Francesco Starace, CEO, ENEL: Interview

Interview: Francesco Starace

What is the outlook for Algeria’s desire to increase energy produced by renewables?

FRANCESCO STARACE: The Algerian government is pushing to achieve a renewables capacity target of 22 GW by 2030, and there are three things that will help the country achieve this: the regulatory environment the government has been developing since 2002, which will propel renewables development; a steadily growing electricity demand; and outstanding solar and wind resources. Also, the main Algerian power and gas company is working with neighbouring countries to create new interconnections. It is developing a programme to roll out electronic metering and is planning to increase its reserve margin, which makes the 22 GW target seem achievable.

How can the sector assure that renewable generation does not lead to higher end-user tariffs?

STARACE: Recent auctions for renewables in countries with similarly abundant resources have shown that the wind electricity price can be lower than $45 per MWh, while the PV price can go below $60 per MWh. When one considers what these prices were just five years ago, the pace of efficiency gains in these technologies has been remarkable.

These advances will continue, so the time has come to stop thinking that renewables are traditionally priced higher than conventional technologies. This also applies to where the end-user tariff is kept artificially low through incentives; in fact the gradual reduction of such incentives in other countries has fuelled electricity market development while at the same time increasing competition among independent power producers (IPPs).

What are the advantages or disadvantages of the pricing structure established in February 2014?

STARACE: The Algerian feed-in tariff scheme applies to all PV and wind projects that are connected to the domestic grid and have a capacity exceeding 1 MW, which benefit from a guaranteed tariff during the first five years of operation. At the end of the fifth year, tariffs are increased if the plant’s operating hours are lower than a stated value, and they are lowered if the operating hours are above that value. This mechanism assures that projects developed in areas that have fewer resources are able to produce similar returns to those that enjoy higher solar radiation or wind speed levels.

On the other hand, this solution lowers the pressure to improve performance through innovative solutions, and reduces the possibility of developing small and medium-sized systems that cannot benefit from cost reductions related to economies of scale. Moreover, the scheme does not foster conditions which are conducive to an enhanced economic development of those regions where renewable resources are more abundant. It is these areas that are often among the poorest in Algeria.

In your opinion, what other measures can be taken that would help to promote greater growth in the renewables industry?

STARACE: The Algerian regulatory framework for renewables development is one of the most advanced in the MENA region, yet there are two hurdles in particular that dampen the enthusiasm of investors. Firstly, international IPPs could be discouraged from investing in the Algerian renewable energy sector because of the 51/49 rule, which allows foreign investors to hold only up to 49% of capital in an Algerian company. Efforts to reform the Foreign Investments Law that replaces this rule could contribute significantly to the growth of the Algerian renewable sector. Furthermore, another measure that would assist in the promotion of further growth would be increasing funds for electricity network improvements and infrastructure.