When it comes to its plans for the development of renewable energy, Algeria certainly does not lack ambition. At the beginning of January, Energy Minister, Youcef Yousfi, announced that in the next decade he would oversee a monumental shift in the source of the country’s power supply.

By 2020, he said, renewables would constitute 40 per cent of Algeria’s energy mix. The target, he added, would involve the launch of 60 renewable energy projects, with a combined capacity of 3,000MW.

The minister’s remarks echoed those of President Abdelaziz Bouteflika just a few weeks earlier. According to Bouteflika, by 2030, the government aims to be producing as much electricity from new and renewable sources as it currently does from gas.

Ambitious power plan

For most countries in the world, increasing the share of renewables to two-fifths of the total energy supply in less than a decade would be a challenge. For a country so reliant on oil and gas as Algeria is, the achievement would be nothing short of remarkable. Algeria generates more than 96 per cent of its export income from hydrocarbons and the sector accounts for almost half of its gross domestic product.

Until the completion of a 150MW gas/solar power plant near Hassi R’Mel earlier this year, renewables met just 0.02 per cent of the country’s total energy consumption. Even Yousfi admits that the plans are “extremely ambitious”.

This is not to say that they are misplaced, however. According to Yousfi, the idea behind the renewables strategy is to prepare the country for the “post-petroleum era”, an eminently sensible plan for such a poorly diversified economy. According to the UK’s BP, Algeria has the equivalent of 55 years of gas reserves at current production, but only 18.5 years of oil.

The idea behind the renewables strategy is to prepare the country for the post-petroleum era

There is also a strong lobby in the Algerian government that would rather see hydrocarbons reserves preserved for as long as possible. For them, increased sales of power generated from renewable sources would help meet the goal of keeping some oil and gas in the ground for future generations.

In fact, the need for renewable energy production might be more immediate than is suggested by the government’s aim to secure the country’s long-term energy future.

The combination of fast-rising domestic power demand, slow growth in the upstream hydrocarbons sector, and the expansion of gas export facilities means that analysts expect Algeria to suffer a gas supply crunch by 2013-14. It is unlikely that renewables will be able to ease the burden so soon, but it is certainly not too early for the government to be thinking about re-orientating its energy mix.

They are coming from a virtually non-existent level … they are going to have to rely on foreign investment

Samuel Ciszuk, IHS Global Insight

Equally, if Algeria manages to generate a gas surplus for export in the longer term, it may become susceptible to a weakening in the reliability of demand. The rapid ramping up in recent years of Qatar’s capacity to produce cheap gas for export, the unexpected turnaround in the US’ gas fortunes and the downturn in the global economy have already shown gas exporters that they cannot assume there will always be a strong market for their product. The discovery of abundant and marketable reserves of shale gas in the US has transformed it from being a country increasingly reliant on gas imports to one with an estimated 100 years of indigenous gas supply.

Towards the end of the decade, global gas supply will be further supplemented by a new wave of gas production from Australia, while in the long run demand from Europe – Algeria’s main export market – may eventually begin to diminish.

Speaking at a meeting of the Gas Exporting Countries’ Forum in December, Yousfi warned that Europe’s drive towards a more sustainable energy future meant that, from the point of view of the gas exporter, the future of the European market was “frankly not very clear”. The EU is bolstering efforts to increase the share of renewables in its own energy mix, as well as measures to limit growth in the consumption of electricity.

Europe opportunity for Algeria

But on the other hand, Europe’s drive to increase the contribution of alternative energy sources could be aided by importing renewable power from overseas.

In October 2009, 12 companies founded the Desertec Industrial Initiative, with the aim of meeting 15 per cent of Europe’s electricity demand from solar and thermal facilities across the Sahara by 2050. Once complete, the estimated $550bn plan would provide 100GW of renewable power capacity. Manoeuvring itself into a position where it can participate in this scheme would be a sound strategy for Algiers.

There is no doubt that Algeria has the natural resources on which to base a rapid expansion of renewable energy production: the bulk of the country is covered by the sunbaked dunes of the Sahara desert. According to independent studies, Algeria has annual solar power potential of 169,440TWh, equivalent to 60 times the energy consumption of all the EU countries combined, and 5,000 times Algeria’s own demand.

Several small steps have already been taken towards harnessing some of this potential. The Hassi R’Mel facility is just the first of a series of hybrid plants, based on concentrated solar power technology, with others planned in Meghayer in the east of the country and Naama in the west. In February, France’s Vergnet announced it had won a E24m ($34.6m) contract to build Algeria’s first wind power plant. The 10MW facility, in Adrar in the south, is due to begin production in 2012.

In the context of renewables production targets of 3,000MW by 2020, the contribution of these projects is no more than a drop in the ocean. With this in mind, the government has drawn up what Bouteflika describes as a “genuine national development plan” for renewables, comprising solar, wind and geothermal energy components.

The plan includes setting up an institute of renewable energy in Hassi R’Mel, the country’s gas hub, to nurture the human and technical resources necessary for the development of the renewables sector.

Later this year, the government hopes to produce a prototype of the first photovoltaic panel to be fully produced in Algeria. Manufacturing facilities for photovoltaic units are planned to be up and running by 2013.

Foreign investment

The most eye-catching of the government’s ambitions is the creation of a renewable energy city at Boughzoul, 170 kilometres south of Algiers, designed to house up to 400,000 residents. Under the plans, the town, which would be the first “green city” in North Africa, would to be completed in 2025.

If the theory behind Algeria’s renewable energy masterplan is sound, the chances of the targets being met are vanishingly small. “They are coming from a virtually non-existent level, which means that realistically they are going to have to rely on foreign investment to get there,” says Samuel Ciszuk, senior Middle East analyst at London-based energy consultancy IHS Global Insight.

The necessary investment is likely to be hard to come by. The government has had an increasingly fractious relationship with foreign companies in the past two years. In 2009, Algiers embarked upon a strategy to prioritise the development of the local economy over the interests of international investors, introducing rules that limit foreign firms to a minority stake in joint ventures in the country.

The regime has taken a similarly nationalistic stance to investment in renewable energy. When the Desertec scheme was announced, then-energy minister Chakib Khelil stated proudly that Algeria would only participate “on our conditions”. Yousfi has continued in the same vein, emphasising that foreign companies can only come to Algeria if they are prepared to develop a manufacturing base in Algeria for any renewable energy facilities.

This could well deter the investment on which Algeria’s plans rely. “Companies will have to hand over their technology, they will have to employ mainly local labour, and at the same time they will have to take on a great deal of risk,” says Ciszuk. “The plans are all very well, but who will they find to share the technology under such unattractive terms? In such a new, high-tech industry, where the technology is still somewhat experimental – especially when it comes to large-scale production – it doesn’t sound very promising.”

Bearing the extra cost of supplying energy from renewable sources to the national grid will be a further impediment for Algiers, which already heavily subsidises the supply of power to the local market. “They won’t want to touch subsidies at the moment because it is politically delicate, so building renewable capacity will just make everything more expensive for them,” says Ciszuk.

Cost challenges for Algeria

Cost will be an issue whether the electricity is sold on the Algerian market or overseas. “The question is what are they doing it for?” says Hakim Darbouche, an expert in Algeria at the UK’s Oxford Institute for Energy Studies. “If they are doing it for the internal market, then they have the demand, but they will have to pay very generous feed-in tariffs [to companies supplying power to the grid] and also subsidise prices [to consumers] at the other end. If they want to export, they will face the even greater issue of inter-connectivity and synchronisation of grids with other countries.”

The energy ministry realises the scale of the challenge it is undertaking, but for the time being may be content with the symbolic impact of plotting a new course for the country’s long-term future.

“Yousfi realises that there is not much more that can be done through [state oil and gas company] Sonatrach because of all the red tape and bureaucracy,” says Ciszuk.

“This is his way of making his own mark and getting something going.” The realisation of his plans, however, is likely to take decades rather than years.