The EU is to provide €10 million (£8.77m) to support renewable generation and energy efficiency in Algeria.
The funding comes as part of a €40 million (£35.08m) package which will also support public finances reform and facilitate trade.
The deal was signed yesterday as Algeria became the first country in North Africa to adopt Partnership Priorities with the EU to increase future co-operation on areas of mutual interest.
The energy support programme aims to help set up an institutional and regulatory framework for the production of renewable energy and deployment of energy efficiency projects.
In line with Algeria’s efforts to diversify its economy, the programme will also help promote both domestic and foreign private investment in these areas.
Johannes Hahn, Commissioner for European Neighbourhood Policy and Enlargement Negotiations, said: “Algeria is a key partner of the EU in our neighbourhood.
“Today’s EU package for Algeria will help Algeria diversify its economy contributing to the creation of new jobs and the modernisation of public finances. Our aim is to help Algeria meet its current economic challenges and create stronger links with European businesses.”