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Oxford Business Group

Oxford Business Group

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Tunisia Looks To Boost Renewable Sector

Slim Feriani, the minister of industry and small and medium-sized enterprises, announced in mid-January that the country was seeking to attract $2bn in foreign investment by launching international bids to develop a series of wind and solar power projects over the next three years.

These investments would create 1900 MW of generation capacity by 2022, which, by that time, would account for about 22 percent of installed capacity.

This target will also help meet Tunisia’s longer-term goal, as set out in the 2016 Renewable Energy Action Plan, of having 30 percent of power needs met by renewable resources by 2030.

At present, renewable energy accounts for around 3 percent of generation capacity – most of it is wind-powered – with fossil fuel-fired plants providing the rest. Current installed capacity is 5781 MW, with demand set to increase by between 2 percent and 5 percent per annum.

The push to boost renewable energy capacity is being fueled in part by pricing pressure. Energy imports account for around one-third of the trade deficit, which expanded from TD15.6bn (€4.6bn) in 2017 to TD19bn (€5.6bn) last year.

The trade gap may widen further this year, with a 26.6 percent year-on-year increase in energy imports posted in January, mainly the result of a jump in inbound gas shipments used to fire power stations.

Related: Morgan Stanley: Oil To Rise To $75 This Summer

While the country is ramping up its domestic hydrocarbons production, with gas output expected to increase from 35,000 barrels of oil equivalent per day to 65,000 by the end of this year, Tunisia’s limited reserves will not be able to offset rising energy demand.

Renewables investment plan

The expansion of renewables in the energy mix is expected to lead to an increase in private investment in the sector, with independent power producers (IPPs) in particular to see a jump in activity.

In mid-January the Ministry of Industry and Small and Medium-sized Enterprises announced it had for the first time licensed foreign firms to install and operate wind energy plants in the country, with the four projects to have a combined capacity of 120 MW.

The operators – French companies Luca Holding and VSB Energies Nouvelles, German firm Abo Wind and the Tunisia subsidiary of international group UPC Renewables – will invest a total of TD400m (€117.2m) in the projects.

The offtake from the four wind farms will be then sold to the state-owned Tunisian Company for Electricity and Gas (Société Tunisienne de l’Electricité et du Gaz, STEG).

These projects formed part of some 1000 MW of renewable capacity – consisting of solar and wind – that the Ministry of Energy, Mines and Renewable Energies issued pre-qualification applications for in May last year.

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The increased emphasis on renewable sources could also lead to a diversification away from STEG’s dominance in the downstream generation market. Currently, the state power firm accounts for 90 percent of generation capacity, with IPPs meeting the balance.

With the government looking to implement its ambitious renewables target by 2030, IPPs should benefit from increased investment opportunities in the segment for years to come.

Strong regulatory foundations

While current production capacity is limited, Tunisia’s regulatory base should allow it to maximize returns on renewable energy projects and attract further investment, according to a recent report by the World Bank.

The “Regulatory Indicators for Sustainable Energy” report, released in December, stated that despite being a lower-middle-income nation, Tunisia had established a strong renewable energy framework comparable to some high-income countries.

It performed well in regard to energy efficiency planning, along with incentives and mandates for the public and industrial sectors – factors that should offer solid support for renewables service providers.

The bank rated Tunisia as one of the three most improved countries in the report – along with Egypt and the UAE – in developing the regulatory, fiscal and infrastructure frameworks required for renewable energy deployment. This framework includes provisions for private sector ownership of energy resources and regulations to govern the segment.

However, the report noted that Tunisia continues to lag behind in developing policies that support network connections and use by third parties, and that more needs to be done to promote renewable energy outside of the electricity sector.

By Oxford Business Group

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