19 Jan 2022

What a Green Transition Means for Tunisia

Tunisia is a signatory party of the 2015 Paris Agreement (PA) on climate change and as part of its Nationally Determined Contribution (NDC) for 2030, it has committed to reduce its greenhouse gas (GHG) emissions in all sectors (energy, industrial processes and product use, agriculture, forestry and other land uses, and waste).  In this framework, […]

Tunisia is a signatory party of the 2015 Paris Agreement (PA) on climate change and as part of its Nationally Determined Contribution (NDC) for 2030, it has committed to reduce its greenhouse gas (GHG) emissions in all sectors (energy, industrial processes and product use, agriculture, forestry and other land uses, and waste).  In this framework, Tunisia’s NDC pledge is to reduce its carbon intensity by 45% by 2030, relative to 2010 levels, according to the most recent update, in order to reach the PA objectives.

The implementation of the NDC, with its two components being mitigation and adaptation, will require the mobilization of significant financial resources, estimated at around USD 19.3 billion over the period 2021-2030. More specifically, this includes USD 14.3 billion for the mitigation, USD 4.3 billion for adaptation, and USD 0.7 billion for capacity-building actions. As such, this will require major international financial contributions, approximating around 60 % from technical and financial partners in addition to domestic and private sources of financing.

This comes at a time where Tunisia is facing a challenging national economic situation that was further weakened by the COVID-19 pandemic. Investment rates (% of GDP) fell in recent years compared to 2010 levels. The unemployment rate stood at 16.69 % in 2020. The GDP fell by 8.6% in 2020, while it did not exceed a 2.66 % growth rate during the previous five years. Thus, the low-carbon strategy aims at achieving an economic green recovery boosting the main above-mentioned economic indicators and realizing the climate objectives, e.g. cutting CO2 emissions.

 

The low-carbon strategy for the energy sector

Tunisia is also developing its 2050 low-carbon strategy with the ambitious target of reaching carbon-neutrality by 2050. The North African country aims to build on the COVID-19 pandemic economic recession and steer a post-COVID green growth. The energy sector is placed at the heart of the mitigation’s sectoral priorities within the low-carbon strategy. Furthermore, a specific low-carbon strategy for the energy sector is being developed.

The Tunisian energy mix is dominated by oil and gas. Renewable energy production remains very limited, being 1-3% of the primary energy resources. For the electricity sector, the generation is heavily dependent on natural gas, which represented 98% of the electricity mix in September 2021. As for the rest, 2% comes from Renewable Energy Sources (RES).

Currently, the RES installed capacity is limited. It consists of 240 MW of wind, 79 MW rooftop solar PV, one 10 MW large-scale solar PV farm, and 62 MW of hydro. This represents about 6% of the country’s total power installed capacity (6,147 MW), while its production amounts to 2-3% of Tunisia’s overall generation mix. The installed RES capacities are mainly owned by STEG (Tunisian Company of Electricity and Gas), the national utility. The wind farms and the large-scale PV farm were developed under an engineering, procurement, and construction (EPC) contract. Each of the projects was financed by an international bank/institution, e.g., KfW loan for the 10 MW projects in Tozeur. The wind capacity is split into two projects, one financed through the Spanish Development Aid Fund in Bizerte and the other in Sidi Daoud through the financial support of the Global Environment Facility.

Tunisia is heavily dependent on energy imports which represent about 47% of its energy needs. This ratio has been continuously increasing over the past years due to the decrease in local oil and natural gas production. Indeed, in 2010, Tunisia had to import only 5% of its energy needs. This increasing dependency, combined with the subsidies for energy products and with the depreciation of the local currency (Tunisian dinar) has strong negative effects on the balance of payments and the state budget.

The question of energy subsidies represents a big socio-economic dilemma. In 2013, the energy subsidy ratio of the GDP ratio reached a peak of around 5% before decreasing to 3% of GDP in 2020[i]. Its share is linked to oil and gas prices in the global market. When they are low such as in 2015, the subsidy drops, while they increase when the prices go up, e.g. the current energy price crisis.

The 2050 national low-carbon strategy of the energy sector aims at increasing energy independence, diversifying energy resources, enhancing energy security and achieving cost reduction. To achieve this, the strategy is based on four technological instruments: energy efficiency, the electrification of end-uses, improving the performance of the electricity sector, renewable integration for the thermal, and electricity uses.

These technological instruments are coupled with three economic tools that aim at providing financing for the transition and sending targeted price signals. The economic instruments are the following: a gradual reduction of subsidies for energy products, the introduction of a carbon tax to finance a low-carbon strategy, and the establishment of other carbon pricing instruments in the electricity and the cement sector.

 

Boosting renewable energies in Tunisia

The integration of renewable and energy efficiency programs is at the heart of the country’s low-carbon strategy. In this regard, the North African country developed the Tunisian Solar Plan (PST), a national program setting the objectives for renewable energy and the strategy to implement them. The RES objective was to increase the share of RES in total electricity production capacities to 30% by 2030, with an intermediate target of 15% in 2020. These targets were updated following new technological developments and cost estimations as well as following the non-fulfillment of the 2020 target. Concerning the most recent update of the renewable energy capacity, the 2030 target of 30% integration has translated into an additional renewables-installed capacity of 1,860 megawatts (MW) by 2023 and 3,815 MW by 2030, compared to the 2017 installed levels.

At the same time, Tunisia has also set up a new regulatory framework allowing private investment in utility-scale RES projects, called Law 2015-12. It has three regimes: self-consumption, authorizations via calls to projects, and concessions by calls for tenders. There were several rounds of calls for projects and tenders organized over the past few years. In the latest tender, for the 70 MW of solar PV capacity, the winning bids were as low as EUR 0.035/kWh. So far, the RES accepted projects are experiencing delays in the development process due to several reasons, such as regulatory issues, the Covid pandemic, and parliament approval delays.

The first calls for projects under the authorization regime were for 70 MW of solar PV (six 10 MW projects, and 10 projects of 1 MW) and for 140 MW of wind. The bids for PV projects resulted in prices as low as EUR 0.04/kWh. The call for wind projects was postponed to the next round, as the related Power Purchase Agreement (PPA) was deemed non-bankable by businesses and investors. Some of the identified issues, which the Ministry of Energy and other stakeholders are currently investigating, are the PPA effectiveness, i.e. entry into force, deemed commissioning, force majeure, e.g. change in law-related issues, and the termination payments.

There were different decrees and complementary laws following the law 2015-12 aiming to provide more guidance, e.g. law 2019-47 which repeals some of the law 2015-12 provisions. However, this has created some regulatory instability, confirming that the initial regulatory framework to promote private investments in renewable energy projects was not effective since the beginning. Furthermore, STEG (management and unions) were reluctant to bear the additional costs (grid connection and network reinforcement) linked with the connection of new RES projects. For example, the commissioning of a 10 MW PV plant, developed by ENI-ETAP in the region of Tataouine, has been blocked for over a year so far.

These hurdles, in turn, which some of them are identified in the national energy strategy, are causing delays in the development and consequently the energy transition process in Tunisia. To overcome these hurdles, the IRENA Renewables Readiness Assessment recommended eight key actions, among them we find establishing a holistic renewable energy planning methodology, realistic scheduling for new capacity beyond 2023, clarifying institutional roles and enhancing human resource capacities, establishing an independent regulator for the power sector, and involving local banks in renewable energy financing.

 

Conclusion

After a decade of political instability and two years of economic slowdown due to the pandemic, the Tunisian economy needs, more than ever, a new boost. A green economic recovery is the way forward to improve the country’s economic indicators and reduce the country’s energy balance deficit through benefiting from its solar and wind potential. Nevertheless, providing the enabling regulatory framework to promote private investments in RES projects has proved to be challenging due to several reasons. Some of these issues are owed to ambitious RES capacities targets, (e.g. from 3% to 15% of RES between 2015 and 2020 with a brand new regulatory framework), that turned out to be lacking clarity and have experienced many changes in the last years. This lack of clarity led to some grey areas, where RES projects were blocked by some stakeholders. Nonetheless, the good news is that the Tunisian Ministry of Energy is working to remove these barriers, with the help of international cooperation institutions. This would allow to increase the trust from international banks to finance public and private RES projects investments.

 

[i] UNDP and ANME, 2021. L’élaboration de la Stratégie Nationale Bas Carbone dans le secteur de l’énergie en Tunisie

 

Photo Wind turbine farm Tunisia by Dana Simillie / World Bank, licensed uner CC BY 2.0

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