Electricity trading falls under two categories: scheduled and unscheduled exchanges. Scheduled exchanges occur rarely and are based on bilateral agreements between members, after which members make transmission arrangements with GCCIA. More prevalent, however, are the unscheduled exchanges, whereby member countries require urgent power imports from other countries through the system to cover unexpected contingencies and ensure system reliability. Unscheduled transfers from one country to another are returned in kind — i.e. unscheduled import during peak demand will be returned as exports during peak demand.
For many years, there have been ambitious plans to expand the GCC grid to non-GCC countries, including Egypt, Jordan, and Yemen, which have all been struggling with inadequate capacity and financial constraints. Connecting the grid to non-GCC countries will solve one of the main challenges hindering electricity trading in the GCC: the fact that peak demand in the GCC is uniform. By contrast, North Africa and the Levant have different demand patterns. To increase supply of electricity, governments have been investing heavily in power-generating capacities. Absent, however, has been a coherent strategy to improve regional cooperation and stimulate intra-regional trade despite the many obvious potential benefits for the region.
Apicorp report also showed electricity demand continues to grow rapidly in the Arab world, where consumption has increased 10-fold since 1980. This surge can be attributed to several factors, including population growth, urbanisation, industrialisation and electricity prices made artificially low through government subsidies. Although growth rates have slowed in the last few years owing to weaker economic activity and increases in electricity prices as those subsidies are reduced, Apicorp still estimates that the Mena region will need to add capacity at 7.4% annually until 2021, which corresponds to additions of more than 130GW, and investments of approximately $180bn.
Governments continue to meet this challenge by expediting new projects and upgrading their infrastructure, while also encouraging the private sector to join as partners and financiers. Most Arab countries are struggling to meet increasing electricity demand and thus experience frequent blackouts. Looking forward, governments will continue to invest heavily and increase the role of the private sector in power generation. But another option is also available to them — they can cooperate with their neighbours and explore further the potential of electricity trade as a supplement to their capacity additions.
The region has several interconnections, yet trade remains minimal and often only takes place in response to emergencies and outages. The GCC countries are connected via the Gulf Cooperation Council Interconnection Authority (GCCIA) since 2011, while Egypt is connected to the Levant, albeit through small transmission lines. North Africa is also connected with lines linking Algeria, Morocco, and Tunisia. The benefits of regional electricity trading include enhanced energy security, economic benefits due to higher efficiencies and reduced investments in new capacities, as well as more institutional cooperation.
According to the World Bank, electricity trade could save the Arab world $17-$25bn and reduce required capacity by 33GW through better mutual utilisation of existing capacity while the GCCIA estimates that GCC trade could achieve savings of up to $24bn by 2038.
Sources and photo-credits: Gulf Times