The Algerian Renewable Energy Programme

What's new?

Algeria launched a renewable energy development programme in February 2011. The programme was ambitious but with only 380 MW of PV solar capacity installed as of today, developments in the first phase of the programme have been very slow.

The Algerian Government has now decided to give a new impetus to the programme and to accelerate the pace of its implementation.  The programme has been updated and the current objective is to commission 22,000 MW of renewable energy capacity by 2035-2040. 

A new direction?

Algeria's current installed generation capacity is 13 GW, for a production of 74TWh.  Thermal power generation represents 98% of that capacity. By 2030, renewable energy is intended to represent 27% of the Algerian energy mix.

Decree no. 17-98 of 26 February 2017 relating to the tendering procedure for the generation of renewables and cogeneration energies, which provide the legal basis for tendering renewable energy projects was published on 5 March 2017. On that basis, the Ministry of Energy was expected to launch a first tender for larger PV solar projects addressing international operators in April 2017. The launch has since been delayed but is still expected to take place in the coming weeks or months.

The breakdown

The breakdown of the renewable capacity to be developed by 2030 is as follows:

• 13,575 MW PV solar;
• 2,000 MW thermal solar;
• 5,010 MW wind;
• 1,000 MW biomass; 
• 400 MW cogeneration; and
• 15 MW geothermal.

Key terms of the tender

Characteristics of the solar projects

• There will be two types of tenders for renewable energy projects: tenders for large scale projects (appels d'offres à investisseurs) and tenders for smaller scale projects (12 MW or less) (appel d'offres aux enchères).
• The tenders for large scale PV solar projects are initiated by the Ministry of Energy and will be for an aggregate installed capacity of 4,050 MW, subdivided in three phases of 1,350 MW each. The first call for tenders to be issued will be for a first phase of 1,350 MW.
• Each phase will comprise a series of projects of an average capacity of 100 MW, to be developed at sites identified by the Ministry of Energy.
• The projects will be developed, financed, built (including grid connection) and operated by different project companies ("SPVs").
• It is expected that the solar projects will be financed on a debt-to-equity ratio of 70:30.
• Although not formally stated by Algerian authorities, it is expected that the debt financing for the projects will be "external" financing provided by IFIs and international commercial lenders.  This constitutes a new approach to project financing in Algeria, which has been almost exclusively based on domestic financing for the last 15 years.  Satisfying international project financing bankability requirements is likely to constitute one of the main challenges faced by the Algerian renewables programme.

RfPs and Bids

• Each tender will set out the specific terms of the project which will include capacity, production timetable, financial guarantees and other bonds required from bidders and financial and economic terms for the sale of electricity.
• Bidders will be requested to submit a technical offer and a separate financial and commercial offer (including the price per kWh). In accordance with common procurement practice in Algeria, the latter will only be considered if the technical offer is compliant.
• Decree no. 17-98 does not expressly provide that the tender procedure shall allow for pre-bid negotiations or competitive dialogue, but it cannot be excluded that the tenders may organise some form of exchanges between bidders and the authority prior to submission of their technical and commercial and financial offers.
• A special committee will review the bids and rank them based on the kWh price and report to the Minister of Energy and the Ministry of Industry and Mines.

Power Purchase Agreements

• Bidders will be selected on the basis of the price per KWh offered in their bid. The Algerian solar feed-in tariffs will not apply to the tender.
• Power purchase agreements will be for a duration of up to 25 years.
• The proposed tariff in the power purchase agreements will be dinar (DZD) denominated. Whilst Algerian authorities are well aware of the importance of the foreign exchange issue in terms of bankability, it is not yet known whether the tariff formula will provide for any form of (full or partial) foreign exchange indexation.
• The Decree remains silent on whether credit support (by the Government or SONATRACH) will be offered to back or otherwise take on power offtake payment obligations. It is however most likely that some form of guarantee from the Algerian State or SONATRACH will be required in order to ensure the bankability of the projects; one of the solutions could possibly involve SONATRACH participating directly in the energy offtake.

Industrial Component

• Bids will need to comprise an "industrial component" requiring bidders to invest in the development of domestic capabilities in relation to the production of equipment used in the generation of electricity from solar energy and/or the delivery of services.
• The requirement for an "industrial component" may be waived by the Government. There is no confirmation, however, that the requirement will be waived in the upcoming tender. This issue may be one of the causes of the delay in the launch of the tender.

Shareholding

• In accordance with Algerian investment regulations, 51% of the share capital of the SPVs will be held by Algerian parties. The Ministry of Energy and, with respect to the "industrial component" of a project, the Ministry of Industry and Mines will designate the public sector companies that will be involved in the projects tendered.  It is expected that public sector company SONATRACH will hold 40% and that public sector company Sonelgaz and/or other local investors will hold the remaining 11% of the Algerian stake.
• The remaining 49% will be held by the winning bidders, expected to be primarily international energy operators and investors. 
• The "51/49" model is a manageable structure that was applied on a number of the conventional IPPs, IWPPs and industrial projects undertaken by Algeria in the 2000's.

Ashurst's experience in Algeria and North Africa

Ashurst has been active in Algeria since 2000, having been involved in a number of power, petrochemical, oil & gas and infrastructure projects in the period.  David Wadham, Michel Lequien and Nacim Bounouara have a track record within Algeria of managing high-profile projects, including IPPs and IWPPs, and navigating the complex Algerian legal and regulatory rules applicable to such projects.  Beyond Algeria, Ashurst has been active in North Africa for well over two decades, including on ground-breaking projects such as Phases I, II and III of Noor concentrated solar power (CSP) IPPs in Ouarzazate, Morocco, the largest solar power complex and the largest CSP plant in the world.