Algeria has to make its own progress on solar power

While the country has a road map to become a solar powerhouse for North Africa, it faces several obstacles, writes LeAnne Graves.

The road less travelled towards solar investment seems to be Algeria. And while the country has a road map to become a solar powerhouse for North Africa, it faces several obstacles.

There are a few regional markets – such as the UAE, Morocco and Egypt – that at the moment are investment hot spots in areas such as solar, with clearly defined policies and documented progress.

And then there is Algeria.

The country recently renewed its green energy ambitions, but has yet to improve its foreign investment appeal, ranking 163rd out of 189 countries in the World Bank’s 2016 Doing Business report.

The Spanish bank Santander said this year that a series of measures taken by the government – in addition to corruption, heavy bureaucracy, a weak financial sector and legal insecurity in terms of intellectual property rights – are obstacles to investment.

Algeria has been trying to get on the renewables scene for five years, since it released a programme to produce 22 gigawatts of renewable energy, including solar photovoltaic (PV), solar thermal, wind, biomass, cogeneration and geothermal. More than half of that was slated for export.

Under this scheme, solar power – including both PV and thermal – would make up more than 15GW, according to Algeria’s government-funded Renewable Energy Development Centre. This would power about 2.5 million homes, according to the Solar Energy Industry Association.

Algeria last year affirmed these green goals, although with 6 to 13 per cent annual consumption growth expected, they now equal only 20 per cent or so of the national energy mix. As a result, the government decided that all of the renewable energy produced would be used for domestic consumption.

“It’s great that Algeria has launched this programme, but there are still some fundamental challenges with its general investment environment and around how it will execute [an independent power producer programme],” said Michelle Davies, the head of clean energy and sustainability at the UK law firm Eversheds.

She said that these factors combined will likely impact the immediate success of the renewable energy programme, but it didn’t mean that the landscape couldn’t change later.

Yet for Renewable Energy Partner (REP), a boutique advisory and project development firm operating in Algeria, it could just be a matter of the country’s lack of marketing prowess. “There’s a disconnect between the perceived risk and the reality,” said Adel Baba-Aissa, the director of REP.

He said there had been little international investment in the past decade as a result of high oil prices, which resulted in high revenue for government coffers. Rather than Algeria taking international investment, it used its oil revenue to fund government projects. In fact, the country had created a renewable energy fund taking 1 per cent of oil fees to finance its projects.

But the drop in the price of oil has hampered Algeria. The country has combined its renewable energy fund with an energy efficiency fund to shore the pair up, and is considering increasing the rate of its tax on hydrocarbons.

REP set up in the country three years ago, hoping to be one of the first shakers in its solar market. “If you understand how to play by the rules, you’ll be successful and have quite an advantage – which has been the case,” Mr Baba-Aissa said.

REP last year partnered with a large company to launch a 5 megawatt project and is now looking to start projects four times that size. “The target total this year is at least two projects that combined would total 50MW,” he said. And in five years, REP is targeting 200MW of projects.

The company is also launching its first private independent power producer for solar PV in the country. However, the evolving regulatory framework has delayed the launch. “That’s given us time to put financing in place, so we’re hopeful that this year will be quite a big year for us in general,” he said.

The country’s solar sector will struggle to meet the government’s ambitious goals. BMI Research, a unit of Fitch Group, said that Algeria’s solar power capacity would reach 326MW in 2020, up from 120MW at the end of last year; however, this was still well below the 800MW target for 2020.

According to BMI, the problem is a lack of appetite from foreign investors.

“When you’re taking early-stage development risks, not many people want to put in money,” added Mr Baba-Aissa. REP uses its own funds, and once the project is evolved the company exits and uses that capital to fund other projects.

Yet Algeria is forging ahead, with a big announcement expected to come this summer in terms of ramping up solar investment. However, many people are waiting for development agencies to enter to offer an insurance policy of sorts to mitigate the risks.

And until that happens, many foreign investors will likely watch from afar as they plough a trail in Egypt or Morocco.

LeAnne Graves covers renewables for The National.

Follow The National's Business section on Twitter