Algeria – 170 MW from concentrated solar energy by 2015

Like many net oil exporters, Algeria is looking to use its oil wealth to transition itself away from fossil fuel dependency. This is backed up by an impressive solar resource.

The IEA estimates that the country includes enough land with an insolation of 7.5 kWh/m2/day to produce 162 TWh of electricity, with a further solar resource of 2962 TWh from land with an insolation of 5 kWh/m2/day. To put this into perspective, Algeria’s total electricity generation in 2008 was just 40 TWh. Small wonder that the country is one of the prime candidates for large-scale solar power installations designed to transmit power to Europe as suggested by the Desertec initiative.

However, in the medium-term, clean energy ambitions are relatively modest. The country is seeking to produce 6% of its electricity from renewables by 2015, of which 100 MW will be in the form of wind power, 170 MW will come from concentrating solar power, 5.1 MW from photovoltaics and 450 MW from co-generation.

The adoption of clean energy is being promoted via the presence of feed-in premiums for all renewable electricity and co-generation, together with investment tax credits for solar water heaters. According to Algeria’s Energy and Mines Minister Youcef Yousfi, the country has more ambitious plans for the longer-term and is looking to generate 40% of its electricity from renewable sources through 2020, some 2.5-3 GW, with the goal of exporting some of the power to Europe.

Algeria will soon be home to a integrated solar and combined cycle (ISCC) power plant at Hass R’Mel. It is expected to be commissioned in 1Q11, with a solar capacity of 30 MW and 120 MW of gas-fired capacity and there are plans to build a further three such plants over the 2010-17 period, at Mehaïr, Naama, in southwest Algeria, and Hassi R’Mel, with a combined output of around 1.7GWh a year.

Cegelec SA, is building a €23, (US$30.49m) onshore wind farm at Kabertene, 73km north of the city of Adrar, in southwestern Algeria. The wind farm will cover an area of 30ha and construction is expected to take 20-25 months with commissioning scheduled for 2012. According to Yousfi, Algeria has identified 60 renewable energy projects which together could provide 2500-3000 MW of new capacity by 2020 and 10,000MW by 2030, if “conditions for this investment will be met.”

Total power consumption reached an estimated 30.7 TWh in 2009 and is expected to rise to 38.9 TWh by the end of 2014, according to BMI projections, based on average annual growth of 5.3%. Unfortunately, a combination of regulatory issues and the slow pace of privatisation put it alongside the bottom of the table (alongside Kuwait) in terms of its power business environment rating.

A report from the Ministry of Energy and Mines includes the prediction that the country’s total installed generating capacity will rise from the 10.23 GW seen in 2010 to 12.77 GW by 2012, thanks to the completion of 13 power stations with a combined capacity of 2543 MW.

These capacity additions are expected to cover an expected 6% annual growth rate in electricity demand and officially will allow Algeria to export electricity to its neighbours. Sonelgaz, the state-owned gas and electricity utility, is planning to invest over US$46bn through to 2020, including around US$3.3bn spent in 2010, on plant development and grid improvements.

Algerian electricity demand is being pushed up by a boom in the ownership and usage of white-goods and air conditioning. Outages caused by storm damage in June-July 2010 led to protests, particularly in the southeast of the country. An industrial complex at Beni Saf, which is expected to feature a 1200MW power plant together with a water desalination facility and a petrochemicals complex, appears to have hit a brick wall.

The prospects for future industrial electricity demand recently received a boost with the announcement of a US$5bn investment programme to develop the public industrial sector. In related news, the Algerian Cement Group is seeking to double its capacity over the 2009-12 period, which should further increase electricity demand, given the energy-intensive nature of cement production.

There are concerns that the focus placed on the government on home-grown projects at the expense of international investment may serve to impact the growth of the renewable sector, particularly given news that state-controlled Sonelgaz will control the manufacture of the equipment needed to meet the country’s 2020 renewable energy plan.

However, it is thought by some that the terms set out for renewable energy projects are more attractive to foreign investors than those for natural gas projects. Under legislation, the state energy company Sonatrach must have a controlling 51% stake in all oil and natural gas projects within the country.

However, the electricity sector in comparison is more open, with an independent regulatory body and and the existence of feed-in tariffs. In addition, the Algerian president recently pledged during a state visit to Berlin to boost co-operation with Germany in the field of renewable energy, a welcome no doubt welcomed by supporters of the DESERTEC initiative, to which Algeria has expressed reluctance towards in the past.

Another sign of progress came in July 2010, with the announcement that local conglomerate Cevital is looking to obtain foreign investment to build a 2000 MW solar power facility with the goal of exporting power to Europe. Since 1997, Algeria and Spain’s electricity grids have been connected, thanks to a 26km, 400kV cable.

A study is underway to develop a new submarine 400kV line to interconnect Algeria with Morocco and further interconnections will be called for if Desertec’s vision starts to be realised.

Clearly, Algeria and its energy sector face some difficult challenges in the coming years. However, there are some grounds for optimism. The rise in energy prices as the global economy regains some of the ground lost since 2008 is strengthening the country’s fiscal position and the IMF estimates that the budget deficit fell to 4% of GDP in 2010, from the 6.8% seen in 2009.

It also expects GDP to grow by 4% in 2011, which although it might seem modest compared that seen in China and India, is a far cry from the relative stagnation currently seen for much of the OECD. A key issue will be whether or not the case can be made for increased investment while the oil price remains high, both in hydrocarbon E&P and in building up the non-oil economy to the point where it too is an engine for growth.

This is particularly pressing, given the potential for oil price volatility in the months ahead, particularly if rising energy prices and high levels of debt in developed economies conspire to choke off growth. Another potential threat is the prospect of domestic demand reducing the amount of energy available for export.

Although consumption is rising, particularly in recent years as far as oil is concerned, if current output can be maintained, this is unlikely to be an issue over the medium term. Although the underlying resource base appears relatively trustworthy given that Algerian oil reserves did not undergo the dubious inflation displayed by those of some other OPEC members during the 1980s, the fact that the production/proven reserve ratio is just 15.3 years (based on 2009 data from the EIA) is cause for concern.

Dr Samuel Fenwick,