From gas to garbage
The cement industry in Egypt is at a cross-roads: forced to diversify its energy mix due to gas shortages, the sector is quickly switching to emissions-intensive coal. And yet, integrating alternative fuels into the energy mix can help ensure a lower carbon transition that is commercially viable. However, such an opportunity requires knowledgable investors to build linkages in a complex supply chain, and committed government stakeholders to increase regulatory support and create long-term partnerships with the private sector. By Dalia Sakr, Dina Zayed and Bryanne Tait, IFC, Egypt.
In the face of frequent electricity blackouts in 2012, the Egyptian government diverted natural gas from heavy industrial users towards power production, leaving most of the 25 cement companies with only a fraction of the natural gas needed to continue their operations. By 2013 domestic cement production had fallen by 50 per cent. With no end to fuel shortages in sight, the industry lobbied to switch from natural gas to coal and petcoke.
In 2015 49Mt of clinker were produced with a thermal energy appetite of 46mGcal. By 2025 clinker production is expected to grow to 72Mt, requiring 68mGcal. Assuming an average calorific value of 7000kcal/kg for coal, the cement industry’s total energy demand in 2025 would require about 9.7Mta of coal. This coal demand would lead to associated CO2 emissions of 27Mta.
IFC AFR study
To alleviate the energy supply-demand tension and reduce the impact of GHG emissions from cement sector fuel switching, IFC – a World Bank Group member – carried out an in-depth assessment of the potential to increase the use of alternative fuels and raw materials (AFR). IFC has mapped, quantified and analysed the price competitiveness of four AF streams in the country: refuse-derived fuel (RDF) from municipal solid waste (MSW), dried sewage sludge (DSS) from wastewater treatment plants, agricultural waste, and tyre-derived fuel (TDF) from scrap tyres.
Driving the AFR switch
In 2014 cement companies achieved on average a thermal substitution rate (TSR) of 6.4 per cent, equivalent to ~2.9mGcal/year of AFR, mainly from RDF and agricultural waste. In comparison, Europe achieved 39 per cent.
The use of coal by the cement industry triggered a heated political debate among government and civil society stakeholders, ending in a compromise that cement companies burning coal must establish an action plan to mitigate CO2 emissions and meet strict environmental regulations. To abide with the operational licence mitigation requirement, the cement sector as a whole would need to achieve emissions avoidance of ~5.3Mt CO2 by 2025. Such a target could be fully achieved if the sector reached a TSR of 30 per cent by 2025, which would require ~20.4mGcal of AFR.
AFR provides a further benefit as it is expected to reduce pressure on foreign currency reserves for coal imports. Importing coal or clinker puts pressure on Egypt’s hard currency reserves, which are at an all-time low. AFR, however, is a locally-available resource with immense growth prospects: a steadily-growing population base generates a continuous flow of waste.
Futhermore, AFR usage will have fewer negative externalities, it will conserve valuable fossil fuels and allow for the safe disposal of waste that would otherwise be burned, landfilled or illegally dumped.
Of the 14 cement plants interviewed for the study, 86 per cent now use, or plan to incorporate, up to 30 per cent AFR within the next five years.
The IFC study anticipates that the five key drivers supporting a strong market for AFR in Egypt are:
- local fossil fuel shortages constraining cement production
- competitiveness amidst rising fuel costs
- severe shortage of foreign currency reserves hindering imports (clinker, coal etc)
- CO2 mitigation requirements, environmental regulations and licenses
- corporate/company-set AFR substitution targets.
These drivers could lead to a five-fold increase in current AFR consumption, if companies reach a 20-30 per cent TSR.
As shown in Figure 1, of the four waste streams evaluated as part of the study, technical availability of waste varies significantly: agricultural waste – 10.7Mta, RDF from MSW – 2-5Mta and DSS – 1Mta. Tyres are a distant fourth, due primarily to competition from the tyre retread and reuse industry.
The study concludes that current waste volumes in Egypt from the first three sources offer between 46-72mGCal of potential fuel that goes untapped each year – sufficient technically-viable fuel to supply nearly 1.6 times the 2015 energy needs of the country’s cement industry.
AFR as a lower-cost option
For AFR to be competitive, the price difference between AFR and traditional fuels (coal and petcoke) must be taken into account, including:
- the amortisation of the equipment installed at the cement plant to co-process with either fuel
- the operational cost of co-processing, handling, operations and maintenance
- the cost of procuring the AFR
- the cost of any potential negative impacts of the AFR on the kiln process and equipment.
An economic viability analysis of the four currently-available waste streams demonstrates that AFR could be commercially competitive with coal. The cost competitiveness of each fuel varies depending on preparation, processing and transport costs. IFC’s initial analysis (see Figure 2) shows that for 2015 the average AFR pricing is between 5-40 per cent less expensive per GCal than coal at the burner point, including transportation, pre-processing (such as sorting and shredding), handling and co-processing.
Pre-processing of AFR, which may be carried out by cement plants or by a third-party service provider, requires estimated capital investment ranging from US$0.6m for TDF to US$5m for RDF per processing platform depending on size, complexity and waste type. Operating costs vary significantly depending on the waste stream, due to quality and availability. However, RDF is considered the most expensive waste to prepare, whereas TDF is the least expensive since it requires only shredding.
The total investment required to pre-process the required AFR amounts to reach a TSR of 20 per cent by 2025 is estimated at US$114m and potentially up to US$320m. This investment represents a significant opportunity to attract investors and financial institutions to upscale the AFR market. Based on the study findings, the economic feasibility of AFR pre-processing projects could result in an internal rate of return (IRR) above 15 per cent and a payback period of 3-5 years.
Setting a realistic target
The TSR at each cement plant varies widely. Most Egyptian plants are quite modern and could theoretically accept TSRs up to 30 per cent without significant kiln modifications and related investments. Though achieving a limited TSR (5-15 per cent) is relatively easy, the path to a higher TSR (> 20-30 per cent) is still long and requires technical knowledge that needs to be encouraged and developed in Egypt. International producers, which represent the majority of installed capacity, have this technical knowledge at the corporate level and are expected to lead the market to higher TSRs.
Figure 3 illustrates that a 20 per cent TSR by 2025 is a realistic scenario, while a 30 per cent TSR is also technically achievable but only with the implementation of significant regulatory measures to overcome existing market barriers. Reaching the 20 per cent TSR target by 2025 means an additional 13.6 per cent in AFR substitution beyond the 6.4 per cent TSR levels of 2014. This means increasing the present 2.9mGcal level by 10.7mGcal. This would require a combination of the various waste streams, as no single waste stream could meet the demand, but this would also deliver greater fuel security. Moreover, although cement plants would be spending around US$217m annually on procuring AFR (based on an average of US$16/Gcal), when compared with coal, this represents an annual saving to the industry of US$51m and avoids 3.9Mt of CO2 emissions as ~1.9Mt of coal is replaced.
The missing link
The lack of an established supply chain to collect, process and deliver this waste to the cement plant gates at the required quality and mutually-acceptable prices is the key barrier to more widespread substitution of AFR in Egyptian cement production.
To be successful and sustainable, strong partnerships will need to be developed between waste suppliers, waste management operators, government authorities and the industry. However, irrespective of the waste type, there must be basic commercial arrangements between the market players, which include a secured AFR supply and return on investment, a fair pricing mechanism, acceptable quality of fuel delivered to the cement plant, and economic and regulatory reinforcements.
IFC’s analysis highlights the opportunity for the private sector to promote and invest in a commercially-attractive AFR market in Egypt. If the supply chain for AFR can be unlocked by the private sector through developing and investing in pre-processing facilities and operations, investors will be rewarded with sustainable and long-term demand from the cement industry.
The volumes of waste available are more than sufficient, however, implementation of improved waste collection efficiency by the authorities will be vital, along with a variety of other regulatory improvements, building partnerships with the private sector to operate transfer and sorting stations, as well as enabling long-term agreements on access to waste streams at realistic pricing levels. To support the release of the study, IFC has also produced a web-based GIS mapping tool (http://arcg.is/1ToAspz) which will enable users to evaluate the physical locations of waste sources in Egypt, the locations of cement plants and various other attributes such as transportation routes.
Article first published in International Cement Review, November 2016.