Algeria: Renewables In Algeria – Has The Time Come For IPPs?

Last Updated: 2 January 2015
Article by Eric Diamantis, Pierre Ferroud and Julien Barba

Over the past few years, the Algerian Government has paved the way for renewable energy projects by enacting specific laws and regulations, under the supervision of the Algerian electricity and gas regulator (the CREG). Key principles have been laid down in Algerian law in order to facilitate renewable energy projects, such as the financial support scheme for promoting renewable projects, the power purchase obligation and the priority access and injection right.

Earlier this year, the Algerian Government published the applicable feed-in tariffs (FiT) for wind and solar PV projects with an installed power capacity over 1MW. Along with this regulatory framework consolidation, the 2013 CREG'S Activity Report has shown that the Transport System Operator1 and the relevant Distribution System Operators2 (the DSOs) are developing new grid capacities and upgrading their electricity network.

However, to date, the regulatory package for renewable independent power producers (IPPs) has not been fully implemented and the dominant, active stakeholder remains the state-owned company specialised in renewables, Shariket Kahraba oua Taka tMoutadjadida (SKTM - a subsidiary of the state-run company Sonelgaz). SKTM is currently developing a portfolio of 300MW solar PV capacities across the country, with a significant part already in construction.

With upcoming regulation from the CREG seeking to complete the regulatory framework for the sector, this update focuses on the current state of the legal and regulatory framework, and the long-term perspectives for the renewable sector: (i) the overview of the regulatory framework, (ii) the FiT financing scheme and the power purchase agreement (PPA), (iii) the grid connection and injection aspects and (iv) the Algerian administrative permit scheme.

Core elements of the framework include:

WHAT'S NEW SUMMARY
Feed-in tariffs for wind and solar projects were published on 23 April 2014 The FiT applies to grid-connected renewables projects (wind and solar PV – not the thermal solar) superior to 1MW of installed power capacity.
WHAT'S NEXT SUMMARY
Executive Decree for the certificate of guaranteed origin The decree should be issued early 2015 and is currently under discussion between the CREG and the Ministry for Energy. This authorisation is required to benefit from the FiT.
CREG regulations on the PPA application forms and templates of PPA These regulations should be issued by the CREG early 2015 and will be published on the CREG website in one package. These regulations are necessary for benefiting from the FiT.
CREG regulations on the templates for the grid connection and injection agreements These regulations should be issued early 2015 and will be published on the CREG/DSOs website. These regulations are necessary for benefiting from the FiT.
CREG regulations on the financial compensation of the DSOs and GRTE and on the average electricity price These regulations should be issued by the CREG early 2015 and will be published on the CREG website.

Overview of the regulatory framework

The Electricity and Gas Distribution Act dated 5 February 2002 set out the principles governing the unbundling of the production, transmission, distribution and supply of electricity in Algeria as well as the transmission, distribution and supply of gas by pipeline3. The Electricity and Gas Distribution Act 2002 also provided for the liberalisation of electricity production, imposed the licensing of IPPs, and established the administrative and criminal penalties to apply in case of infringement.

The Power Producer Specifications Executive Decree dated 26 November 2006 set out a special regime for renewables IPPs. It stated the principles of grid connection and injection priority as well as the technical requirements and specifications borne by the power producers.

The FiT Application Executive Decree dated 18 June 2013 set out the administrative process and conditions for benefiting from the FiT (list of eligible projects based on their technical characteristics and installed power capacity).

The Ministerial Tariff Orders for solar PV and wind dated 2 February 2014 but published in the Journal Officiel only on 23 April 2014. They have been enacted on the basis of the FiT Application Executive Decree 2013 and provide the FiT level applicable to solar PV and wind farms installations.

FiT financing scheme and the Algerian regulated PPA

The FiT financing scheme was set out in the Executive Decree dated 8 December 2011 and completed by the Ministerial Order dated 28 October 2012, and provides that the FIT for renewables will be financed by (i) a 1% tax levy on the state's oil revenues and (ii) by any other resources or contribution. Based on Article 103 of Law 02-01, eligible clients are indeed required to participate in the financial cover of the diversification costs managed by the National Funds of Renewable Energies (Fonds National pour les énergies renouvelables - FNER) as demonstrated below:

However, the arrangements for the DSO compensation will be further enacted early 2015 by the CREG.

PPA templates are under consideration by the CREG and are to be published shortly. To date, the main characteristics of the regulated PPA have however been set out by the current regulatory framework (duration, production cap, termination cases etc.).

Who will be eligible? Renewable projects4, with an installed power capacity > 1MW, benefiting from a certificate of guaranteed origin, an operating authorisation and the FiT granting decision, generating electricity from a renewable energy source and connected to the distribution or transmission grid, should be able to benefit from a PPA.
Who buys the electricity? The relevant regional DSO will be the co-contractor to the PPA. In Algeria, the grid operator will depend on the solar plant's location: four regional DSOs (SDA, SDE, SDO or SDC). The costs borne by the DSOs are funded by the FNER as mentioned above.
What is the duration of the PPA? The PPA will be executed for 20 years made up of two periods: a 5-year period based on a forecasted production (called Phase 1), and a readjusted 15-year period based on the effective production during Phase 1 (called Phase 2). In any case, the FiT adjustment will not exceed 15% of the initial price fixed for Phase 1.
What is the FiT level? For solar PV plants with an installed power comprised between 1 MW and 5MW, the fixed price will be around 0.15 c€/kWh for Phase 1, and will fluctuate between 0.10 c€/kWh and 0.19 c€/kWh for Phase 2*.For solar PV plants with an installed power > 5MW, the fixed price will be around 0.11 c€/kWh for Phase 1, and will fluctuate between 0.08 c€/kWh and 0.15 c€/kWh for Phase 2*. There is no difference according to the type of solar plant (ground-mounted or building-integrated)
For wind farms with an installed power capacity between 1 MW and 5 MW, the fixed price will be 0.12 c€/kWh for Phase 1, and will fluctuate between 0.08 c€/kWh and 0.15 c€/kWh for Phase 2*.
For wind plants with a total installed power capacity > 5 MW, the fixed price will be 0.09 c€/kWh for Phase 1, and will fluctuate between 0.07 c€/kWh and 0.12 c€/kWh for Phase 2*.
* depending on the number of operating hours of the plant.

The grid connection and injection aspects

The templates for the grid connection and injection agreements are still under discussion, as well as the grid connection procedure applicable to renewable IPPs, and should be published early 2015. However, the regulatory framework for the grid connection and injection aspects are broadly complete but the grid code remains spread over various laws and regulations.

Based on the applicable grid code, the renewable IPP is nevertheless entitled to benefit from (i) the right to connect to the grid and (ii) the injection priority right (both provided by Article 8 of the Power Producer Executive Decree 2006). The calculation of the costs sharing implied by the grid connection and injection on the electricity grid are also set out by the grid code. In regards to the distribution network, the IPP will bear the grid connection costs but only after the 5th kilometre of electricity line; and in regard to the transmission network, the IPP will bear the grid connection costs but only after the 50th kilometre of electricity line.

However, there are still open questions for power producers: what is the liability scheme in case of power shortage from the DSO or the TSO? How is paid made for electricity which is produced but not injected in the electricity grid? Will the IPP be covered by an insurance or a specific guarantee from the DSO or the TSO?

In any case, the robustness and efficiency of the electricity grid constitutes a key concern for the success of renewable IPPs in Algeria, since the connection of intermittent energy sources requires the grid operators to adapt and modernise the existing grid network and the related monitoring tools. According to the last annual activity reports issued by the CREG, some upgrades have already been initiated in order to welcome new electricity capacities from renewable energy sources, but these remain subject to a thorough and independent technical assessment.

The Algerian administrative permit scheme and the risks of interference

In regards to the regulatory framework for energy, the current regulations in force lay down a list of authorisations required for the operation of a power plant and the safety of the electricity produced. This will have to be managed with other legislation, such as construction, environmental and real estate law. Based on the applicable electricity regulations, we note that:

  1. First, the IPP should apply for the certificate of guaranteed origin. According to the information disclosed, limited information should be requested at this stage but it is very likely that some specifications of the plant will be required nevertheless (location, intended power capacity).
  2. Once the certificate of guaranteed origin is granted, the IPP will be vested to apply for the FIT granting decision. A limited list of documents will be requested: the certificate of guaranteed origin as well as the copy of the grid connection application, and some other technical elements.
  3. Along with the abovementioned procedures, the IPP will be enabled to apply for the operating authorisation. Such application will require the IPP to have sufficient elements regarding notably (i) the technical impact of its injection on the electricity grid managed by the operator, (ii) its financial and technical capacities for building and operating the plant, or (iii) a scale plan of the plant. At this stage, this would imply the financing scheme has been set up.
  4. Once the operating authorisation has been granted, the IPP will be vested to apply for a building permit, but only after being granted with the operating authorisation. This element should be taken into account from a financing perspective as it means that the financing and contractual arrangements will have likely to be set up without the construction permits having been issued.

In regards to construction law, the renewable IPP will be subject to ministerial order dated 6 February 2011 which sets out the rules for the consideration and the granting of construction permits of power plants, and derogates to some extent from the general building regulation provided by Law No. 90-29 dated 1st December 1990 and the Executive Decree No. 91-176 dated 28 May 1991, which should continue to apply otherwise. With respect to the environmental law, environmental impact assessments will be compulsory and an authorisation for the commercialisation of imported crystalline panels might be required (Ministerial Order dated 19 April 2008).

It is likely that the administrative process relating to each aspect of a project (electricity, construction, environment for example) will give rise to clashes with other regulations and will therefore require a thorough review of the potential blocking points.

As these authorisations are subject to Algerian administrative law, specific attention should be given to the general administrative rules governing their publication, challenge and expiry. Additionally, a risk assessment from an Administrative Law point of view relating to the modification implied by the technological improvements during the course of the development and the construction of the already-permitted projects, is strongly recommended.

Conclusion

There is a clear will on the part of the Algerian government to promote renewable energies and a stated policy. The new regulatory framework is however yet to be fully developed and the timing and scale of this new energy policy may partly depend on the political and economic decisions to be made with respect to the apportionment of hydrocarbon revenues between feed-in tariffs and other needs in a context of lower oil prices.

One should also note that even when considering the existing regulations, some key questions still remain, such as the creditworthiness of the off-takers and secured PPA revenue flows, appropriate security arrangements and securitization of the PPA in case of tariff decrease amongst many others.

Footnotes

[1] The transmission electricity grid is handled by the Gestionnaire de Réseau de Transport d'Electricité - "GRTE".

[2] The distribution electricity grid is handled by four DSOs which have regional competence : the SDA, SDE, SDO and SDC.

[3] The unbundling process is not yet finished since the DSOs and GRTE are still controlled by the public utility and power producer, Sonelgaz.

[4] Are considered as renewable under the meaning of the Promoting Renewable Energy Act dated 14 August 2004: Solar (PV, thermal and thermodynamic), Biomass, Wind, Geothermal, Hydro. However, only FiT for Wind and PV Solar have been issued to date.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions