How Algeria can become a clean energy leader

A long-term OPEC member and Europe’s second largest gas exporter, Algeria is today entering the race for renewable energies and green hydrogen production. The country is poised to play a significant role as an emerging reliable supplier to fuel Europe’s ambition towards a dominantly renewables-based energy mix.

In 2020, the government created a ministry for energy transition and renewable energies and nominated sustainable development long term advocate and academia renowned professor Chams Eddine Chitour at its helm. Within months, the country started swiftly making inroads towards devising its green hydrogen production strategy, taking stock of the untapped existing potential and pledging to include hydrogen to its exporting energy mix by 2030.

Many industry experts argued that Algeria hasn’t lived up to its renewable energy potential, illustrated by a meager 1% renewable share in its electricity production sources. Since independence, the succession of oil and gas deposit discoveries in the Sahara Desert have naturally fostered a predominantly fossil fuel-based energy industry development to fill the country’s coffers with hefty cashflows while ensuring its energy security. However, plummeting fossil fuel prices on international markets coupled with export volumes squeezing effect induced by declining reserves and growing domestic demand served as a wakeup call for decision makers.

The long-lasting economic crisis has painfully compelled the country to embark on a late yet vital energy management diversification program.  Pressed by the urgency to maintain energy export income in a transitioning market, while fulfilling its national energy appetite, Algeria’s shift towards displacement of fossil fuel by green hydrogen appears to be more like a survival imperative rather than optional outcome.

Despite the lack of capital invested in renewable energy projects, resulting in marginal production capacity and widening development gap when benchmarked regionally, Algeria is well positioned to catch up and play a leading role within its hydrocarbon exporting peers. There are some key enablers to help the nation rapidly boost its green hydrogen production:

• Access to the vast potential of renewable energy production dominated by solar: Occupying a large area of the Solar Belt, Algeria’s is blessed with an abundance of solar energy and has a formidable opportunity to generate cost effective, high intensity electric power to fuel the green hydrogen electrolysers all year round. 
• Proximity to expanding hydrogen demand market: located on the southern shore of the Mediterranean Sea, Algeria has over the years developed a trans-continental pipeline network that delivers steady liquified gas streams to Europe’s southern doorstep. Consistent fulfillment of the long-term contractual obligations towards its European customers has also cemented Algeria’s reputation as a reliable energy supplier. As an emerging green hydrogen producer, Algeria could replicate the same export strategy by converting or expanding its existing gas distribution and storage infrastructure to cost effectively ship the locally produced green hydrogen to its target markets. With its projected growing hydrogen demand and the limited solar power production, Europe is poised to become an ideal offtake market to penetrate for the North African producers as gas imports wane off.
• Existing capabilities and skilled work force: to develop its hydrocarbon energy resources, Algeria has historically relied on its national skilled force while promoting in-country know-how and expertise. In the wake of its hydrocarbon reserves nationalization in 1971, Algeria embarked on an ambitious training and development program aiming to equip its expanding upstream and downstream assets with the necessary skilled profiles and human resource capabilities. Many of the developed skillset are considered, by many specialists, as transferrable to renewables such as large-scale construction project management, discipline engineering or commercial functions.
• Expanding domestic market: Algeria’s growing population peaked to 43 million recently, spurring a spiraling electricity demand curve (Electricity demand reached an all-time high at 15.6 GW in summer 2019). In parallel to the inflating household consumption, Algeria’s industrial ecosystem spans a number of manufacturing and transformative hubs known to be large consumers of power and ammonia (e.g., Petrochemical, LNG, Steel mills, fertilizer…etc). Creating a future domestic market for green hydrogen could also foster entry level private investors who are better equipped to develop a scalable and localized hydrogen production and distribution networks.

A recent analysis co-authored by McKinsey & Company and the Hydrogen Council and published in February 2021 about the perspectives of the global energy market singled out Algeria’s potential to produce and ship its future green hydrogen production to Central Europe (e.g., Ruhr area in Germany) at a cost sub 2 USD/Kg, outperforming some of the most competitive developments already sanctioned in the region.

In their quest to secure reliable green hydrogen sources susceptible to bolster their long term decarbonization strategies, many European energy ministers, government officials and energy corporations are already courting their MENA counterparts to forge new alliances, carve out new supply chains and position themselves as precursors to grasp the benefits of the upcoming business opportunities. Algeria is today the latest energy heavy weight player to enter the race, boasting its renewable potential and noticeably announcing its intentions to monetize it.

Despite all the odds stacked in Algeria’s favor to fast track the country’s transformation from Europe’s second largest gas exporter to a dominant green hydrogen player in the regional market, the journey towards delivering the first kilogram of hydrogen remains long and paved with daunting challenges. The country still lacks a tailored regulatory framework and fit-for-purpose tax regime governing the green energy production that is still dominated by a public sector monopoly.

Additionally, many studies analyzing green hydrogen project economic performance and financing mechanisms revealed that large scale developments are more prone to achieve cost effective production, due to the large upfront Capex investments drawn by the renewable power generation. To undercut the already established suppliers in the regional green hydrogen arena, Algeria must leverage its full potential to aim for large capacity production and achieve the best-in-class sales prices.

The success of such strategy will ultimately hinge on Algeria’s capacity to attract considerable project funding while offering fertile ground for foreign investors who can bring some much-needed expertise to the table. In recent years, instability within the leadership and governance landscape at the helm of the energy sector has undermined Algeria’s ability to build long lasting commercial partnership and weakened its capacity to deliver its objectives.

 Like in many burgeoning industries, the road towards building a nation-wide hydrogen production and distribution infrastructure is stacked with technological difficulties, resource shortages, inherent risks and intimidating uncertainties. Embarking on this transformational journey must by all means feature centrally in Algeria’s overarching future energy strategy, that successfully leverages the generated fossil fuel cashflows to prompt a scalable renewable energy production and distribution with green hydrogen at its heart. In today’s evolving energy transition, the survival of hydrocarbon anchored economies such as Algeria is at stake.

All opinions stated are solely those of the author.