Algeria
Algeria is the located in Northern Africa and has a total land area of 2.38million km2. It is the second largest country in Africa and is richly endowed with the natural resources of oil and gas. In fact, the country is heavily reliant on natural gas as the major energy generation source.
Energy Policy
Algerian economy is heavily dependent on the export of hydrocarbons – hydrocarbons accounted for 97% of Algeria’s export earnings in 2011. The government has made it clear that oil and gas will remain the mainstay of Algeria’s energy production in the medium term. The government plans to invest US$60billion in the state hydrocarbons sector in 2011-2015 and there are plans to “redouble” the country’s exploration effort from the end of June 2011, with the aim of drilling 100 wells a year, according to the president of Sonatrach, the state oil company.
In January 2013, the Algerian parliament approved changes to the hydrocarbons law, with the aim of creating a more liberal operating environment. Companies will now face taxes on profits, rather than revenue, and the government has said it will share some of the financial risk of investing in more difficult assets, such as shale or offshore fields. This was done with the aim of encouraging new entrants to enter the hydrocarbons market.
Renewable Energy Plans
However, Algeria also has plans to undertake significant investment in renewables. According to the renewables strategy announced in January 2011, the government plans to add 22,000 mw of renewable energy capacity by 2030. A total of 40% of domestic demand is expected to be provided by renewables – solar plants and photovoltaic units will provide the bulk of this.
A detailed breakdown of the plans for renewable energy is as follows:
Wind
As part of its renewables strategy, the government expects to make use of about 1,700 mw of wind power by 2030. Algeria expects to add 50 mw of wind power by 2015 at three wind farms, with studies thereafter to find suitable locations.
The energy ministry expects wind to only contribute about 3% of total electricity production in 2030.
Solar
Given Algeria's climate and location, solar power will be the main energy source for the renewable energy strategy. By 2020 the government plans to add photovoltaic capacity of 800 mw and build four solar thermal plants of 1,200 mw each.
Challenges
In his announcements of the first details of Algeria’s renewables strategy in January 2011, the Algerian energy minister, Youcef Yousfi himself, had acknowledged that the targets set are “extremely ambitious” and that meeting them will be a “difficult challenge”. The regulatory and institutional framework is in place but a number of important barriers remain to investment.
As a new entrant in the renewables market, Algeria will have to rely heavily on foreign investment. However, a focus on technology transfer, the development of local manufacturing capacity and the use of local labour are likely to restrict the rate of return for foreign companies and may deter investment in what is still a new and high-cost sector. Under legislation introduced in 2009, international firms are restricted to a minority stake in local joint ventures, and the government also stipulates that financing be raised exclusively from local banks. Even without these challenges, the sheer scale of the targets makes it difficult to realise them in full.
However, some progress has been made. The country’s first major renewables infrastructure was commissioned in July 2011 – a 150-mw solar-gas hybrid plant near Hassi R’Mel. The plant, which features 224 parabolic trough collectors producing 25 mw of concentrated solar power, was developed by a consortium led by Spain’s Abengoa.
In April a consortium of two German companies, Centrotherm Photovoltaics and Kinetics Germany, was awarded the contract to build a photovoltaic (PV) manufacturing facility at Rouiba, near Algiers, the capital. The plant is scheduled to begin production of PV panels in 2014.
The contract for the country’s first wind farm, a 10-mw facility near Adrar in the south, was awarded to a French company, Cegelec, in December 2010.
However, it is not the case that the current renewables strategy signals a concerted shift by the government to develop the renewables sector in a bid to reduce the production of hydrocarbon energy. The government has reiterated its commitment to developing the hydrocarbon energy export industry as the primary industry of the country. The main reasons for the introduction of the strategy have been identified to be environmental concerns and a desire to free up oil and gas for export. Given that initiatives to grow the renewable sector are undertaken simultaneously with policies to encourage further investments in the hydrocarbons sector, the benefits of increased use of renewables is likely to be offset by continued growth of the hydrocarbon industry.
Further, investments in renewable energy may be compromised by unrest prevalent in certain regions of Algeria. The terrorist attack on a natural gas facility at In Amenas, in the south-east of the country, in January 2013 has rocked Algeria’s hydrocarbon sector and impacted confidence in the sector. Attracting new firms into Algerian’s hydrocarbon industry has now become a challenge. It is not a stretch of imagination to postulate that a similar difficulty may be faced by the renewables sector.