Despite its massive natural gas and growing current account surplus, Algeria has historically struggled with its power sector. Civil conflict, bureaucracy, geography, and weaknesses in the transmission and distribution (T&D) networks have resulted in frequent power outages and technical challenges.

The government has prioritised the electricity sector for investment as it seeks to increase generating capacity

However, the situation has improved considerably over the past five years. The government has prioritised the electricity sector for investment as it seeks to increase generating capacity and strengthen T&D networks.

At the same time, it is advocating a significant increase in renewable energy capacity, the most eye-catching of which is the multi-billion-dollar Desertec initiative aimed at building up more than 3,000MW of solar power capacity in the Saharan desert for it to be exported to Europe.

Power capacity

Algeria’s installed power capacity reached 11,324MW at the end of 2009 following the commissioning of 3,000MW of new capacity by private developer Shariket Kahraba Hadjret En Nouss (SKH) and state-owned Sonelgaz subsidiary, Societe Algerienne de Production de l’Electricite (SPE). Even without the new units, there was sufficient capacity to cover peak power demand of about 7,718MW.

Algeria power factfile, 2009
Installed generating capacity (MW) 11,324
Peak power demand (MW) 7,718
Growth in peak power demand (%) 7
Reserve power margin (%) 32
Largest generator Sonelgaz 
Number of power customers 6.8 million
Number of IPPs/IWPPs concluded 2
Additional capacity requirement by 2019 (MW) 6,000
Estimated cost of required capacity ($bn) 7.2
IPP=Independent power project; IWPP=Independent water and power project. Source: MEED Insight

The state’s total generating capacity drops by about 20 per cent during the summer months. Fortunately, in contrast to the Gulf, demand in the summer is about 10 per cent lower than during the winter, allowing the state to maintain a relatively high base load throughout the year.

The late 2009 commissioning of the new capacity has transformed Algeria’s power fortunes, placing it on a much sounder footing. The state now has a capacity cushion that will be able to meet growth in power demand at least over the short term and probably for longer. 

Sonelgaz forecasts that peak power demand will reach 12,410MW by 2017, or as much as 15,000MW under a high case scenario. To ensure enough capacity to meet this demand, Sonelgaz’s subsidiary, La Compagnie de l’Engineering de l’Electricite et du Gaz (CEEG), is planning to build an additional 4,000MW of generating capacity between 2012-17.

Much of this capacity will be small scale plants serving rural areas, where demand does not justify large-scale facilities. However, larger plants will almost certainly be carried out in conjunction with the private sector. Since 2003, the government has adopted a hybrid privatisation for new capacity where the engineering, procurement and construction (EPC) contractor, rather than a developer, takes a shareholding in the project in addition to actually building it.

Canada’s SNC Lavalin was the first to adopt this role, with the $600m contract to build an 825MW power plant at Skikda followed by another contract to operate and maintain the facility for 12 years. During the construction phase, SNC took a 20 per cent stake in the project company, with the remainder held by Sonelgaz, national oil company Sonatrach, and Algerian Energy Company, a joint venture of the two state-owned firms.

This model evolved into more conventional private power frameworks, first with the Arzew independent water and power project with Black & Veatch as the foreign partner, then the 1,227MW Hadjret Ennous independent power project. In the latter, the majority stakeholder is Algeria Utilities International, a joint venture of SNC Lavalin and Abu Dhabi’s Mubadala Development Company. Sonelgaz guarantees the purchase of power from the plant for 20 years.

The introduction of private investment has largely been a success and has done much to ensure the rapid and successful ramp-up in production capacity, enabling Algeria to enjoy a comfortable reserve power margin today. 

Key challenges

But it is in the T&D systems where the real challenges now lie. Weaknesses in the network remain, largely because of the difficulty of securing land for substations or landholders’ permission for the passage of power lines, and as a result an average of 1,000-3,000 households a day still suffer outages. With the number of power consumers forecast to rise to 10.3 million in 2020 from 6.8 million today, a sustained expansion of the network will be essential.

The government has an ambitious plan to build 22,776 kilometres of new power lines. The green light for the first 10,501km has already been given, including 1,313km of lines for a 400kV link between the main northern grid and the southern network in the Hassi Messaoud region. A further 12,275km of planned lines are awaiting the go-ahead. The work will be challenging because of Algeria’s sheer size and the remoteness of some cities.

Algiers estimates that up to $30bn-worth of investment will be required to expand and upgrade the state’s power infrastructure until 2017. Of the total, $5bn will be required for generation, $8bn for transmission, $3bn for gas fuel transportation and more than $6bn for distribution. Such is the scale of the investment needed that the role played by the private sector is likely to increase rather than diminish in the years ahead.