Solar water pumping system in the south of Algeria, Illizi Province, Djanet District, Sahara. (Photo by Dupuy JC/Andia/Universal Images Group via Getty Images)
Analysis

Algeria’s Green Energy Transition: An Energy Transition Diverted by Oil and Gas Profits?

In an interview with Der Spiegel in 2021, Algeria’s President Abdelmadjid Tebboune noted that the country had a “great deal of potential on renewable energies,” suggesting that ”with German help, [Algeria] could supply Europe with solar energy.” Tebboune’s confidence regarding the country’s green energy potential comes at a time when Algeria has begun to experience the disastrous effects of climate change. Most worrying, wildfires have become a fixture of Algerian summers, with at least 40 people dying in over 50 wildfires in the north of the country this August. Moreover, and as Tebboune’s remark hints at, Europe as both partner and customer is a key player in the country’s energy transition, and Algeria’s solar energy plans and potential are intimately tied to European geopolitics. The following article will consider Algeria’s energy transition and in particular its solar energy potential. It will examine the relationship between oil and gas demand and Algeria’s green energy transition, and the pressures and openings that affect energy transition in a country with large hydrocarbon reserves.

Sonatrach: Algeria’s “golden goose”

Founded shortly after Algeria achieved independence in 1962, Algeria’s national oil and gas company Sonatrach has played a central role in the country’s political, social, and economic transformation. With the 10th largest reserve of natural gas in the world, oil and gas exploration and extraction offered a lucrative and speedy means to develop the country. The nationalized oil and gas sector became emblematic of the country’s independence and sovereignty.

At the turn of the century, it appeared that the government could no longer rely on the oil and gas sector for a steady flow of capital into state coffers. Since the 2000s, Sonatrach had seen a decline in its profits, which meant a draining of the Algerian public finances of foreign currency reserves. This has been combined with mismanagement, intra-elite competition and profligacy, with the company running through eight CEOs since 2010. In turn, a series of external shocks, such as the 2014 decrease in global oil prices and the COVID-19 pandemic further hit the company’s profits and its ability to diversify beyond its long reliance on oil and gas. Sonatrach’s declining economic clout came at a time when Algeria’s vulnerability to climate change, and in particular drought and wildfires, was becoming more and more apparent. As a recent Algerian government white paper notes, forest fires pose a serious threat to lives, property and economic activity, with annual asset losses estimated at approximately $11 million. In light of such existential threats and declining oil revenues, investment in new and green energy technologies, which would offer both energy security and a source of foreign capital, has become increasingly attractive.

The sun rises on Algerian solar energy?

With the Sahara desert covering 86 percent of the country, Algeria has impressive, year-round solar energy capacity, and is ranked 21st in terms of potential solar energy capacity. As such, Algeria has the potential to compete with its neighbor Morocco, to become the solar energy sector leader in the region.

There are some encouraging signs that there is growing political will within government circles to pursue a solar powered energy transition. In Algeria’s Horizon 2030 development plan, the country set a renewable energy target of 22,000 MW of installed renewable capacity by 2030, or 27 percent of electricity generated. As Hamza Meddeb, a Nonresident Senior Fellow at Malcolm H. Kerr Carnegie Middle East Center, commented to me: “Despite being an oil and gas producer, Algeria is aiming at promoting renewable energy at least for two reasons, first the increasing domestic demand on electricity, which reduces Algeria’s exports in gas and second the high potential for renewable energy sector in Algeria and the interest of European countries in investing in this sector in North Africa.”

In recent years, these plans have begun to bear results, with a number of promising solar plants scheduled. Recently, the Algerian company Zergoun Green Energy commissioned its solar panel production plant in Ouargla. The plant, which has a production capacity of 180 MW of solar panels, will equip the clean energy plants being developed in Algeria. This $12 million project will be implemented by the Spanish company Mondragon Assembly which is currently building a similar factory in Egypt, and is expected to create 150 direct jobs.

After Algeria’s 2019 solar tender process produced only limited success, the ministry of energy transition and renewable energy unveiled a tendering process in 2022 that sought to court European investment in the sector. Most notably, the new process stipulated that Algeria’s state-owned renewable energy company (SHAEMS) owns no more than 25 percent of any venture—down from a 51 percent stake in the 2019 tender process, and Algeria’s historic pursuit of state-owned oil and gas. The 25-year power purchase agreements include 11 sites covering some 4,250 hectares. To combine the country’s energy transition with job creation, a local content requirement clause requires investors to use locally produced solar panels and assembly structures. While initially, this was hampered by the country’s lack of solar energy manufacturing companies, factories producing solar panels are now established in Boukherana industrial zone and the province of Ouargla.

Despite such attempts to build a domestic solar energy manufacturing sector, there remain questions over what Algeria’s green energy transition will look like and who it will benefit. In a recent interview with Jadaliyya, the climate change researcher and activist Hamza Hamouchene notes that not only are the county’s green energy targets “overly optimistic” but run the risk of reproducing what he terms as “green colonialism,” whereby the green transition in Europe is predicated on the ongoing extraction of exploitation of resources in Algeria and the Global South more generally. In Algeria, this is occurring through green energy projects that supply green energy to Europe, while ignoring the needs and interests of local, Algerian communities. In such ways, European states outsource the costs and payoffs of their green energy transition to Europe’s periphery.

The war in Ukraine, a boost for Algerian oil and gas

If Algeria’s solar power regulatory and fiscal framework has begun to attract foreign investment in the country’s green sector, it pales in comparison with recent foreign interest in the country’s oil and gas sector. Since the beginning of the war in Ukraine, European countries such as Spain, Italy, Portugal, and France have all looked across the Mediterranean to make up for lost supply from Russia.

In 2019, new legislation—Law No. 19-13 of December 11, 2019—was enacted that intended to attract foreign investment and implement more attractive regulatory and contracting structures. Significantly, the law included legislation for shale gas exploitation and enabled foreign companies to enter the sector as 49 percent minority stakeholders. Coinciding with the 2019 Hirak movement, a mass movement against President Abdelaziz Bouteflika’s fifth term, the law attracted significant mobilizations, with protesters arguing the law undermined national sovereignty and opened the door to new forms of colonial exploitation in the country’s south.

The importance of the legislation became apparent in 2022 with the signing of a $4 billion multinational oil and gas contract for a site in southeastern Algeria. The agreement brings together Sonatrach, Italy’s Eni, the US-based Occidental Petroleum Corporation, and the French company Total. As a direct result of the war in Ukraine, as companies scramble to secure alternative hydrocarbon sources, Algeria is projected to collect $50 billion of energy revenues by the end of 2022 and $35.4 billion in 2021. In a sign of the company’s new-found confidence regarding the long-term viability of the sector, in January CEO Toufik Hakkar announced that the company would invest $40 billion in oil and gas exploration, production, and refinement between 2022 and 2026. This includes a refinery project at the Hassi Messaoud oil field, a fourth turbocharger on the gas line to Spain and Portugal and renewing Sonatrach’s relations with Libya’s National Oil Corporation.

The bumpy road toward green energy transitions

The case of Algeria, and the current impact of the war in Ukraine on oil and gas exploration and extraction in the country, demonstrates the logics by which an energy transition can occur alongside increasing oil and gas revenues. In countries with large hydrocarbon reserves, exogenous factors can quite easily blow off course an energy transition. In Algeria, there is a very real danger that any green energy projects are merely inconsequential; not so much greenwashing as green embellishments in the margins of a field that continues to be dominated by oil and gas extraction. That being said, such revenues, rather than being ploughed back into further hydrocarbon exploitation, might be used to nurture the country’s energy transition, with a focus on job creation in the green energy sector, cheap domestic energy provisions for Algerian citizens and solar energy as a source of national pride and optimism.

Achref Chibani is a Nonresident Fellow at TIMEP focusing on climate change in the Middle East and North Africa region.