A Mediterranean electricity cooperation strategy Vision and Rationale
Alessandro Rubino
Bari University - Lecturer in Economics
RES4MED - Senior Policy Advisor
Integration of renewable energy solutions in the Mediterranean electricity markets
Milan, November , 27 2014
Table of contents
Part I
Assessing the EU pressure for future
Mediterranean energy markets
Electricity needs in the Mediterranean region
EU External Energy Policy
Perception Survey – Methodology and results
Policy Implication
Q&A
Part II
Institutional model
Co-evolution between technology and institutions
RES development and the establishment of a Euro-Mediterranean energy area
Corridor approach | Network expansion | Establishment of a energy free trade area
Policy implications
Table of contents
1. Assessing the EU pressure for future Mediterranean energy markets
Electricity needs in the Mediterranean region
EU External Energy Policy
Perception Survey – Methodology and results
Policy Implication
Snapshot of Mediterranean countries
Source: IMF Oct 2014, Enerdata, EGP estimates. Note: Northern Shore area includes Spain, France, Italy, Slovenia, Croatia, Bosnia and Herzegovina, Portugal, Albania, Greece. Southern Shore area includes Morocco, Algeria, Tunisia, Libya, Egypt. Eastern Shore includes Turkey, Syria, Lebanon, Israel, Cyprus, Jordan. * 2013 – 2019 annual growth. Macro data refer to 2013, electricity data refer to 2013
Population (mln)
GDP (US tn$)
GDP Growth*
PV Load Factor
Wind Load Factor
145
3%
10% - 17%
20% - 40%
Northern Shore
170
0.7
9%
17% - 22%
30% - 45%
Southern Shore
› 7% of world Population; 12% of world GDP
› Electricity consumption grew by 2% p.a. in 2003-2013
› The projected electricity demand growth is 2%-5% p.a. in 2013-2020
› Outstanding untapped RES potential
6.6
Eastern Shore
96
1.2
5%
16% - 21%
30% - 45%
Over 700 billion Euros will be needed to 2030.
Spared gas could compensate the additional cost of clean generation technologies.
Power Generation Investments
0
100
200
300
400
CS PS CS PS
billion Euros Renewables
Nuclear
Fossil Fuels
North Med South Med
5
Global operational PPP investment (by region, 1984-2012)
158
46471
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Count of Total Investment Sum of Total Investment
East Asia and Pacific Europe and Central Asia
Latin America and the Caribbean Middle East and North Africa
South Asia Sub-Saharan Africa
Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org) Date: 05/02/2014
Energy operational PPP investment (by region, 1984-2012)
*in current US$ millions
Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org) Date: 05/02/2014
33 17992
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Count of Total Investment Sum of Total Investment
East Asia and Pacific Europe and Central Asia
Latin America and the Caribbean Middle East and North Africa
South Asia Sub-Saharan Africa
Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org) Date: 05/02/2014
Global Energy operational PPP investment (by segment, 1984-2012)
0 0 0
0 1 0 0
0
2 4
1
0
2
2
1 5 1
6 5
11
5 16
3 6 14 3
6
3
0 0 0
1 0 0 0
1
5 1
6
4
7
10
6
4 3
3 6
1
4 1 3 1 0
1
0
0
0
20
40
60
80
100
120
140
160
180
1984
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Electricity distribution Electricity generation
Electricity transmission Natural gas distribution
Natural gas transmission
Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org) Date: 05/02/2014
Energy operational PPP investment (MENA countries , 1984-2012)
0
1000
2000
3000
4000
5000
6000
1993 1997 1998 1999 2000 2001 2002 2004 2005 2006 2007 2008 2009
Electricity distribution* Electricity generation** Natural gas distribution Natural gas distribution and transmission Natural gas transmission
*in current US$ millions
Source: World Bank and PPIAF, PPI Project Database. (http://ppi.worldbank.org) Date: 05/02/2014
* Including Water utility with sewerage Investment ** Including Potable water treatment plant
What drives Investment in Energy infrastructures?
1. Support mechanism
• Provide (at least to some extent) a level certainty on the return on investments
2. Regulatory framework
• A pre-requisite for investments to take place. Even stronger stimulus when it is carried out within the participation of international agreements (framework)
3. Degree of corruption and political competition is a factor when deciding to enter a market or not. Otherwise contract design is able to protect investors against unduly expropriation.
4. Size of potential market is the most important determinant for investments in energy markets
Table of contents
1. Assessing the EU pressure for future Mediterranean energy markets
Electricity needs in the Mediterranean region
EU External Energy Policy
Perception Survey – Methodology and results
Policy Implication
EU External Energy Policy toward its Mediterranean neighbourhood
• Characterised by Normative Power (Manners 2002)
• Mix of different instruments
• Promotion of cooperation platform (MedREG and MED TSO)
• Creating institutionalised instruments (EnC)
• Adoption of International Standards (IS)
The promotion of law and regulations can be analysed by means of three main channels of regulatory diffusion (Cambini and Franzi, 2014 )
• bottom up pressures,
• hierarchical top-down approach and
• network pressures for rules change and adoption
• We have explored these three potential mechanism in our recent perception survey
Cooperation framework in the region
Table of contents
1. Assessing the EU pressure for future Mediterranean energy markets
Electricity needs in the Mediterranean region
EU External Energy Policy
Perception Survey – Methodology and results
Policy Implication
Useful diagnostic tool to identify areas of concerns and to inform future regulatory reforms
• Provide direct information on the impact of regulatory intervention
• Acquires informat6ion from an end-user point of view
• Measures regulatory policy design and evaluation
• Based on the methodology recommended by OECD (2012) and tested in a earlier exercise (Cambini & Franzi, 2014)
• Extends the scope by increasing the number of the countries involved1(11)
• Submitted to 20 energy experts from non-EU Mediterranean Countries
• Information collected during a training event organized by Enel Foundation held in Venice in May 2013
• Score measured with a 0-5 scale and normalized
1 Albania, Algeria, Bosnia and Herzegovina, Croatia, Egypt, Israel, Jordan, Libya, Montenegro, Palestine, and Turkey
Perception survey
EU Methods Energy rules promotion
0
0,2
0,4
0,6
0,8
1
Direct Indirect
EU Role Rules Adoption
0 0,2 0,4 0,6 0,8 1
Unbundling
Retail
Customers
Tariffs
Efficiency
NRA Pol Independence
NRA Stakeholders Independency
RES Incentives
TPA
Conformity with Energy rules system
0 0,2 0,4 0,6 0,8 1
Conform to EU reccomandation
EU mentioned in Public Discourse
EU Model
International Standards
Network role Rules Adoption
0 0,2 0,4 0,6 0,8 1
Customers
Unbundling
NRA Pol Independence
NRA Stakeholders Independency
Efficiency
RES Incentives
Tariffs
TPA
Retail
Energy networks Rules promotion
0,0 0,2 0,4 0,6 0,8 1,0
Resource sharing (Expertise, Know-how)
Participatory Model
Codified Procedural rules
Monitoring and control Procedures
Other International actors
0,0 0,2 0,4 0,6 0,8 1,0
WTO
Spain
China
USA
IEA
France
UN
Germany
Italy
EU Members
Role Regional Networks
0,0 0,2 0,4 0,6 0,8 1,0
AUEPTD
ECCAWA
MEDELEC
OME
MEDREG
Other
Role Domestic Actors
0,0 0,2 0,4 0,6 0,8 1,0
CSOs
Parliament
Energy Industry
Monarch - President
Executive
EU - Med Cooperation Drivers
0 0,2 0,4 0,6 0,8 1
Security of Supply
Rules harmonization
Market Integration
Table of contents
1. Assessing the EU pressure for future Mediterranean energy markets
Electricity needs in the Mediterranean region
EU External Energy Policy
Perception Survey – Methodology and results
Policy Implication
Conclusions
1. Increasing demand consumption in the Mediterranean region mostly concentrated in SEMC.
2. Substantial Investment needs to meet increasing demand in SEMC.
3. EU pushing for liberalization in non-EU countries.
4. Voluntary multilateral networks collaborate towards a common Mediterranean energy policy framework.
5. Still limited influence of both EU and voluntary multilateral networks when shaping countries’ energy policy.
End of first part
Any Questions?
Table of contents
Part I
Assessing the EU pressure for future
Mediterranean energy markets
Electricity needs in the Mediterranean region
EU External Energy Policy
Perception Survey – Methodology and results
Policy Implication
Q&A
Part II
Institutional model
Co-evolution between technology and institutions
RES development and the establishment of a Euro-Mediterranean energy area
Corridor approach | Network expansion | Establishment of a energy free trade area
Policy implications
2. Institutional model
Electricity markets in the Mediterranean area vis a vis EU
energy strategy
Co-evolution between technology and institutions
RES development and the establishment of a Euro-
Mediterranean energy area
Corridor approach | Network expansion |Establishment of a energy free
trade area
Policy implications
Table of contents
Electricity market in the Mediterranean basin
• Vertically integrated public monopoly has been the default option in EU (and still is the reference case in many countries)
• Liberalisation process has imposed a (gradual) opening of the competitive activities of the ESI.
• A “neo-realist” approach to market model is also possible (Escribano, 2010) – bilateral long-term relationship.
• A variety of situation co-exist
• Energy cooperation needs to be formulated in order to accommodate different approaches in a stable framework
Source: EC, Report on progress in creating the internal gas and electricity market, SEC(2009)
287, 2009
Factors affecting co-evolution process (I-T)
• Sector specific regulation could reassess the deregulated market and assure reliable and efficient operations
• Institutional changes are sufficient to create a market in the infrastructures
Institutions
• Technology would remain stable and neutral and support the functioning of any kind of market structure
Technology
The link between institutions and
technology is bi-directional
• Economic/technical aspect
of energy market
Vertical integration, Horizontal
integration, Price/tariff structure,
Available interconnections, Access
to the National Network, Efficient
dimension of the market.
• Institutional environment
Allocation of powers of
regulation, legal and judicial
system, Power to reallocate
property rights, Corruption,
Country risk
Algeria
Morocco
Tunisia
Spain
GHAZAOUET
TLEMCEN
OUJDA
FERNANA
TAJEROUINE
EL AOUINET
METLAOUI
DJEBEL ONK
EL KALA
MEDNINE
2006
TARIFA
FERDIOUA
1998
1400 MW
Libya
ROWIS
Legend
400 kV
400 kV Projected
220 kV
150 kV
90 kV
A.KAMACH TATAOUIN
Egypt
Jordan
Syria
Italy
2000 MW
1000 MW 1000 MW
Turkey
South-South and North-South Interconnections Existing and planned
Driving forces Euro-Mediterranean electricity paradigm
EU initiatives in the area
• Euro Mediterranean partnership (EMP)
• European Neighborhood Policy (ENP)
• Reproduction of the acquis communautaire at a larger scale
• Thick normative and regulatory dimension
• Strategic energy relations based on EU SoS needs (fossil fuels dependency)
The EU energy strategy
• EU transition to low carbon economy
• 3x20 targets – directive 2009/28/CE
• increasing the security of supply by mutual back-up of power grids
Evolutionary stable reforms
• Voluntary bottom up approach (compatibility rather than convergence)
• Multi-stakeholders process (TSO, NRAs or ministry, policymakers, internal vs. external institutions)
I. Corridor approach
II. Network Expansion
III. Establishment of a energy free trade area
I - Corridor approach flexibility
W
C E
• Set of policy options available are
dominated by local electricity players
→corridor specific
• Complementary electricity systems
(joint welfare maximization,
Chao&Peck, 1996)
• Harmonizing rules, physical
interconnections and legislative
provisions
• Three corridor currently emerging in
North-South direction
• West: Morocco-EU (via Spain)
• Central: Maghreb- EU (via Italy)
• East: Middle East- EU (via Turkey)
II – Network Expansion SoS
• Power grids constructed based on a
national perspective
• Increase penetration of RES
generation
• Limited existing interconnection
capacity (inside and outside
EU)→negative prices in national
markets
• Allows efficient location of RES
generation
• Increase the geographic scale of
network operation (and supervision)
• ENTSO-E, ACER, MED TSO
II – Network Expansion SoS
• Power grids constructed based on a
national perspective
• Increase penetration of RES
generation
• Limited existing interconnection
capacity (inside and outside
EU)→negative prices in national
markets
• Allows efficient location of RES
generation
• Increase the geographic scale of
network operation (and supervision)
• ENTSO-E, ACER, MED TSO
III – Establishment of Energy free trade area compatibility between corridors
Normative convergence
+
Physical infrastructure
=
Sub-regional dynamics along
corridors
• Artificial obstacles to
energy trade shall be
removed
• EFTA should be based on
• Transparent and long term policies (longevity)
• Co- development
• Regional view
• MedReg and MedTSO are
expected to play a role in
this process
Conclusions and policy implications
Physical Interconnection
•Addresses SoS
Energy free trade area
•Addresses compatibility between corridors
Corridor Approach
•Addresses flexibility
• Reproduction of EU legislation is not feasible and not desirable
• Bottom up approach vs. Top down approach
• Mediterranean area as a region
• RES generation ease the alignment of incentives between demand and supply hubs
• Coordination between multiple stakeholders
Further readings
If you want to know more about these issues
www.enelfoundation.org
Thanks for you attention
Alessandro Rubino
