The first obstacle facing the exploitation of Algeria’s massive solar capacity is the distance between demand centres and supply hubs. Demand centres are located in the north, where urban density precludes the creation of huge projects. However, the supply side lies in the Sahara, in the country’s southern half, where sun irradiation and geographical space are abundant. Added to the issue of remoteness, climatic conditions (among other considerations) mean that the cost of building solar PV installations is 30 per cent higher in Algeria than the global average.36
Beyond governance barriers and towards energy democracy
The lack of a long-term energy strategy is a main governance hurdle in regard to the energy transition: renewable energy initiatives are inefficient, fragmented and lack coordination. Algeria’s energy sector has been slow to adapt to the world’s critical need for renewable energy, driven by climate change. As summarized earlier, Algeria has announced ambitious plans, but little has been accomplished due to poor management, the lack of a unified energy strategy, and insufficient political will. While energy policies and regulations in the sector are either inspired by those in foreign jurisdictions or generated domestically, in each case their implementation is impeded by bureaucracy and corruption.
The energy sector is centralized in Algiers and is led by the energy and mining ministries and by the oil/gas/electricity monopolies Sonatrach and Sonelgaz. In this top-down and highly authoritarian centralized governance system, ideas from the grassroots are unlikely to be heard and accepted. Added to this, Algeria adopts a republican governance model, which means that the elected body is the sole decision-making authority. The president appoints provincial governors, exhibiting a top-down organization in which policy innovations at the local level remain uncommon. Because civil society is weak and fragmented, with little interest in climate and energy issues, the fossil fuel industry’s agenda is largely unaffected by the influence of popular action. There is thus a need to adopt a more flexible, participatory and transparent policy approach, so that Algerians can participate in discussions of, and offer solutions for, the country’s energy problems. Furthermore, including individuals in energy decision-making would boost their sense of ownership of public energy assets, which could lead to a shift in the population’s behaviour towards more responsible and solution-oriented attitudes. Rebuilding confidence between the government and the population by increasing openness, accountability, and, most importantly, respecting citizens’ decisions, would be a first step towards energy democracy in Algeria. More decentralized alternatives might offer people the power to choose how they generate, consume, and exchange energy, while maintaining the state’s critical role as manager, controller and legislator.
Algeria suffers from acute water scarcity, which threatens the country’s food security, among other consequences, such as risking the collapse of agriculture and the displacement of local communities. For example, in August 2021 huge wildfires burned tens of thousands of hectares of woodland in the north of the country, killing at least 90 people. However, despite the obvious catastrophic impacts of climate change on the country in recent years, climate change is rarely addressed in the country’s energy plans, in part due to the institutional weakness of the Ministry of the Environment. It is therefore urgent to include the climate variable in future energy policies and scenarios.37
Financing the energy transition
Despite the falling cost of solar and wind technologies, renewable energy projects remain capital-intensive. Financing the transition is thus a huge challenge for Algeria. Three national funding options seem to be available: public funds, domestic private funds, and foreign direct investment.
In the current context of economic crisis, public funds are increasingly solicited to address what are considered to be more pressing socioeconomic grievances, and thus can only offer a limited support for the transition in the short term. However, a thorough examination of the country’s economic position during the last two decades reveals there has been massive waste and poor management of public finances, in addition to entrenched corruption. For any meaningful and just energy transition in Algeria, the state needs to be democratized and the endemic corruption must be halted. The state should also play a bigger role in the transition, should commit more public funds, and should argue for significant climate finance on the international stage. Additionally, it is important to remember that when oil prices rise (as they are doing now) it offers the possibility of establishing sovereign funds that can enable national funding for the modernization of energy systems.
Further important financing avenues, such as climate reparation funds and the payment of ecological debt by the Global North, could be effective in helping to achieve a fair energy transition for Global South oil-dependent economies such as Algeria. However, there remain doubts about whether such actions are likely to occur. For example, while an $8.5 billion pledge to support South Africa’s phase-out of coal was made at the COP26 international climate summit,38 this has unfortunately not yet materialized. Yet we cannot talk about a just energy transition without raising the question of the payment of climate debts and reparations by the rich Global North to countries in the Global South – not as new loans but rather as transfers of wealth. This is not just an ethical or moral imperative, it is also a historical responsibility. The industrialized West must pay its fair share in aiding poorer countries that are less responsible for climate change, and that are often also more vulnerable, with their adaptation plans and green transitions. Unfortunately, current processes do not allow for such assistance for middle-income and oil-producing countries like Algeria, as countries with more complicated energy issues, such as problems with accessing clean energy, are prioritized. This reflects how international climate policies are still trapped in an ‘aid and development’ framework, and do not reckon at all with the real need to leave existing gas and oil reserves in the ground – and what that entails in terms of significant loss of revenues. Halting extraction will require global redistributive policies that directly address the needs of oil-exporting countries, including middle-income ones like Algeria.
Turning to the domestic situation, it is evident that political will to finance the energy transition is currently lacking in Algeria. For instance, a special fund was established in 2015 to finance renewable energy programmes, but this has not been effectively utilized due to the lack of an executive decree outlining a legal measure on using this fund. Sovereign policies in the country ban foreign debt and limit international financing in vital and strategic sectors, such as energy, to 49 per cent, as compared to 51 per cent for Algerian partners. However, due to pressure from the local and global capitalist energy lobby, which argues that Algeria’s ‘insecure’ and ‘rigid’ regulatory framework discourages foreign investment, the minimum sovereign criterion of 49/51 per cent has been dropped for renewable energy projects. The private investor class in Algeria, which is mainly constituted of family funds, prefers to participate in quick profit-generating projects where they can recoup their capital fast, unlike renewable energy projects, where they will have to wait a long period to repay their investment. Furthermore, after a decade of empty promises and unmet commitments, investors in Algeria have lost confidence in the country’s renewable energy schemes. Nevertheless, since the PNEREE was announced in 2011, some private investors have been working to establish a solar PV value chain to assist the programme.
Despite all of the big announcements made by the political elites in Algeria about the deployment of renewable energy, very little has been accomplished in terms of raising finances for the energy transition from the three sources discussed above. At the same time, Algeria wasted the crucial opportunity offered by the 2004–2014 oil bonanza, when oil and gas prices were very high, to use the significant revenues generated to industrialize, diversify its economy, embark on a solid energy transition and create green jobs. Instead, the super-profits made during this period were siphoned off by a predatory and corrupt elite.39
Finally in this discussion of financing the energy transition, one worthwhile avenue that Algeria can pursue is strategies to encourage citizens to invest in community-based small-scale renewable energy projects, and powering integrated communal projects. This form of direct energy democracy can offer an opportunity for job creation and community empowerment.
Expertise and technology barriers
In contrast to its historical experience with oil and gas technologies, Algeria lacks expertise in green technologies. This is mostly due to the lack of political interest that has been shown in green technologies in recent years, as well as the Algerian economy’s de-industrialization since neoliberal reforms began in the 1980s. The process of liberalization and the transition to the market economy was accompanied by the elimination of both theoretical and practical knowledge in industry, culminating in the liquidation of institutes specializing in crucial areas such as the energy, steel and textile industries. Following a campaign against technical secondary education, technical industrial branches that had contributed to the training of engineers and senior technicians for decades were liquidated.40 The number of experts available to support the energy transition programme, particularly in terms of renewable energy, energy efficiency, and all economic and industrial activities related to it, is still far below the critical mass required.41 There is thus a need for more applied research and practical training. Algeria needs to receive technology transfers and managerial expertise from nations that have managed the transition effectively. Such cooperation should aim to achieve human and material capacity building in Algeria. This will require overcoming the current monopolized technological boundaries and the intellectual property regime enforced by free trade agreements and the international financial institutions.
One of the most difficult aspects of any energy transition in the Global South is establishing control over technology (technology transfer) and industrialization: this is required in order to achieve the level of economic integration needed for the development of a thriving green economy with green jobs. This necessitates a paradigm shift away from neoliberalism and towards greater state involvement and investment, as well as some climate funding from the most developed countries. A local content requirement (a policy imposed by the government that requires firms to use domestically manufactured goods or domestically supplied services in order to operate in the economy) is crucial to the development of a solid and autonomous renewable energy sector in Algeria. The bidders who are chosen for developing renewable energy projects must play their part in an industrial strategy whereby solar energy components are developed locally. Such a strategy should aim to create a local solar energy economy while also lowering project costs by avoiding the costs of imported materials.42 Although such a strategy would benefit the local economy, and particularly the job market, it will be extremely challenging to implement in Algeria because the local industrial value chain is still not fully formed: it is currently in its infancy, and much local production does not meet international standards. In this context, foreign investors are currently lobbying for the abolition of the local content requirement because they see it as an investment barrier that hinders the generation of lucrative profits for themselves. However, while abandoning such measures would perhaps attract more funds and boost the energy sector, it would not benefit the Algerian economy, Algerian industry and the Algerian job market. As such, it is crucial to look at effective solutions for creating and enhancing technology and expertise, by going beyond the Western-enforced intellectual property rights regime and technology monopolies, through entering into win-win partnerships with countries in the Global South, such as China.
Access to energy and the matter of subsidies
Algeria’s energy market is still dominated by the government. However, the state-owned utility’s unsustainable economic model and its mismanagement have given rise to calls for privatization and the end of subsidies. In order to adapt to the current drastic changes in the energy landscape, the Algerian utility Sonelgaz needs to adopt technical, managerial and financial reforms to make it economically viable, as well as more accountable and transparent. Moreover, a progressive subsidy reform is also imperative.
Electricity is currently heavily subsidized in Algeria: households pay the equivalent of $0.038 per kilowatt hour (KWh) for electricity (1/7th of price paid in the United Kingdom). Businesses pay $0.033.43 These low prices, which are well below the cost of production (amounting to around one-third of the production cost), are made possible by subsidies.
There are also additional indirect subsidies, through subsidies to fossil fuels, which are relevant here given that the country’s electricity comes primarily from fossil fuels. Unfortunately, these subsidies, alongside Algeria’s regressive tax system, do not benefit the needy classes as much as they enrich business and capital owners in the country. A just subsidy reform is thus a political and economic imperative. This reform needs to be progressive in terms of which sections of society are subsidized: this should not include the richest classes and capitalist groups (who thereby increase their profits); rather, it should seek to lessen the plight of the most vulnerable in society.44
Algeria is currently facing a double socioeconomic and political crisis. The mass-protest movement (Hirak) that started in February 2019 and lasted for more than a year was a serious political challenge to the Algerian regime. This, in combination with the very negative economic repercussions of Covid-19, makes any blanket removal of energy subsidies in the near future politically untenable – as well as unjust for the millions of Algerians that have been pauperized over the last few years. For example, in response to the global fall in oil prices in 2020, with the economy shrinking by 6 per cent according to the IMF and the country’s foreign reserves declining from $62 billion to $47 billion by the end of 2020,45 the government limited its commitment on social spending: with a 30 per cent cut in such spending. Nevertheless, the country saw a significant budget deficit, reaching 18.4 per cent of GDP in 2021.46 On top of increased poverty levels, hundreds of thousands of jobs have been lost, including in the precarious informal sector. According to government data, 500,000 jobs were lost in 2020 alone.47,48 At the time of writing, the Algerian economy is still under stress, though the war in Ukraine might prove to be a blessing to Algeria’s rulers, as oil and gas prices are once again soaring.
Integrating renewable electricity in the governmental subsidy schemes may be an option for promoting the deployment of renewable energy. However, the existing global neoliberal climate policy paradigm has proven inefficient in dis-incentivizing fossil fuels through a carbon pricing model and through encouraging low-carbon investment through subsidies and favoured contractual structures. This policy paradigm sees governments as protectors of private players’ capital, which prohibits them from addressing social and environmental challenges. With its massive investment deficit and technological inefficiency, privatization market approaches have so far failed to bring about the energy transition that is so essential in Algeria.49 Thus, there is a need for strong political commitment towards the energy transition within the Algerian public energy sector, with the controlled inclusion of private sector actors, alongside more participative, transparent and democratic governance of the state-owned companies.