31 August 2015
While it holds Africa's second-largest gas reserves and the continent's third-largest oil reserves, Algeria recently raised its 2030 renewable energy target as it pushes for greater diversification in domestic consumption.

In February, former energy minister Youcef Yousfi mapped out a strategy that would see 27% of the country's electricity generated from renewable energy sources by 2030. However this was ramped up further following the appointment in May of new energy minister Salah Khebri, who announced plans to raise the figure to 37%. Khebri estimates the increased use of renewables and improvement in energy efficiency could lead to savings of up to $42bn over the next 15 years, with $60bn worth of investment planned.

Achieving targets

Interest in renewables has been heightened by rapidly growing domestic consumption. Gas-fired generators produce 98% of Algeria's electricity, and since 2005 energy prices have been frozen. Electricity consumption rose by roughly 10% per annum in the three years to 2012, according to the US Energy Information Administration; in the summer of that year the authorities were forced to impose power cuts to ration electricity use.

The intended doubling of Algeria's renewable energy capacity from 12 GW currently to 25 GW by 2030 will be achieved primarily through solar generation. As the price of solar photovoltaic (PV) panels continues to drop − with a decline of about 40% since 2008, according to Noureddine Yassaa, director of Algeria's Renewable Energy Development Centre − solar power is becoming increasingly competitive, which could lead to even greater cost savings.

In addition, Algeria has one of the highest insolation rates in the world, ranging from 1700 KWh per square metre in the north through to 2650 KWh in the south. "PV and wind power are the strongest options for Algeria as these forms of energy are the most easily integrated into the existing industrial fabric," Abdelali Badache, president of the Commission de Régulation de l'Electricité et du Gaz, CREG, told OBG. "Return on investment has been a longstanding question with respect to renewables. We have nevertheless seen in recent years that prices have come down significantly and renewables now represent a solid investment," he added.

Societé des Énergies Renouvelables (SKTM), a subsidiary of state-owned Sonelgaz created in April 2013 to oversee renewable projects, confirmed late last year that solar plants with a combined capacity of 343 MW were under construction in the Hauts Plateaux and southern regions, with the majority of the facilities due to be online by the end of 2015.

To help incentivise private investment, the government is also creating a relatively liberalised regulatory framework. Solar and wind power projects will be based on a 20-year power purchase agreement guaranteeing preferential tariffs for any electricity generated. Since April 2014, the government has offered a relatively generous feed-in-tariff (FiT) scheme. For projects ranging in capacity from 1 to 5 MW, electricity generated by PV plants is paid for at a base-tariff rate of AD16 (€0.14) per kWh for the first five years, while a separate preferential rate is applied to those exceeding 5 MW. After the initial five-year period, tariffs will be based on a performance-based rate.

FiT rates for renewable projects will be subsidised by a 1% levy on oil revenues charged by the National Fund for Renewable Energies and Cogeneration (Fonds National pour les Energies Renouvelables et la Cogénération, FNER). Authorities believe the scheme will allow the country to take advantage of Algeria's tremendous solar potential, while preserving fossil fuel resources and developing national expertise in associated energy engineering, consultancy and maintenance services.

Global leader

Algeria - and indeed North Africa as a whole - offers potential for the export of renewable-generated power to Europe. The Mediterranean basin is already criss-crossed with a number of interconnection lines, but the high insolation rates and ample land in North Africa have made the region a focal point in the EU's efforts to increase its share of renewable energy to 20% by 2020. A number of projects that seek to capitalise on this have been launched in recent years, including Desertec Industrial Initiative, a high-profile venture that has sought to generate power in the Sahara to feed European consumers.

While Algeria is not participating in the project, the country has nonetheless been taking part in a dialogue with the EU on energy issues since May this year. The talks were initiated in Algiers by then-minister Yousfi and Miguel Arias Cañete, the European Commissioner for climate action and energy, and will see experts from both sides cooperating on a variety of energy issues - primarily natural gas, but also renewable energy, energy efficiency, energy market development and infrastructure development.

With the UN Climate Change Conference (COP21) on the horizon, the country is also looking to increase cross-border cooperation in the renewable sector, as well as become a regional leader in renewable energies. "Our aim is to set up, next year if possible, an African Forum of Renewable Energies as a platform bringing together the African decision-makers with their partners, as well as CEOs of public and private companies," said Ramtane Lamamra, Algeria's minister of foreign affairs, in July.

After attracting one of the largest shares - standing at $428m − of the $5.5bn invested in Africa's renewables markets in 2014, according to a 2015 Bloomberg New Energy Finance report, Algeria may have both the ambition and the means to achieve its aims.

© Oxford Business Group 2015