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Cablegate: Prospects for the Opic-Supported Renewable Energy

VZCZCXYZ0000
PP RUEHWEB

DE RUEHTU #0727/01 2750936
ZNR UUUUU ZZH
P 020936Z OCT 09
FM AMEMBASSY TUNIS
TO RUEHC/SECSTATE WASHDC PRIORITY 6836
INFO RUCNMGH/MAGHREB COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS TUNIS 000727

SENSITIVE
SIPDIS

STATE FOR NEA/MAG (HAYES, NARDI)
STATE PLEASE PASS TO OPIC (BRERETON)
USDOC FOR ITA/MAC/ONE (MASON),
CASABLANCA FOR FCS (KITSON)
LONDON AND PARIS FOR NEA WATCHER

E.O. 12958: N/A
TAGS: ECON ENRG EINV ETRD TS
SUBJECT: PROSPECTS FOR THE OPIC-SUPPORTED RENEWABLE ENERGY
INVESTMENT FUND IN TUNISIA

REF: STATE 95170

SENSITIVE BUT UNCLASSIFIED, PLEASE PROTECT ACCORDINGLY.

-------
Summary
-------

1. (SBU) Although Tunisia's current energy picture hardly
includes renewables, growing unmet domestic demand and an
agreement signed with Italy to provide power via an undersea
cable present opportunities in this sector. A handful of
Tunisian government agencies deal with renewables, among them
the Societe Tunisienne de l'Electricite et du Gaz (STEG), the
utility holding a monopoly on management of the power grid.
Unfortunately, STEG has been reluctant to allow private power
generation in the past, although investors are optimistic
STEG is loosening and renewables are in Tunisia's future.
Although some Government of Tunisia (GOT) public financing is
available for renewable energy projects, the need for capital
for mega-projects is present. American companies face
competition from European counterparts, who come to the table
with preferential financing offers and government-backed
loans. Overall, Tunisia is a viable market for renewables in
the medium- to long-term. End summary.

--------------------------------------
The Renewable Energy Sector in Tunisia
--------------------------------------

2. (SBU) Currently, less than one percent of Tunisia's energy
comes from renewable sources. However, growing domestic
demand (upwards of five percent per year, according to an
industry leader), coupled with a signed agreement to provide
energy to the EU via an undersea cable to Italy (which is yet
to be built), make the Tunisian market one to watch. The GOT
is committed to investing in renewable energy in part to wane
its dependency on Algerian and Libyan gas and oil, but also
for environmental reasons. The sharp increase in fossil fuel
prices in 2008 pushed the GOT to enact energy-saving measures
and invest in renewables. Tunisia has suffered slight energy
deficits since 1994, but is looking to renewables to supply
some of its needs for housing and small industry. According
to the GOT, Tunisia will have 215MW of new wind power by 2011
and raise national energy consumption from renewables to 13
percent of total production by 2011.

------------------------------------------
Government Entities Involved in Renewables
------------------------------------------

3. (SBU) Renewable energy in Tunisia is managed by three
government entitites: the General Directorate of Energy
(DGE), which belongs to the Ministry of Industry, Energy, and
Small and Medium Enterprises (MOIE); the National Agency for
Energy Conservation (ANME), also under the MOIE and known
also as the National Agency for Renewable Energy; and the
Syndicate of Renewable Energy (a chamber group). Another
important player is STEG, the state-owned utility, as they
have monopoly control over the power grid in Tunisia. STEG,
historically, has been reticent to allow private power
generation and remains an obstacle in fully liberalizing the
sector.

----------------------------
Opportunities on the Horizon
----------------------------

4. (SBU) A 2008 agreement between TERNA, the Italian utility
company, and STEG calls for the construction of a 120MW
independent power production plant, called ElMed, which will
supply both Europe (800MW) and the domestic market (400MW).
The energy to Europe will be supplied via an undersea cable,
which is estimated by industry experts to be operative no
earlier than 2013. The tender for the power plant will
likely be announced by the end of 2009 (the tender for the
cable has not been announced.) According to the MOIE, the
plant's energy source (coal, natural gas or renewables) will
be decided by the market. However, in a March 2009
statement, the MOIE said 200MW of capacity would be reserved
for renewable sources. Another large project, called
Desertec (a trans-Saharan solar energy network), though still
in the planning stages, could also offer opportunities for
solar energy providers.


--------------------------------------
Foreign Investment in Renewable Energy
--------------------------------------

5. (SBU) A number of U.S. companies are interested in
investing in renewable energy in Tunisia, both in wind and
solar power. However, for the most part, they are doing so
to position themselves for the future market created by the
STEG-TERNA agreement. At least one company reports there are
still significant challenges in this sector, posed by STEG in
particular, whose leadership has been unfriendly to foreign
investors. The legal framework for renewables is not optimal
as it gives some leeway for private power to invest but does
not spell out the terms of linkage to the network operated by
STEG. Investors are optimistic, however, that leadership at
STEG will change and thus make the investment climate more
favorable.

--------------------------------------------- ------
Is There a Need for Capital in the Tunisian Market?
--------------------------------------------- ------

6. (SBU) The GOT is willing to give financial support in the
form of grants and loans to various energy conservation
projects, but according to experts, they are not able to
provide the needed capital for mega-projects. Currently, the
only public funds available for energy conservation, which
includes renewables, are the National Fund for Energy
Conservation and the Fund for Innovation and Development of
Renewable Energy. Both give grants and loans to renewable
energy projects with capital financed from the International
Monetary Fund and the World Bank. The strongest competition
facing U.S. firms in the renewable energy sector comes from
Spain (wind power) and Germany (solar power). Both countries
are able to provide EU or national government-backed grants
to their companies and provide favorable financing, which
makes them attractive partners for the GOT.

---------------
The Bottom Line
---------------

7. (SBU) Comment: Tunisia's market is very promising in the
medium- to long-term. Demand increases both domestically and
abroad, coupled with the opening of the legal framework for
private power generation in 2008, have created some room for
independent power plants and private investment of large
industrial groups to meet this energy need. The ElMed
project could open up some opportunities for renewables when
the undersea cable is built, especially if the tender for the
power plant goes to a company that could build a hybrid
plant. Some challenges remain, however. The legal framework
is not perfect and STEG remains reluctant to allowing
operation of private power. Investors are optimistic,
however, that renewable energy is in Tunisia's future. End
comment.
GRAY

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