In line with rising demand for electricity, Algeria has invested significantly in its power sector over the past 10 years, with projects primarily carried out by state-owned power company Sonelgaz and its subsidiaries. Major upgrades embracing enhanced technologies have also been brought on-stream; however, there remains a pressing need to further optimise production and reduce consumption to keep up with demand.
Power demand in Algeria increased by an annual average of 6.6% between 2005 and 2015, driven mainly by better living standards and demographic and economic growth. This upward trend is expected to continue, though authorities are increasingly more aware of the need to cut down on wasted resources and rationalise consumption habits on the back of slowing gas output and exports – the main feedstock for electricity production – and its subsequent impact on government finances. According to Akli Brihi, Maghreb cluster president at Schneider Electric, one of the most troubling issues facing the sector is the amount of power that goes to waste due to overuse. “Significant amounts of energy are wasted in Algeria because of the low price of electricity. People are not challenged at all in the way they consume energy. There are efforts to promote awareness and responsible use, but positive results are still far off,” Brihi told OBG.
Indeed, according to the National Agency for the Promotion and Rationalisation of the Use of Energy, Algerian households consume almost 10 times more electricity than the international average and almost double that of its Maghreb neighbours.
Tariffs & Subsidies
Part of the problem is that electricity in Algeria remains heavily subsidised, despite efforts in recent years to increase tariffs. Indeed, new electricity prices were applied in 2016 by the country’s Regulatory Commission for Electricity and Gas, which divided bills into four categories. The first two categories applies to low-electricity users, or those who consume between 0-125 KWh and 125-250 KWh per quarter, while the last two categories pertain to high-electricity consumers, including users of 250-1000 KWh per quarter and those whose consumption exceeds 1000 KWh. These new tariffs are aimed at increasing electricity bills for the last two categories by 15.15% and 31.13%, respectively, without affecting low-income households. Regardless of these recent hikes, Algerian consumers still pay some of the lowest rates worldwide, with the heaviest electricity users billed at AD4 (€0.03) per KWh, compared to AD14 (€0.12) in Tunisia and AD15.98 (€0.13) in Morocco.
Another tactic relates to upgrading and supplying the power generation market with new technologies and services, especially as the country aims to double its installed electricity capacity to 30 GW by 2020 (see overview). “The electricity sector in Algeria is at an important turning point, with increased focus on disruptive technologies and production optimisation,” Touffik Fredj, president and CEO for North-west Africa at General Electric (GE), told OBG. With respect to this, Algeria has made significant progress over the years. From a production perspective, it has seen many upgrades, from simple to combined-cycle power plants, which are expected to result in higher output and lower gas consumption. In addition, mid-2017 saw a deal finalised between Sonelgaz SPE – a subsidiary of Sonelgaz – and GE Power, which will bring long-term operations and maintenance services to 10 Sonelgaz plants with a combined capacity of 11 GW. Furthermore, technology upgrades are forecast to deliver an additional 420 MW of capacity. This should boost productivity and efficiency while saving up to $2bn in gas.
To bridge the production gap and better meet demand, efforts to enhance capacity in the coming years should help breathe new life into the sector. In the short to medium term, natural gas will remain necessary for electricity generation, however, renewables, especially solar, are expected to play a more prominent role in this regard in the longer term (see analysis).
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