Country Report: ALGERIA

Author: David Ebanehita (david.ebanehita@edu.escp.eu)

Algeria, with a population of c.43 million is the leading natural gas producer and one of the top three oil
producers in Africa (OPEC member since 1969) and its key export market is the European Union as 76%
of the total crude oil and 86% natural gas exports are to Europe. The feat was achieved through the
implementation of strategies and policies to promote the economic and social utilization of energy
resources, but the efforts and policies have not yet placed the country in its proper path to
diversification of energy sources. United States was one of Algeria’s largest markets for crude oil for
almost a decade until 2013 when exports started declining significantly as a result of the growth of shale
oil in the US. The revenues from oil and gas are the backbone of the Algerian economy and its
hydrocarbon-based growth model.

According to IMF, from 2002 until 2014 (the period of rising oil prices) hydrocarbons on average
accounted for 98% of exports earnings, 69% of fiscal revenues, and 36% of the country’s gross domestic
product (GDP). Consequently in 2015, the oil price slump strongly hit the economy as the oil and natural
gas export revenuesreduced by 41%. The foreign exchange reserves helped softening the extent of the
economic shock, going downfrom $194 billion in December 2013 to $153 billion in late 2015. The
continuous dependence on crude oil revenue for economic growth increases Algeria’s vulnerability to oil
price volatility, as such, the 2016-2019 economic plan was designed to diversify the country’s exports
and reduce its domestic energy consumption growth (of which hydrocarbons is the primary fuel source)
to 3% in 2030.Key objectives of the economic planincludeachieving a growth rate of 6.5% in non-
hydrocarbons GDP overthe decade to 2030, and doubling the manufacturingsector’s contribution to
GDP, from 5.3% in 2015 to 10%by 2030.

The electricity sector of Algeria is dominated by fossil energy due to the availability and low cost of
natural gas as most generating capacity comes from natural gas-fired and combined-cycle power plants.
According to Sonelgaz; the leading producer and supplier of electricity in Algeria, the energy demand
has been increasing on an average of 8% annually.Compared to other developingcountries with a similar
GDP, Algeria’s energy consumption is high; having reached approximately 56 GW in 2016 while its
electricity generation capacity reached approximately 19GW in the same period. The share of renewable
energy in Algeria’s generation mix is growing but still limited.

At the start of 2016, the Algerian government raised the price of gasoline and other energy products for
the first time since 2005, yet despite a 34% increase, the gasoline remains among the least expensive in
the world and cheap gasoline mainly benefits the well-to-do 1. Most of Algeria’s subsidies benefit the rich
more than the poor. The richest 20% of Algerians consume six times as much fuel as the poorest 20%
and this implies that fuel subsidies are regressive: the richer you are, the more you benefit.

Other subsidies are also regressive to an extent. For example, electricity subsidies also benefit the rich,
who have larger homes with air conditioning in almost every room. Subsidies have drawbacks as low
energy prices can lead to a rapid rise in domestic energy consumption, leaving less oil and gas for export,
reducing revenue for the budget. Maintaining these subsidies is quite expensive for the Algerian
government currently as it is facing record fiscal deficits following the drop of world oil prices. Estimate
from IMF put the subsidy cost at 14% of the GDP in 2015.

Access to electricity in Algeria is at 99% with approximately 100% in urban areas and 98% in rural areas
and relatively high losses at 15.9% are experienced by the transmission and distribution systems
according to World Bank2. Sonelgaz aims to increase total generating capacity to 33 GW by 2022 from its
current capacity of 21 GW, mostly in the form of naturalor combined-cycle gas turbine (CCGT) power
plants and renewable energy. Sonelgaz has trained more than 300 specialized engineers in the field of
renewable energy in other to achieve this goal and a national call for tender was launched last
November for the construction of several solar photovoltaic power plants, with a total capacity of 150
MW.3

Renewable energy potential

Algeria is a country with an enormous renewable energy potential, as such, it provides for one of the
highest solar potentials in the world. It is the largest African and Arabic country with an area wider than
900,000square miles, which is more than five times the area of California andabout four-fifthsof this
area is desert so the use of this vast desert region can create the ultimateenvironment to have an
efficient energy yield through SolarPhotovoltaic (PV) Cells. With average sunshine of 2000 h, its solar
power is estimated at about 1700 KWh/m 2 per year in the north and 2650 KWh/m 2 per year in the south
which corresponds to a capacity of 8 times higher than the natural gas reserves of the country and the
largest solar fields in the world (Sulmont and Meley, 2013).

The potential of other renewable energy sources is a bit modest, especially hydro and wind power when
wind speeds vary between 2 and 6 m/s only. Biomass potential is estimated at 1.33 Mtoe/year and

1
The Need for Subsidy Reform in Algeria (IMF)
2
World Bank Group, World Bank Open Data Portal.
3
Electricity production to reach 33 GW
Geothermal energy has a more favorable outlook with 200 hot springs listed (Sulmont and Meley,
2013b; Anon, 2007)

In 2004, Algeria introduced a Law on Renewable Energy (RE) Promotion in the Framework of Sustainable
Development and it emphasized its commitment to expand the use of RE in 2011 when the REEED plan
was published4 under the National Program for the Development of Renewable Energies (NPDRE). In
2015, the plan was revisited, and a new revised strategy was adopted. It envisions the installation of 22
GW of RE by 2030, which is almost double theprevious target (12 GW). Of this 22 GW, about 4.5 GW are
supposed to be installed in the first phase by 2020 and the renewable technologies to be utilized
includes Solar PV, Wind, CSP, Biomass and Geothermal. Solar PV has the largest share of this capacity
with 3 GW being planned for the first phase and the share of RE in electricity generation should reach
27% by 2030.RE projects are entitled to sell to the distributor of the power produced at a guaranteed
fixed price for 20 years, according to DécretExécutif 13-2185. The Feed-in-tariffs vary according to plant
capacity with the minimum being 9.5ct/KWh for Wind and 11.6ct/KWh for Solar PV. Tariffs will be
adjusted 5 years after starting operations, up to a maximum of 15%.

Also, 10 GW of the 22 GW would be dedicated to export and this part will be implemented in
partnership if access to the European market is guaranteed while the 12 GW dedicated to the national
market will be conducted in three stages namely:

 Step 2011 – 2013: pilot projects to test different technologies available

 Step 2014 – 2015: beginning of the program deployment;
 Step 2016 – 2020: large-scale deployment

A renewable energy fund has been set up to be financed through a 0.5% levy on oil tax revenues and
priority grid access for RE project has been provided.

4
Renewable Energy and Energy Efficiency Development Plan 2011-2030 (Ministry of Energy and Mines)
5
DécretExécutif 13-218
 Figure 1: Share of energy type in planned generation capacity expansion

Feed-in tariff (FIT) mechanism was introduced in Algeria to speed up renewable energy deployment and
help government enhance its diversification of its national energy mix. It is a main financial mechanism
supporting government in achieving renewable goals set in “Renewable Energy and Efficiency
Development Plan 2011-2030”. This mechanism was entered into force in spring 2004 being a first REFIT
system in Africa and Law 04-926 was created to establish a legal framework for feed-in-tariff scheme.
The FIT levels in Algeria are Hydro (100%), Wind (300%), Solar PV (300%), CSP (200%), Solar thermal
(200%) and Waste to energy (200%).7

So far, achievements are rather modest compared to the forecasts. Some of the achievements are
outlined below:

 A solar plant (1.1 MW) and a wind farm (10 MW) commissioned in 2014 in Ghardala and Adrar
respectively, in addition to the HassiR’mel hybrid plant (150 MW) of which 25 MW come from
photovoltaics;
 A new wind farm of 20 MW and a new solar power plant (3 MW) were also added at Adrar in
2015 and 2016 respectively.

Thus, to date, the targets are subject to several conditions and progress has been slow. So far, the
cumulative renewable power is 528 MW excluding hydro (316 MW). A significant step was made in 2015
when thecountry revised its FIT program to provide additional supportfor the deployment of wind and
solar PV projects as well asCombined Heat and Power generation. Despite all these supporting policies,
the NPDREis still being schedule even though at different times in 2018, tenders were launched for the
production of electricity from solar PV to bridge the gap between RE program forecasts and the actual
achievements.
6
Law 04-92 obliges renewable system operator to connect power plant to the national grid. RES-E purchase is
guaranteed up to the national quota (set per project per year). Purchaser of the RES-E is a state-owned utility
Sonelgaz
7
IEA FIT Scheme in Algeria
Algeria recently renew its commitment to reduce its Green House Gas (GHG) emissions by 7% by 2020 –
2030 under the Paris Climate Agreement adopted in 2015, which aims to maintain the rise in
temperature average of the Earth below 2%. This GHG reduction could reach 22% if Algeria receives the
necessary international support, by 2030. So far, renewable electricity generation has not reached a
level that allows a significant contribution to energy-based carbon dioxide emissions reduction target.
(Saliham, Hocine and Toudert, 2018)

According to IRENA, a considerable share of the current renewable energy in Algeria was added in 2015,
when 273 MW of Solar PV was installed. This can be said to be related to an implementation of the feed-
in-tariff in 2015 which was voted as far back as 2004. As a result of this, the success of the Renewable
Energy Plan of Algeria will depend majorly on the regulatory landscape (transparent regulations,
credible support for renewables) as well as the ability of the Algerian government to attract private
investors. Furthermore, a well-developed energy transition will go towards sustainable development by
setting up an energy mix where every power will be developed rationally but with determination. Some
of the recommendation that would be needed to improve the development program for renewable
energy and energy efficiency in Algeria are outlined below:

 Develop storage technologies;

 Improve the performance of PV modules to reduce space and costs;
 Involve local partners, especially local banks in renewable energy investment projects;
 Involve scientific research in all stages of the RE program;
 The program should be followed by scenario studies based on the development of the
renewable market in the short, medium and long term, the evolution of the consumption of
electricity, and the development of technologies and their costs;
 Create new energy market models and encourage low power individual installations

REFERENCES
 Anon, 2007. Guide des Energies Renouvelables, Direction des Énergies Nouvelles
etRenouvelables, Ministère de l’Energie et des Mines, Algérie, Édition 2007

 Delors Institute; EU-Algerian Energy (2016). [online] Available at: https://www.delorsinstitut.de

 Energy & Mines, review of the energy and mining sector, 2009

 ENERGYPEDIA (2019). Algeria Energy Situation - energypedia.info. [online] Available at:

https://energypedia.info/

 EIAAlgeria (2018). [online] Available at: https://www.eia.gov

 GENIAlgerian Renewable Energy Resources (2019). [online] Available at: https://www.geni.org/

 Jeaconf (2018). [online] Available at: http://www.jeaconf.org

 IRENA (2019). [online] Available at: https://irena.org/

 IMF. 2016 ARTICLE IV CONSULTATION—Press releaseand Staff Report

 IMF. Algeria: 2018 Article IV Consultation-Press Release; Staff Report; and Statement by the
Executive Director for Algeria. [online] Available at: https://www.imf.org/en/Publications

 Saliha H., Hocine B., Toudert 2018. Algerian Energy Policy: Perspectives, Barriers, and Missed
Opportunities.

 Sulmont, N., Meley, F., 2013. Les hydrocarbures en Algérie: chiffres clefs, ServiceÉconomique
Régional, Ambassade de France, Alger, Algérie.

 UNEP Wedocs[online] Available at: https://wedocs.unep.org

 World Bank Databank (2018) CountryProfile. [online] Available at:

https://databank.worldbank.org