MedReg
Mediterranean Energy Regulators
Mediterranean Forum on Energy Regulation
REGULATION & INVESTMENTS:
SOLUTIONS FOR THE MEDITERRANEAN REGION
26 November 2014 BARCELONA (SPAIN)
TABLE II · abstract
Analysis of future MENA-EU
common strategy in the energy sector
»Pantelis Capros
University of Athens,
Head of E3MLab
It is uncontestable that the MENA region and the EU will mutually benefit by sharing energy
resources in view of their strategic long-term aspirations. The MENA region has a great potential of renewables which is sufficient both to cover local needs and free hydrocarbon resources
for exportation and to help the EU achieving at lower costs the Energy Roadmap targets about
decarbonisation, efficiency and renewables.
The EU has sufficient accumulation of knowledge and investment capital, as well as appropriate market-based instruments, to develop common exploitation of renewables towards
achieving great mutual benefits.
Three kinds of obstacles currently hamper exploiting the untapped potential:
a)lack of linkage infrastructure;
b)lack of common market and regulatory framework;
c)persistence of fossil fuel subsidies in a large part of the MENA region.
Multiple noon-market barriers and market failures, including coordination failures,
persist at present. They can be overcome only in the framework of a holistic
(system-wide) agreed approach with common long-term aspirations.
Based on a large-scale energy system modelling of both the MENA and the EU regions, taken as a potentially a common system with coverage of all sectors in demand and in supply, we
quantify scenarios which provide evidence of how to setup a common energy strategy which
exploits the common potentials, provides new cheap resources to consumers in both areas
and complies with the sustainability strategy in the long term for both regions. The analysis
proposes a strategy emphasizing decentralized renewables deployment together with accelerated market reform leading to a reduction in power generation costs and a large increase
of exportable hydrocarbon surpluses. It simulates extension of the Emission Trading Scheme
by including the MENA region within a regulatory framework which enables mutual benefits in
this market. It is shown that the inclusion of MENA in EU-ETS allows net revenues for MENA
and reduction of ETS purchasing costs for the EU. It is anticipated that the adoption of both
the forthcoming 2030 energy and climate policy package and the Market Stability Reserve will
strengthen the ETS market and the ensuing expectations about future price signals in favor of
low carbon emission investment in the power sector.
MEDREG is supported by the European Union
MedReg
Mediterranean Energy Regulators
Mediterranean Forum on Energy Regulation
TABLE II » Pantelis Capros
Analysis of future MENA-EU common strategy in the energy sector
In these conditions, we project significant escalation of EU ETS prices post 2020. As a condition for tapping on power sector synergies between the two regions, the analysis includes
detailed interconnection scenarios as an integral part of the proposed strategy and assesses
positive economic returns for such investments under the cooperation strategy conditions. The
analysis evaluates such overall benefits by comparing to scenarios which assume persistence
of current market failures.
The analysis assesses two alternative cooperation strategies; firstly a strategy essentially
based on centralized actions involving large-scale investments in specific options enabling
emission reduction, large scale exploitation of renewables in centralized installations with mainly exportation orientation and concentration on a restrained geographical area thus offering the
best cost-effective prospects for electricity exports; secondly an alternative strategy employing
decentralized means regarding the exploitation of renewables, the removal of current market
and pricing distortions that inhibit rational decision-making of energy suppliers and consumers
and the establishment of incentives and norms for energy savings affecting all energy consumers. The two scenarios differ in technology mix and present different performance in terms of
impacts on consumers and resilience against uncertainties. The scenarios also require different
regulatory and investment promoting frameworks to succeed. Both scenarios share large infrastructure investment in interconnection and a sharing of common markets.
MEDREG is supported by the European Union