Power policy

Until recently, Algeria had an ambitious renewables target to add 22GW of renewables capacity by 2030, split into 13.6GW of solar, 5GW of wind, 2GW of solar thermal, 0.4GW of cogeneration, 1GW of biomass and 0.015GW of geothermal capacity. That was scaled back in February 2020, with the new target aiming for 16GW of renewables by 2035, with a mid-term goal of 4GW by 2024. This change underlines Algeria's renewed focus on building out its gas capacity. After limited success, the country’s feed-in tariff was replaced with tenders in 2018. These have been fraught with delays and cancellations, with the lack of progress in large part due to stringent local content rules, restrictions on the involvement of foreign actors and uncertainties around access to finance. Two auctions have been launched, one for 150MW of solar divided into 10MW chunks, and another for 50MW of PV used for hybrid projects in the country's south. The Algerian authorities aim to launch a new solar tender by the end of 2021. The procurement exercise will be divided into 10 lots, ranging from 80MW to 180MW each. For now, there is no net metering policy in place, but increased demand for renewable energy from 2021-2030 may create opportunities for maintenance and repair services for both conventional and PV solar power plants, the expansion of the transmission grid by 30,000 kilometers (19,000 miles), and the development of smart-grid and smart-metering systems in the mid-term. During their set-up phase (the first five years), Algeria offers benefits on customs duties and other taxes and fees to firms. The equipment, machinery, materials and services imported, or purchased from the local market, are exempt from Value Added Tax (VAT).

Power prices and costs

The cost of clean energy is driven up by the requirement to use locally manufactured equipment. While the domestic solar manufacturing industry has started producing panels at scale, product costs remain far higher than those sold internationally. Retail electricity rates are relatively low by virtue of the country’s rich gas resources. Those rates have not been raised in recent years as low oil and gas prices have strained the public purse since they began to fall in 2014. The current political uncertainty makes reforms in this area unlikely.

Power market

Algeria opened up power generation to competition in 2002, but the sector has remained dominated by Sonelgaz. The state-owned utility’s dominance is ensured by its access to the country’s abundant gas reserves, whose cheap procurement has prevented the emergence of competitive independent power producers (IPP). The Sonelgaz group is the sole authorized retailer of power on the country’s three grids. However, consumers are free to procure their own electricity through self-generation or direct power purchase agreements (PPA). Increasingly cheap solar technology, the high cost of diesel generation and unreliable grid power have created a favorable environment for small-scale renewables.

Most renewables capacity in Algeria consists of small-scale PV installations of around 15-20MW but as a leading producer of natural gas and liquefied natural gas, the country also has ambitious renewable energy and energy efficiency programs that promise to expand its other energy resources and support sustainable development from 2021. Finance has been lackluster for a number of reasons, including a national focus on developing new gas plants while modernizing the existing power fleet. Actors bidding into auctions must do so with a local partner and finance must be domestically sourced. This is a challenge as Algerian banks remain reluctant to back clean energy undertakings, despite their involvement in a handful projects over recent years. Algeria has major renewable energy potential. From 2021 onward, it seems likely that the Minister of Energy Transition and Renewable Energy will launch several more projects involving international investors.

Doing business and barriers

Burdensome bureaucracy in Algeria and high taxes do little to attract investment. Sonelgaz is the offtaker for utility-scale projects. However, the utility’s financials have been strained in recent years as it suffers from low commodity prices, widespread fraud and structural inefficiencies. In addition to the company running up debts, many of Sonelgaz’s customers are behind on payments. The group launched legal proceedings against more than 50 companies it claims owe it money in August 2019. As the sole authorized offtaker, Sonelgaz is in poor financial shape. It is, however, backed by the Algerian state and domestic banks. The lack of renewables PPAs (and visibility on past PPAs) make it difficult to gauge the risk of payments to IPPs running into arrears.

The fact that renewables developers do not receive sovereign guarantees places a renewed focus on offtaker risk. Local content requirements are the primary hurdle to deploying clean energy. Other hindrances are rules limiting foreign ownership of joint ventures to 49% and the government’s reluctance to issue sovereign payment guarantees, which is a concern in light of the possibility of Sonelgaz being restructured. While 2020 saw a loosening of limited foreign ownership rules in some sectors in order to attract more foreign investment, they still apply to energy and electricity. Algeria is seen as a risky market by investors.

Investments are, however, being directed to the country’s gas fleet. While most funds are directed to building out power plants, with several CCGT plants in the works, existing gas assets are also being upgraded.

EV market

The first electric car ‘100% made in Algeria’ is a successful prototype and now needs financing. Oussama Touaba, the inventor of the first electric car 100% made in Algeria, intends to popularize his prototype on the national and international market. Were the company to receive financing, it could launch large-scale production of small electric cars, with an estimated unit production cost of 700,000 Algerian dinars ($5,000).The vehicle is extremely light – weighing only 200 kilograms -- since its structure is made entirely of aluminum. In 2020, the government announced a strategy to promote the importation of electric cars due to their ecological advantages.

EV policy

Algeria aims to convert ICE vehicles to 1.1 million LPG vehicles and 11,000 CNG buses and vehicles by 2030 under the program “Le Programme Nationale de Maitrise de l‘Energie pour le secteur du transport à l’horizon 2030”. For electric vehicles, there are no specific incentives mentioned, but nearly 100 Naftal service stations will be equipped with electric vehicle recharging stations by the end of 2021.

Algeria has also placed new import limitations on second-hand ICE vehicles that are more than three years old, and diesel-powered car imports are strictly prohibited.

Buildings market

Algeria aims to avoid more than 30 million metric tons of carbon emissions from the building sector, according to its national program. That will be achieved through innovative technologies like solar water heating and the thermal insulation of 100,000 homes per year. In addition, the distribution of 10 million energy efficiency lamps and switching to light-emitting diodes (LEDs) will lead to savings of 7.2 and 20 Mtoe, respectively.

Buildings policy

Algeria has in place an official energy efficiency and renewable energy plan called Nouveau programme national sur l'efficacité énergétique, created in 2016.