With the world racing to achieve the Paris climate agreement target of reducing global emissions by 45% before 2030, Africa is in dire need of ... financing, a study by Climate Policy Initiative says.
Is Algeria the next African El Dorado of renewable energy? More and more observers believe so. Admittedly, the country, which is Africa’s third-largest oil producer and one of the world’s top 10 natural gas producers, seems intent on taking the lead, but from a very low position.
Renewable energy accounts for only 3% of its energy mix, as 97% of its electricity is generated from fossil fuels, while the vast majority is from gas. However, it is clear that a second wind is blowing in Algiers, as the country has launched a call for tenders to select companies to produce 1 gigawatt (GW) of renewable energy, as part of a plan to have 4 GW by 2024.
Faced with growing demand (+7% per year between 2010 and 2018) as well as declining oil and gas resources, the authorities are banking on the enormous wind and solar potential that has been identified, but never exploited. Although this isn’t Algeria’s first attempt, it could well be the right one, hence the excitement.
A ministry dedicated to renewable energy
In recent years, more attempts have been made to steer the country towards renewable energy (RE). On the political level, a commission charged with developing a national strategy for RE transition (the Cerefe) was created at the end of 2019. Furthermore, President Abdelmadjid Tebboune took advantage of the June 2020 reshuffle to establish a ministry dedicated to RE (integrated, until now, into the environment portfolio). In July this year, the president appointed Ben Attou Ziane (a professor of pulmonology) to replace Chems Eddine Chitour as head of the ministry.
Two months earlier, Chitour had announced the upcoming launch of the 1 GW (10 x 100 MW) tender, which is expected to generate investments of around $800m.
“We need to move away from fossil fuels. Algeria’s energy future will be renewable,” said the then minister, who was trained in thermodynamics and is an expert in oil refining, but was spearheading the green transition before he was replaced.
Although the country stands out for its almost 100% electrification rate, its dependence on gas puts it at a disadvantage. Gas, a key resource for producing electricity and ensuring export revenues in Algeria, is becoming increasingly scarce, hence the urgent need to diversify its energy mix.
The influx of aid offers
Nevertheless, regulatory and economic barriers have been broken down. The sacrosanct 51/49 rule, which stipulates that any investor in the country must team up with a majority Algerian partner, has been lifted for the renewable energy sector, a reform that has been welcomed unanimously.
The other major announcement concerns the use of independent power producers (IPPs) to develop projects. This model, which is based on the conclusion of a long-term electricity purchase agreement between the State and private player, allows the latter to mobilise international financing, which was a blocking point in Algeria, until now.
In fact, although it is widely favoured on the continent, the IPP scheme has only been used in the country once, to implement a national seawater desalination programme. Endorsing this scheme would certainly motivate investors, especially after the establishment of the Algerian Renewable Energy Company (Shaems) – a partnership between Sonatrach (the national oil firm) and Sonelgaz (the one in charge of gas), which is expected to become their sole interlocutor.
Huge wind energy potential
Within this context, offers of aid are pouring into Algiers. Germany, through its International Cooperation Agency (GIZ), has been present in the sector since 2015. The African Development Bank (AfDB) recently followed suit and accompanied the authorities as they established the specifications of the 1 GW scheme.
In April, the AfDB, through its Sustainable Energy Fund for Africa (Sefa), released a $1m grant to finance the recruitment and services of a consultant as well as a consultancy firm. This process was launched in June.
The desire to develop renewable energy emerged in 2011. Since then, only 400 MW of green power [out of a total capacity of 21 GW] has been produced, which is not much.
According to our information, the French Development Agency (AFD); the German public bank KfW; and the World Bank, alongside IFC – its subsidiary dedicated to the private sector – are waiting in the wings. An IFC study, published in October 2020, also reiterates that Algeria has the largest wind-energy potential on the continent, i.e. 7,700 GW, (and also has considerable solar resources).
This frenzy also affects the country’s economic partners. Between May and June, Chitour met with no less than three ambassadors – from India, the UK and Turkey – who said they are open to collaborating.
Although they wish to remain discreet, private operators are also on the alert. According to our information, a large Chinese group – which is already active in the hydroelectric field on the continent – is looking closely at the Algerian market, while an important Italian industrialist has just opened an office in Algiers.
France’s Engie, which has been present for a long time, with Cofely (its subsidiary dedicated to energy efficiency); Spain’s Cobra, a world leader in offshore wind energy; and IPPs from the United Arab Emirates are in a consideration phase. The US group GE, which has been very active in the country ever since it embarked on a joint venture with Sonelgaz to manufacture turbines (Geat), also has Algeria on its radar.
Lack of a track record
Other players who also intend to get involved in upcoming projects (the EPC part), include Power China, whose subsidiary, Sinohydro, is already established in Algeria, and India’s Sterling & Wilson, which wants to establish itself in the country; not to mention the local companies, producers of metal structures, solar panels and cables; as well as construction and public works groups, which hope to benefit from supply and subcontracting contracts.
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However, not everyone is enthusiastic. “Despite the enormous potential, some of our regular clients are hesitant to get involved, given the years of closure and the fact that the country has no track record,” says a lawyer specialising in the energy and infrastructure sector. In fact, although an opening and reforms are in the offing, there are obstacles – such as the state of the banking system, the requirements in terms of ‘local content’, the question of land and bureaucracy – which still put investors off.
If it wants to attract investors, the country must carry out a quality call for tenders. It is better that it takes time to acquire the necessary skills and [ensures] it succeeds.
Similarly, Algeria has demonstrated great energy ambitions several times, but with nothing to show for it. “The desire to develop renewable energy emerged in 2011. Since then, only 400 MW of green power [out of a total capacity of 21 GW] has been produced, which is not much,” says someone familiar with the country’s energy industry. The last calls for tender that were launched, for projects of a lesser scale than those planned in the 1 GW plan, stalled due to a lack of candidates, hence why the authorities are under immense pressure to succeed this time round.
Too many unanswered questions
Although it was initially planned that the call for tenders opens in June and then September, the majority of actors agree that even finalising a start date before the end of the year would be a great achievement. The authorities had set the end of October as their target.
“There are still too many unanswered questions about the concrete implementation of the IPP model around independent power producers, particularly with regard to guarantees, the profile of developers who can present themselves and ensuring that the specifications align with international standards,” says the expert.
The ministry of finance needs to arbitrate on so many points, amid a global political context that remains very uncertain, not to mention the already visible competition between the ministry of renewable energy and the ministry of energy, which Sonatrach and Sonelgaz depend on, for control of the process. Moreover, Chaher Boulakhras, the CEO of Sonelgaz, has announced that he will be investing in the sector.
“If it [Algeria] wants to attract investors, the country must carry out a quality call for tenders. It is better that it takes time to acquire the necessary skills and [ensures] it succeeds,” says an ENR expert.
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