This is an extract from a recent report “Green Hydrogen Production In Tunisia: The Interplay Of Old And New Lines Of Conflict” By Peace Research Institute Frankfurt.
Tunisia’s energy sector: From colonial times up to today
When Tunisia became independent in 1956, it inherited an energy sector that was dominated by private companies and provided energy to only a minority of the Tunisian population. Bringing energy to Tunisians was thus a crucial pillar of postcolonial development. It was combined with an authoritarian developmental state approach by President Habib Bourguiba, who nationalized strategically important companies and used them to provide services and create jobs. Socioeconomic benefits were widely distributed, so the rationale should compensate for political liberties and ensure loyalty. In the energy sector, the state-owned gas and electricity company STEG (Société Tunisienne de l’Eléctricité et de Gaz) was founded in 1962, tasked, among others, with increasing the electrification rate, which at the time stood at just over 20%. STEG was entrusted with a monopoly on the production, transmission and distribution of electricity.
Today, the rate is at almost 100%. Tunisia has its own gas and oil reserves, managed by another state-owned company, Entreprise Tunisienne d’Activités Pétrolières (ETAP, founded in 1972). However, Tunisia has faced a sharp increase in domestic energy consumption and a depletion of the sources at the same time. Back in 1985, another state body, the Agence Nationale pour la Maîtrise de l’Enérgie (National Agency for Energy Management – ANME) was therefore created with the goal of rationalizing energy consumption. Subordinated to the Ministry of Industry, Mines and Energy, it is officially in charge of the energy transition today. In 2021, Tunisia needed to import 50% of its energy, mainly in the form of gas from its neighboring country Algeria, an increase of 93% since 2000. The growing energy dependency was the driver for the first attempts to introduce renewable energies in the early 2000s. However, no major shift has occurred for twenty years: In Tunisia’s energy mix of 2021, almost 90% of the sources were fossil fuels.
One major feature of the energy market in Tunisia is energy subsidies. STEG always sold energy at prices that did not cover the actual costs. Private households relied on cheap energy, and companies even more so (among them many state-owned), which were economical only because of cheap energy and for whom market prices would have meant financial ruin. Until 2014, STEG relied on two forms of subsidies: first, it received gas at prices below the actual production costs from the Tunisian Company for Petroleum Activities (ETAP); second, it also received direct financial support from the state budget. Following the advice of international donors, after 2014 STEG was obliged to buy energy directly from the international market at global prices. Particularly with the national currency’s loss of value, purchasing energy on the world market in dollars or euros brought STEG into a disastrous financial situation, obliging it to take out loans for larger investments including those related to green energy.
Skyrocketing energy prices after the beginning of Russia’s war in Ukraine have exacerbated the fiscal crisis in Tunisia, leading to the doubling of energy subsidies’ percentage of GDP from 2.1% (2011–2021) to 5.3% in 2022. At the same time, state subsidies to STEG were so insufficient that the company had to rely on loans to offer energy at subsidized consumer prices. And yet, even though subsidies increased and energy prices did not reflect the international price growth of 42%, consumer prices still rose considerably (fuel: 20%, gas 16%, electricity 12%) in 2022, adding to the highest inflation rate Tunisia had seen since 1984. It is fair to say that this system has turned into a lose-lose-lose situation: for the state, STEG and consumers. The increasing indebtedness of STEG is a great impediment to investments, particularly in the electrical grid, which is in need of modernization and expansion given the growing domestic energy needs. As this need cannot be met, Tunisia has been facing power shortages, particularly during summertime, when air conditioning adds massively to the normal level of energy consumption.
The reduction of energy subsidies has been a demand from international donors for years, most prominently the IMF. More precisely, they proposed the introduction of automatic price adjustment mechanisms to the electricity and gas sectors, similar to fuel subsidies – although adjustments to these were paused at times, or rose rather modestly compared to international price developments. Only in 2022 were price adjustments for households with higher consumption introduced. The reform of the subsidy system is, of course, a broad debate: while there are many reasons to phase out subsidies, this measure also poses severe risks, particularly to poorer households, and especially in countries with large informal economies. The energy sector is a unique case, however, as energy provision is directly entangled with other social protection issue areas, such as food and water security. Energy is also increasingly becoming an existential good in times of massive heat waves that occur more regularly because of climate change. On the other hand, the whole debate about subsidies could become less relevant if energy were produced domestically, and in a sustainable and economical manner – a factor that the energy transition could deliver at some point.
Towards green energy
Energy is a crucial question for Tunisia, which saw a shift from energy self-sufficiency to energy stress from the 2000s on. In 2004, a bill on energy efficiency was passed, followed by an internationally supported National Fund for Energy Management, culminating in the Tunisian Solar Plan of 2009 that, beyond its name, was also intended to strengthen wind power, cogeneration, and biomass as sources of energy. While a long list of possible larger projects was drawn up, it was mainly self-production that started in the era of Ben Ali. PROSOL is a joint program by the United Nations Environment Program (UNEP), Tunisia’s state-owned gas and electricity company STEG, the National Agency for Energy Management ANME, and the Italian Ministry of the Environment, Land and Sea Protection. It supported the solar thermal market by offering subsidized loans for private households to purchase solar water heaters. Another program initiated in 2010, PROSOL Elec, targeted support for the installation of PV panels on residential buildings for private household electricity consumption. Surplus energy produced could be sold to STEG via the national grid. Under the umbrella of PROSOL Elec, PRO VOLT targeted the agricultural sector and promoted photovoltaic solar energy for water electrification and pumping as well as electricity for STEG buildings. In addition to energy-related questions, the programs promoted job creation in the fields of supply, manufacturing and installation.
PROSOL and its variations were portrayed as a success model that was exported to other countries in North Africa. However, a number of factors explain why the medium-term development remained modest in the 2010s: First, STEG resisted the idea of paying for surplus energy fed into the national grid at the same price as this energy was sold to consumers. Without any compensation for the costs of infrastructure provision this turned out to be a ruinous business model; in addition, STEG insisted that the national grid lacked the capacity to flexibly integrate the surplus energy. Critics like ANME suggested that STEG was mainly resisting technological change and privatization. An ideological component seemed to matter as well: STEG’s unwillingness to let go of its historic role as the provider of national energy and, in turn, of national unity. Another factor impeding further growth of the projects was its initial success, which created an administrative bottleneck at the ANME, leading to massive delays in paying subsidies to PV installers, the smaller of which went bankrupt, and the larger of which turned to more profitable non-subsidized large-scale projects.
And finally, during the democratization process initiated in 2011 private entrepreneurs and their trade associations used the new political liberties and accused state institutions (ANME and STEG) of incompetence or even corruption, which increasingly created and reinforced a negative public image of the PROSOL instruments. All programs are still in place; they have increased the number of recipients every year, yet faced serious problems posed by Tunisia’s fiscal crisis that worsened in the course of the Covid-19 pandemic and Russia’s war on Ukraine. New programs have now been initiated to target low-income households in particular. This clashes not only with domestic needs but also with international pledges: at the COP26 in 2021 Tunisia committed to the conditional reduction of carbon intensity of 45% by 2030, and an unconditional reduction of 27% (compared to 2010).
Besides the PROSOL instruments that supported small-scale, decentralized green energy production, the first large wind and solar energy parks were also initiated back during the Ben Ali regime. Generally speaking, wind power plants are located in the north of the country, while solar plants have been built in the south. After the revolution, the local population in some areas used their new won freedom to voice grievances about construction works and a lack of any local share of profits, development and jobs. Yet it was not only the lack of prior consultation by an authoritarian regime that led to public dissent once the dictator was toppled. Authoritarian methods of utility bill collection were directly criticized by one third of the population who refused to pay their bills, a phenomenon that kept on growing. From within STEG and its union came criticism in the other direction, as opposition to an allegedly already ongoing privatization of STEG via its private subsidiary STEG RE led to the cancellation of labor contracts with STEG RE and an exodus of workers back to the public mother ship STEG.
All in all, the energy transition took up speed after the revolution, including debates and also heated conflicts about the path it took. One major step in this development was the 2015 law (2015– 12) that on the one hand updated the Tunisian Solar Plan of 2009, setting more ambitious goals of 30% RE in 2030, particularly ambitious compared to the starting point of 3% generated by two wind farms. But it also brought about major changes, particularly with the 2019 law on the improvement of investment in the climate. This turned electricity into a commodity which companies could produce and sell via the grid.
Green hydrogen: A story of its own
While the development of solar and wind energy began roughly twenty years ago as a result of domestic incentives, green hydrogen is a relatively new topic in Tunisia and still a future technology. Yet, with the aforementioned EU Green Deal and REPowerEU, the demand side triggered the rapid development of a green hydrogen economy in Tunisia. In December 2020, Germany and Tunisia signed a Memorandum of Understanding (MoU) for a Power-to-X alliance. One important result was the development of a green hydrogen strategy that the Tunisian government, more precisely the Ministry of Industry, Mines and Energy, drew up together with the GIZ, which was finally published in May 2024. It sets out the ambitious goal of producing six million tons of GH2 for exports and an additional two million tons for the local market in 2050. One cornerstone of the strategy entails the creation of “hydrogen valleys”: “regionally co-located networks of hydrogen production, distribution, and end-use infrastructure”. These will be located in the south of Tunisia.
Since the release of the strategy, MoUs for large-scale GH2 projects have been mushrooming. On 28 May 2024, the Tunisian Government signed a Memorandum of Understanding (MoU) with the French companies TotalEnergies and the Eren Group, as well as with Verbund, Austria’s major electricity company, for the exploration of a large-scale GH2 project initially aiming to produce 200,000 tons of GH2. Fully operational in 2030, one million tons are to be produced and exported directly to Europe via pipelines. On 31 May 2024, another MoU was signed with Saudi ACWA Power to launch a GW-scale green hydrogen project. In the first phase, the project aims to produce 200,000 tons of green hydrogen per year, and will comprise four GW of renewables and two GW of electrolysis. In July 2024, six more MoUs were signed with international investors from Belgium, Britain, France, and Germany. In December 2024, a first international conference was held in Gabes by the Tunisian minister of industry, mines and energy, bringing together investors, industry, academics, and various international development agencies. On 25 January 2025, Germany, Algeria, Italy, Austria and Tunisia signed a Joint Declaration of Intent (JDoI) to establish what they called the “SouthH2 Corridor,” a direct pipeline connection for gaseous hydrogen of 3300 km between North Africa and the three European countries. The project involved several companies, among them Italian gas grid operator SNAM.
Access the report here
