:00
9:30
10:00
10:30
11:00
11:30
12:00
12:30
13:00
13:30
14:00
14:30
15:00
15:30
16:00
16:30
17:00
17:30
18:00
18:30
19:00
19:30
20:00
20:30
21:00
21:30
22:00
22:30
23:00
23:30
Engine 1 [kW] Engine 2 [kW] Engine 3 [kW] Load [kW] Temperature [°C] Poly. (Temperature [°C])
With the same load profile, the third engine will have to run ~8h/day during the hottest days of the
year while it normally runs ~5,5h/day during tempered days due to derating.
6.3.3 Maintenance hours: role of stand-by engine

When a certain load has to be guaranteed 100% of the year, most of the time an additional engine is
installed so maintenance work can be done on other engines while keeping the power plant output
at its guaranteed level.
This has been previously explained and studied in Part 5.3.4.2.
6.3.4 Annual revenues

The very same method as in Part 5 will be used here by considering electrical gains, thermal gains,
maintenance costs and oil costs on an annual basis. The only difference with the calculating method
described in Part 5.2.4.3 concerns electrical gains: since we have the load profile over the day, a
more accurate method can be used by accounting exact amount of kWh generated during each
period (Night, Day Peak) over the year:
𝑖
𝑉𝑒𝑙 = � � 𝑃𝑒𝑙,𝑝𝑟𝑜𝑑 (𝑡). 𝐶𝑒𝑙 (𝑡)𝑑𝑡
𝑡=1𝑎𝑛 𝑖
𝑉𝑒𝑙 : Annual gain on electrical bill [DA]

𝐶𝑒𝑙 (𝑡) : Unitary cost of active power if bought from the grid at instant t [DA/kWh]
𝑖
𝑃𝑒𝑙,𝑝𝑟𝑜𝑑 (𝑡) : Power output of engine i at instant t [kW]

6.4 Results of the analysis for the industry
In part 6, a new model has been developed based on instantaneous load. In this section will be
analysed the results given by this new model and the impact of the newly implemented factors on
profitability. The input data used below are: Electricity rate E41, gas rate 21T, 75% reactive power
consumption. Same indicators as above will be used: ROI, IRR, NPV, cost of kWh.
6.4.1 Influence of temperature on profitability

The main reason for implementing an instantaneous load based model versus an annual
consumption based model was to study the impact of high temperatures in Algeria on engine power
output, and its financial consequences.
6.4.1.1 Without power output guaranteed

- Industry with 1 MW constant active power consumption

- Each option with a 1063 kW engine installed in different cities across Algeria
- Stable grid connection so that a lower power output of the engine than the rated 1063 kW is
possible
TABLE 6-2: INFLUENCE OF TEMPERATURE VARIATIONS ON PROFITABILITY WITHOUT POWER OUTPUT

RESTRICTIONS
input data
feasibility results
calculated results
OPTION 1 OPTION 2 OPTION 3 OPTION 4
City Alger Setif Biskra In_Amenas

Altitude 25 m 1 038 m 87 m 562 m
Max temp. 40,6 °C 38,4 °C 48,0 °C 45,7 °C
Engine type 1 JMS 320 C05 JMS 320 C05 JMS 320 C05 JMS 320 C05
Electrical output 1 063 kW 1 063 kW 1 063 kW 1 063 kW
Thermal output 1 368 kW 1 368 kW 1 368 kW 1 368 kW
Max derating 1,6% 13,7% 18,0% 20,2% %
Max additional power from grid 0 83 128 152 kW
% of elec. needs covered by CHP 95,00% 94,95% 94,94% 94,82% %
Cost of buying missing kWh 1 015 625 1 023 224 1 027 061 1 051 532 DZD / year
ROI 5,27 5,27 5,29 5,30 years
Cost of kWh 168,12 168,10 168,49 168,65 cts DZD
IRR 14,6% 14,6% 14,5% 14,4% DZD
Net value after 15 years 29 330 119 29 346 611 29 029 020 28 841 026 DZD
As can be seen in this table, when there is no power output level to be guaranteed and when the CHP
plant is only installed for its financial benefits, the impact of having high temperatures is negligible:
cost of kWh, ROI, IRR and NPV are almost the same. The maximum derating achieved is 20%, so at
this particular moment the industry will have to import 20% of its energy from the grid. But this
occurs less than 5% of the time! 20%*5%= less than 1% of the total energy has to be imported…
6.4.1.2 With power output guaranteed

- Industry with 1 MW constant active power consumption

- Unstable grid connection so that a lower power output of the engine than the needed 1 MW
cannot be accepted
TABLE 6-3: INFLUENCE OF TEMPERATURE VARIATIONS ON PROFITABILITY WITH MINIMUM POWER OUTPUT
RESTRICTION
City Alger Setif Biskra In_Amenas

Altitude 25 m 1 038 m 87 m 562 m
Max temp. 40,6 °C 38,4 °C 48,0 °C 45,7 °C
Engine type 1 JMS 320 C05 JMS 416 B11 JMS 420 B11 JMS 420 B11
Max derating 1,6% 11,0% 18,0% 20,2% %
ROI 5,27 6,44 7,89 7,89 years
IRR 14,6% 10,2% 6,5% 6,5% DZD
Net value after 15 years 29 330 119 13 160 973 -2 127 583 -2 103 720 DZD
While in the north of the country the CHP plant doesn’t have to be oversized (1,6% derating), the
same power output requirement in the south will request a bigger engine. In in Amenas for instance,
the derating will go up to 20,2% during the summer and a 1,4 MW engine will be needed in order to
cover the 1 MW load. Due to higher installation and maintenance costs but equal revenues, the ROI
increases of almost 3,5 years, and IRR and NPV are also strongly affected. In that case and for the
project to become economically viable, grid stabilization revenues have to be added as in Part 5.3.4.
FIGURE 6-13: INFLUENCE OF DERATING - 15 YEAR REVENUE
15 years revenue
100 000 000 DZD
80 000 000 DZD
60 000 000 DZD
40 000 000 DZD
20 000 000 DZD OPTION 1

OPTION 2
- DZD
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 OPTION 3
-20 000 000 DZD OPTION 4
-40 000 000 DZD
-60 000 000 DZD
-80 000 000 DZD
-100 000 000 DZD

FIGURE 6-14: INFLUENCE OF DERATING - COST OF KWH

OPTION 1 : OPTION 2 : OPTION 3 : OPTION 4 : Sonelgaz : Sonelgaz :
270.00
Oil Oil
220.00
Oil
Fuel gas Fuel gas
Oil Fuel gas
Fuel gas
Overhaul @60k
incl. VAT
Overhaul @60k excl. VAT
120.00
Maintenance
Maintenance
70.00
Investment Investment Investment Investment

20.00
Thermal energy Thermal energy Thermal energy Thermal energy

recovered recovered recovered recovered
-30.00
Conclusion: Based solely on energy gains, oversizing the plant in order to compensate engine derating
is not economically interested. Value of grid stabilization, that often exceeds energy gains, has to be
accounted in the annual balance in order to justify a higher investment.
6.4.2 Influence of load variation and differences between models

- Industry with 0,7 to 1,3 MW active power consumption, mean value 1 MW (see graph 6-12).
- Engine dimensioned wether on the mean load (option 1 and 2) or on the maximum load
(case 3 and 4)
- Evaluation of profitability with both methods (model based on mean annual consumption
and model based on instant load)
TABLE 6-4: COMPARISON OF BOTH MODELS

City Alger Alger Alger Alger
Altitude 25 m 25 m 25 m 25 m
Max temp. 40,6 °C 40,6 °C 40,6 °C 40,6 °C
Engine type 1 JMS 320 JMS 320 JMS 420 JMS 420
Model based on Annual consumption Instant load Annual consumption Instant load
Hours at full load 0 3 467 0 0 hours / year
Max derating 1,6% 1,6% 1,6% 1,6% %
ROI 5,27 5,45 7,87 7,29 years
IRR 14,6% 13,8% 6,6% 8,1% DZD
Net value after 15 years 29 330 119 26 006 588 -1 881 655 4 805 279 DZD

FIGURE 6-15: COMPARISON BETWEEN MODELS - LOAD VARIATIONS
1 400
1 300
Electrical load [kW]
1 200
1 100
1 000
900
800
700
600
0:00
0:30
1:00
1:30
2:00
2:30
3:00
3:30
4:00
4:30
5:00
5:30
6:00
6:30
7:00
7:30
8:00
8:30
9:00
9:30
10:00
10:30
11:00
11:30
12:00
12:30
13:00
13:30
14:00
14:30
15:00
15:30
16:00
16:30
17:00
17:30
18:00
18:30
19:00
19:30
20:00
20:30
21:00
21:30
22:00
22:30
23:00
23:30
Option 4 [kW] Option 2 [kW] Mean load [kW] Real load [kW]
FIGURE 6-16: COMPARISON BETWEEN MODELS - 15 YEAR REVENUE
15 years revenue
100 000 000 DZD
80 000 000 DZD
60 000 000 DZD
40 000 000 DZD
20 000 000 DZD OPTION 1

OPTION 2
- DZD
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 OPTION 3
-20 000 000 DZD OPTION 4
-40 000 000 DZD
-60 000 000 DZD
-80 000 000 DZD
-100 000 000 DZD
If load variations are to be covered, this will inevitably lead to overdimensioning the engine
compared to an optimal operation, and a longer ROI.
When the engine is dimensioned on mean electrical load (option 1 and 2) the ROI is better. But the
real profitability calculated with model 2 will be slightly lower than the one calculated with model 1.
The real amount of kWh produced by the CHP will be lower than expected with model 1 since the
engine will not cover load above this mean value (see Graph 6-11). In the example above, model 1
will give a 95% coverage of electrical needs for the 1 MW engine while real value will be 90,37%.
Annual gains and profitability are hence altered as can be seen in the 15 years revenue graph 6-11
above.
When the engine is dimensioned on the peak power demand (option 3 and 4), the real amount of
kWh produced will be the same than calculated in model 1 but the real profitability will depend on
their repartition. In the example above, the profitability is better than the one calculated with model

1 since more kWh are produced during high price hours (see load curve between 17:00-21:00 in
Figure 6-11) than expected with model 1.
Conclusion: Much simpler, the first model based on annual energy consumption gives a good
approximation of ROI and cost of kWh since their variation is lower than 5% compared to the ones
given by the model based on instant load. However, the second model will be much more precise to
evaluate the response to the load and the real long term benefits of installing a CHP plant.
6.5 Results of the analysis for the O&G sector

Many oil extraction sites are totally isolated from any interconnected grid and require in the same
time a very secure system of electricity supply in order to guarantee oil production. Value of having a
stable power supply is no longer an economical variable but becomes the primary objective.
As previously studied in Part 5.3.4.2, the best option when it comes to securing 100% of the electrical
needs is a 3 engine plant, with a unit power capacity equivalent to 50% of the load.
6.5.1 Influence of fuel input: diesel, flare gas and natural gas
Most of these isolated sites are currently supplied by diesel generators, leading to high transport
costs of input fuel until the platform - in Algeria, oil has to be transported up to the coast in order to
be refined, and then reimported down to the oil extraction site -. This also leads to high maintenance
costs - overhaul for diesel engines is after 20 000 OPH while it’s after 60 000 OPH for gas engines (see
Figure 4 – 1 in Part 4.1.2) - and higher emissions (see Figure below).
FIGURE 6-17: FUEL INPUT - EMISSIONS
Flare gas - waste by-products that cannot be processed – is not only a valuable on-site energy source,
but also an important factor of CO2 emissions. In order to reduce both operating costs and CO2
emissions, most of gas engine manufacturers have developed over the past decade generators that
are able to operate with this flare gas.

6.5.1.1 on power output
Flare gas composition is a determinant factor for gas engine correct operation. As showed in Part
6.3.1.1, heating value and methane number can strongly vary from one site to another, and some
derating is usually needed. Mean value considered here will be 30% of nominal power output.
As studied in Part 6.3.1.2, temperature - most of extraction sites are located in the desert - and
altitude will also impact power output of the engine.
6.5.1.2 on power plant profitability

By using gas engines directly fed by the waste gases meant to be flared, the operator is rewarded by
getting three sources of benefits:
- cost of importing refined diesel is avoided
- cost of fuel gas is zero, since most of the time it cannot be sold or used in any other way
- CO2 emission penalties are avoided. In Algeria, a law (05-07, Art 52) was voted in 2005
requiring the operator to pay a fee amounting to 8000 DZD = 80 € per 1000m³ of flared gas.

- Temperature and altitude of Biskra (Algerian desert)
- Option 1 : brick factory with 2 MW constant need equipped with 1 x 2 MW CHP plant
- Option 2 : O&G facility with 2 MW constant need, equipped with 3 x 1 MW natural gas
gensets, full power output
- Option 3 : O&G facility with 2 MW constant need, equipped with 3 x 1,4 MW flare gas
gensets and 30% derating due to use of flare gas
Cost of input fuel gas used in the simulation was :

o State subsidized industrial price for option 1 - 0,18DZD/Th -
o Market price for option 2 - 4,25$/MMBTu = 1,24 DZD/Th - like in Part 4, price at
which gas could be sold into the market if not consumed
o Cost free for option 3, since flare cannot be used in any other way
In the annual gain calculation the following was used :

- 30% increase for option 2 & 3 compared to usual price in investment, maintenance, overhaul
and oil cost due to remote location
- Value of diesel fuel costs avoided are accounted as follow :
𝐸𝑒𝑙,𝑐𝑜𝑛𝑠 ∗ 3600
𝑉𝑑𝑖𝑒𝑠𝑒𝑙 = ∗ 𝑃𝑑
𝜂𝑑𝑒𝑙 ∗ 𝐿𝐻𝑉𝑑 ∗ 𝐷𝑑
𝑉𝑑𝑖𝑒𝑠𝑒𝑙 : Value of diesel fuel that will be spared [DZD]

𝐸𝑒𝑙,𝑐𝑜𝑛𝑠 : Energy consumption of the site over the year (=2000kW*8760h) [kWh]
𝑑
𝜂𝑒𝑙 : Electrical efficiency of diesel generators (=37%) [%]
𝐿𝐻𝑉𝑑 : Lower heating value of diesel (=42780 kJ/kg) [kJ/kg]
𝐷𝑑 : Density of diesel (0,839 kg/l) [kg/l]
𝑃𝑑 : Price of diesel [DZD/l]
In Algeria, diesel price is normally 14 DZD/l (=0,14€/l) but for remote locations it will amount to 50
DZD/l once transported and stored. In that case, the above calculation gives an annual revenue of
237 MDZD = 2,37 M€ each year for option 2 & 3.

- Value of CO2 emission penalty avoided (only for option 3) are accounted as follow :
𝐸𝑒𝑙,𝑐𝑜𝑛𝑠
𝑉𝐶𝑂2 = 𝑔 ∗ 𝑃𝐶𝑂2
𝜂𝑒𝑙 ∗ 𝐿𝐻𝑉𝑔
𝑉𝐶𝑂2 : Value of CO2 emission that will be avoided [DZD]

𝐸𝑒𝑙,𝑐𝑜𝑛𝑠 : Energy consumption of the site over the year (=2000kW*8760h) [kWh]
𝑔
𝜂𝑒𝑙 : Electrical efficiency of gas generators (=39%) [%]
𝐿𝐻𝑉𝑔 : Lower heating value of gas (=9,5 kWh/Nm3) [kWh/Nm3]
𝑃𝐶𝑂2 : Price of CO2 emission penalty (8000 DZD / 1000 Nm3 flared) [DZD/Nm3]
By not using the flare, the facility will avoid an annual penalty of 36,5 MDZD = 365 k€ / year.
TABLE 6-5: FUEL INPUT - COMPARED PROFITABILITY
OPTION 1 OPTION 2 OPTION 3

City Biskra Biskra Biskra
Altitude 87 m 87 m 87 m
Max temp. 48,0 °C 48,0 °C 48,0 °C
Industry, CHP O&G facility, nat. gas O&G facility, flare gas
Application
(ex. brick factory) (ex. compression station) (ex. oil well)
Grid connection Yes No No
Engine 1 JMS 612 F111 JMS 320 C05 JMS 420 B11
Engine 2 None JMS 320 C05 JMS 420 B11
Engine 3 None JMS 320 C05 JMS 420 B11
Total power installed 2 000 kW 3 189 kW 4 239 kW
Derating during normal operation 0,0% 0,0% 30,0% %
Max derating during hot days 18,0% 17,7% 48,0% %
Max additional power from grid 359 0 0 kW
% of elec. needs covered by CHP 94,8% 100,0% 100,0% %
ROI 3,94 1,37 1,15 years
Cost of kWh 150,69 508,29 280,54 cts DZD
IRR 21,8% 72,6% 86,8% DZD
Net value after 15 years 937 605 13 158 028 20 036 586 DZD
The result of the analysis is shown in the table above and the graphs below. While the cost of kWh is
very high for option 2 due to high fuel input costs, it goes down to the same price level than
Sonelgaz’ tariffs when it comes to using flare gas, even with an overdimensioned plant due to remote
location and use of flare gas. Lowest cost of kWh is still reached within the industry thanks to the
subsidized gas price.
In terms of profitability, the ROI almost gets down to 1 year for O&G application. Savings due to
replacement of diesel supply costs are extremely important and savings on CO2 emissions are
substantial. This leads to a 15-year revenue level far from the industrial one: while a 2 MW CHP
application in the industry will generate a revenue around 2 M€, a 2 MW flare gas project will
generate more than 30 M€ !

FIGURE 6-18: FUEL INPUT - COST OF KWH
Cost of kWh
OPTION 1 : OPTION 2 : OPTION 3 : Sonelgaz : Sonelgaz :
550.00
Oil
450.00
350.00 Fuel gas
Oil
Overhaul @60k
Oil Maintenance
150.00 Fuel gas incl. VAT
Maintenance excl. VAT
Overhaul @60k
Maintenance
50.00 Investment
Investment
Investment
Thermal energy
recovered
-50.00
FIGURE 6-19: FUEL INPUT – 15 YEAR REVENUE
15 year revenue
35 000 000 €
30 000 000 €
25 000 000 €
20 000 000 €
OPTION 1
15 000 000 € OPTION 2
OPTION 3
10 000 000 €
5 000 000 €
0€
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
-5 000 000 €
6.5.2 Influence of load variations on profitability

As seen in Part 6.4.2, load variations normally impact the ROI and the cost of kWh because it changes
the design of the plant (necessary overdimensioning compared to a constant power need). For O&G
applications, it is easy to see in Figure 6-15 that initial investment has a marginal influence on both
ROI and 15 year revenue… The plant must thus be dimensioned in order to cover the load at any
time, whatever the price is.
6.5.3 Study case: Waha flare gas project, Tunisia
Waha is located in a remote area in the southern desert of Tunisia. In 2009, FIGURE 6-20: WAHA SITE
the state owned company ETAP and the US-based company Pioneer jointly LOCATION
developed the first associated petroleum gas (APG) project in this country.
They entrusted Clarke Energy to substitute the 5 diesel engines providing
electricity for the surrounding facilities by 3 GE Jenbacher gas engines – 2 in
operation, 1 on standby – directly fed by the on-site existing flare, without
any pre-treatment.
The containerized solution was especially designed to support extreme

ambient environmental conditions, resisting to 180km/h sandstorms and
temperatures up to 55°C.
The utilization of the gas for power generation, as opposed to flaring,

helped the operator to reduce its carbon emissions of 2574 tons/year and
increase the economical and environmental value of the project, ensuring
meanwhile 100% of total electrical site needs.
FIGURE 6-21: WAHA SITE DESIGN AND REALISATION
Conclusion: Extreme temperatures in North Africa and diversity of fuel gases used for internal
combustion are strongly affecting the power output of gas engines. In order to meet the needed site
load at each time, a more precise model had to be developed.
In Tunisian and Algerian O&G sector, operators can develop high value projects by replacing the
diesel based power supply by, when feasible, flare gas based power plants. In these projects, initial
investment is negligible compared to both economical and environmental benefits it will bring.
Flare gas projects will thus play an important role in the development of gas engine market in Algeria.
However, the major challenge will not be in identifying these potential projects or in designing the
plants, but will rather consist in overcoming Sonatrach bureaucracy and long lasting decision making
process…
7. Conclusions
7.1 Drivers and inhibitors
TABLE 7-1: ALGERIAN GAS ENGINE MARKET - DRIVERS AND INHIBITORS
Political Economic
Gas and oil are subsidised by the Algerian
Gas plentiful & cheap - government wants gas based power plants Government therefore price is low
Government recognises steam turbines are not sufficient to meet
electricity supply needs Development plan $265B investment (2010-14)
Driver
Monopoly of Sonelgaz on electricity prdn has been removed, Electricity demand growing at 5.2% per year
Politicians do not want gas flaring - legally prohibited 2012 will be Gas flaring accumulates a charge - reinjection of gas
taxed/penalised required
Politicians have set goal to increase renewable energy supply by
2020 High economic potential, moderate economic growth
Currently working towards democracy ROI for gas engine power plants is lower than Tunisia
Political leadership succession uncertainty is risk to domestic Cost of electricity is low, therefore customer is capital
stability cost sensitive
Politicians have set goal to increase renewable energy supply by Import duty significant 24% tax - 5% relief (17-18%
2020 tax)
Inhibitor
Value of goods traded in Dinars cannot accumulate

High level corruption and bureaucracy restrict business profit
Protectionist economic policies Commodity price sensitive
Purchasing electriciy produced by independent entities this is not IPP' only for own use not for export/sale to
legally enforced. Songelgaz's grid
Economy vulnerable to boom-bust cycles
Algeria underperforming MENA peers
Social Legal
There is now the legal right to export electricity to the
Growing demand for domestic electricity grid
Anti gas-flaring regulations are in place and enforced
Driver
Large young workforce pool via additional taxation

Population growth far exceeds food production
Purchase of IPP-produced electricity by Sonelgaz is

Chronic socioeconomic problems especially housing, infrastructure not legally enforced
Inhib.
Security concerns Judiciary is not independent from the government

Country wealth is not reflected in the general population
Domestic electricity and gas underpriced due to subsidy
Technological Environmental
Serious electricity grid supply problems (shortages, power
shedding, microshutdowns) Gas flaring prevalent - 10% of total available is flared
Driver
Well developed natural gas supply network (Sonelgaz) 3GW renewable energy installation goal by 2020
Additional gas availability will come from flare, shale & reinjected
gas
Domestic gas supply potential meets internal needs to 2020
End of easy hydrocarbons No financial subsidies for renewable gas
Government currently plans to increase renewables via solar and
Inhib.
wind not renewable gas

True IPP has stopped completely, Sonelgaz have moved back
from IPP
90% of flare gas is currently reinjected into the gas well

7.2 S.W.O.T. analysis
TABLE 7-2: ALGERIAN GAS ENGINE MARKET - S.W.O.T. ANALYSIS
Strengths Weaknesses
Installation & engineering support from France No in-house project management or engineering
1 capabilities
CE currently has full control of office. Once local company Currently office only has Liaison Office status
established, CE will have management responsibility for
joint venture
2
GE has a strong reputation & presence in Algeria Possible over-reliance on GE's market position. GE's
primary interest is the gas turbine range which can
compete with gas engines
3
4 Large global installed base for gas engines Only one GE Jenbacher engine currently installed.
5 Many successful reference plants outside country Only Algerian reference plant has poor track record
Clarke Energy has good global reputation and clean track Previous Algerian distributor had poor reputation, CE is
6 record in Algeria relatively unknown
Clean slate for gas engine technology Lack of Algerian market knowledge about gas
7 engines
8 Strong flare gas product range No current flare gas references in Algeria
Strong global service teams, availability of support in France Currently no Algerian service capability
9 and Tunisia
Clarke Energy has the resources to develop local presence Currently Clarke Energy's Algerian operations are
when gas engine market conditions are correct. under-developed compared to other gas engine
10 possible suppliers
Access to spare parts via distributor network Currently no parts supply in Algeria, issues with customs
when importing spare parts, knock on effect on engine
availability & service reputation.
11
Expansion of renewables planned 2020. Clarke Energy has Algerian Government currently plan to achieve
12 a strong renewables offering expansion in renewables through solar and wind.
Opportunities Threats
Development of Algerian engineering and projects teams, In country competition with greater resources
1 once critical mass is reached
Development of local sales office with local partner, Local partner is required to have 51% stake in
leveraging their resources, market position etc. business, ensuring the performance of the partner
meets correct standards
2
3 Leverage contacts and GE's reputation Brand damage to GEs reputation may affect CE
4 Huge Algerian market potential for gas engines Substitute products - paricularly small gas turbines
Take clients to see global reference plants. Need to ensure Competition exploiting poor track record of first reference
global reference and application base is properly plant
5 documented & segmented.
Build strong reputation for Clarke Energy in Algeria, Damage to Clarke Energy brand, particularly on early
6 leveraging global experience and knowledge installations
Build knowledge and awareness of gas engine Damage to gas engine technology reputation, particularly
7 technology in Algeria on early installations
300MW flare gas potential, opportunity to develop flare gas Inability to establish reference plant, or poor performance
8 reference plant of early flare gas reference plant
Development of local service team with local partner Reputation damage in the event of poor service support
9 and response times from France / Tunisian operations.
Keep low-key presence, exploring market & building Competitor with strong existing presence
10 awareness, then build strong local team when time is right
Development of parts inventory in Algeria Competition with more ready access to spare parts &
11 related availability benefits.
Increase government awareness of the benefits of Gas engine technology sidelined for other forms of
renewable power using biologically derived gas in renewable power.
12 engines

7.3 Discussion
Algeria is a land of opportunity. In addition to being the most stable country economically and
politically in the Northern African region, it also has the greater natural resources and the potential
to become a regional power exporter. Driven by a terrible increase in internal demand of electricity,
it needs to develop both in the short and medium term all power segment sizes: fossil fueled
centralized power plants (8.4 GW combined cycles planned for 2017), small size decentralized power
plants (diesel, gas turbines, gas engines) and renewables (solar and wind, 22 GW planned for 2030).
Algeria reached the “oil peak” during the past decade and is starting to face the end of easy
hydrocarbons, while the growing demand is kept underpriced. In order to secure economical
sustainability and in absence of strong localized manufacturing industries, Algeria – whose economy
entirely relies on oil and gas export revenues – thus needs to preserve its resources by adopting
more efficient ways of using its gas reserves.
For remote and small size power plants (< 25 MW), gas engines showed to have the potential of
meeting this requirement. By being more adapted to high temperature conditions and more flexible,
this scalable solution can produce the same power output with a better efficiency and a lower cost.
The potential for this market segment represents 300 MW by 2017, but will face important entry
barriers as Sonelgaz’ bureaucracy and reluctance to technological change have first to be overcome.
Within the industry, CHP plants ranging from 1 MW to 4 MW also represent great potential for gas
engine development, in a shorter term. Lack of knowledge of the product, inexisting and/or
unapplied legislative framework coupled with subsidized energy prices partly explain why the market
hasn’t taken off yet. But in the ceramic industry where the kWh produced by gas engines is around
35% cheaper than the average cost of the electricity taken from the grid and the ROI is around 3.5
years, the gas engine market will be leveraged by the worsening grid instability and the proactive
door to door strategy lead by Clarke Energy. This market segment represents up to 450 MW by 2017
and shall fully take off once adequate feed-in tariffs are applied.
Finally, the O&G sector also showed great potential for gas engine development in a country where
9% of associated petroleum gas is still being flared. For this market segment the potential would be
at least 300 MW of efficient power generation preserving natural gas resources and reducing
Algerian CO₂ emissions by 1.43x10⁶ tons. For this market to become an opportunity for gas engines
development, huge efforts will be needed to raise institutions’ awareness and overcome Sonatrach
slow decision making process.
As a conclusion, Algerian potential towards gas engine development is one of the highest among
developing countries and certainly the most unexplored yet. Clarke Energy’s decision to invest and
investigate the country’s potential is justified by the 1000 MW+ this study identified. Being a
precursor in the region, Clarke Energy will have to overcome many barriers before the gas engine
market could expand in Algeria. But its focus on a single product and its worldwide experience in
developing and delivering turnkey projects across new territories will be key factor to success. Clarke
Energy’s ability to deliver best in-class service, coupled with the in-country historical presence of GE
and the capacity of its Jenbacher division to remain world leader gas engine manufacturer will
together form the three pillars of a successful trio that is used to team up for growth.

Bibliography
General Electric internal data
Clarke Energy internal data
Algerian Law n°02-01 of February 2002, the 5th related to electricity and gas distribution
Algerian Law n°04-92 of March 2004, the 25th
Executive decree n°36 of April 2007 on declaration/authorization procedures regarding power plants
Executive decree n°24 of April 2006, the 16th
Executive decree n°06-429 of November 2006, the 26th
Sonelgaz newsletter n°17, 18 and 19
Sonelgaz Yearly Report 2011
Sonatrach Yearly Report 2011
Ministry of Energy and Mines, Renewable Energy and Energy Efficiency Program
Ministry of Energy and Mines, Bilan Energetique National 2010
AWO Branchenreport 2008, Energy Sector in Algeria
CREG, Programme indicative des besoins en moyens de production d’électricité 2010 2019
APRUE, Consommation énergétique finale 2007
APRUE, Programme Top Industries
BP Statistical review of World Energy, June 2012
OPEC Annual Statistical, Bulletin 2012
Federal Energy Regulatory Commission, 2012 report
CIA World Factbook , Index Munndi, 01 janvier 2011
Les fonds souverains, 22 juin 2011
GGFR Program, World Bank, October 2011 Brochure
International Energy Agency statistics
US Energy Information Administration statistics
Ernst & Young 2012 statistics


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Market Analysis for Gas Engine

Master of Science Thesis

MARKET ANALYSIS FOR GAS ENGINE

Approved Examiner Supervisor at KTH

2013-06-04 Prof. Torsten Fransson Miroslav Petrov

CLARKE ENERGY Ltd., Algeria Didier Lartigue

Student: Stéphane Michaut

KTH Supervisor: Miroslav Petrov - Department of Energy Technology, ITM

Company Supervisor: Didier Lartigue - Clarke Energy France

LIST OF TABLES .......................................................................................................................................... - 7 -

2. ALGERIAN ENERGY SECTOR ............................................................................................................. - 10 -

3. IDENTIFICATION OF KEY MARKETS................................................................................................... - 16 -

3.1 GAS ENGINES APPLICATIONS..................................................................................................................... - 16 -

-2- Market Analysis for Gas Engine Technology in Algeria

5.1 OVERVIEW OF THE SECTOR ...................................................................................................................... - 31 -

6. ELECTRICITY PRODUCTION AS AN ALTERNATIVE TO GAS FLARING .................................................... - 68 -

7.1 DRIVERS AND INHIBITORS ........................................................................................................................ - 86 -

-4- Market Analysis for Gas Engine Technology in Algeria

-6- Market Analysis for Gas Engine Technology in Algeria

Market Analysis for Gas Engine Technology in Algeria -7-

ROI Return on Investment

EPC Engineering, Procurement and Construction

SWOT analysis - Strengths, Weaknesses, Opportunities, Threats

-8- Market Analysis for Gas Engine Technology in Algeria

Market Analysis for Gas Engine Technology in Algeria -9-

2.2 Overview of the energy sector

Market Analysis for Gas Engine Technology in Algeria - 11 -

Oil Production (10.3 barrels/day) Oil Consumption

FIGURE 2-2: GAS IN ALGERIA - PRODUCION AND CONSUMPTION

Natural gas production Natural gas consumption

- 12 - Market Analysis for Gas Engine Technology in Algeria

FIGURE 2-3: PRODUCTION CAPACITY INSTALLED IN ALGERIA (MW)

6 000 Independant producer

FIGURE 2-4: ELECTRICITY PRODUCTION IN ALGERIA (TWH)

Market Analysis for Gas Engine Technology in Algeria - 13 -

32% Gas turbine

FIGURE 2-6: EVOLUTION OF ELECTRICAL DEMAND

- 14 - Market Analysis for Gas Engine Technology in Algeria

Name Company shares Commissioning Output Type

FIGURE 2-7: SONELGAZ NET RESULT 2011 BY BRANCH

Market Analysis for Gas Engine Technology in Algeria - 15 -

3.1 Gas engines applications

FIGURE 3-1: GAS ENGINES APPLICATIONS

3.2 Potential of each application

TABLE 3-1: MARKET SEGMENTATION BY ENERGY PRODUCTION TYPE

- 16 - Market Analysis for Gas Engine Technology in Algeria

Market Analysis for Gas Engine Technology in Algeria - 17 -

FIGURE 4-1: CONTRIBUTION OF RENEWABLE ENERGIES FOR POWER GENERATION

FIGURE 4-2: STRUCTURE OF THE NATIONAL POWER GENERATION

- 18 - Market Analysis for Gas Engine Technology in Algeria

4.1.2 Development plan of Sonelgaz for fossil fueled power plants

4.1.3 Development plan of Sonelgaz for small size power plants

FIGURE 4-3: DIESEL-FIRED POWER PLANTS - 5 YEAR PLAN

Market Analysis for Gas Engine Technology in Algeria - 19 -

4.1.4 Advantages and challenges with gas engine technology

- 20 - Market Analysis for Gas Engine Technology in Algeria

Market Analysis for Gas Engine Technology in Algeria - 21 -

4.2.1 Technical bids

TABLE 4-1: TECHNICAL BIDS CARACTERISTICS