The grid - which will connect Kuwait in the north to Oman in the south via Saudi Arabia, Bahrain, Qatar and the UAE - has been rightfully hailed by those involved as a milestone in GCC economic development. Both economically and politically, it represents a win-win situation for all involved. Interconnected states will be able to improve the economic and operational efficiency of local power systems - and strengthen supply reliability and security at the same time.

The grid is being presented as an incentive for the adoption and transfer of new technologies. It will reduce waste emissions from unnecessary power generation and encourages interdependence. It will also enable interconnected states to reduce costly -'spinning' reserves - spare generating capacity that is built and used at short notice in response to increased demand.

'Interconnection allows a reduction in capacity reserve up to 50 per cent of that in the isolated grid,' says Nabeel al-Maskati, member of the board of the GCC Interconnection Authority (GCCIA) and assistant undersecretary for planning and projects at Bahrain's Ministry of Electricity & Water. 'We expect to recover our costs within four years of phase 1 completion [in 2008], and by 2028 we expect a capacity benefit of more than 5,000 MW, against a load of 93,800 MW and a total installed capacity of 100,726 MW.'

While in theory the interconnected states will be able to trade electricity, for now this is not an aspect of the GCC grid actively promoted by the GCCIA. The formula used for the exchange of power is extremely complex, and for the time being the states have more than enough generating capacity to meet peak demand.

Nevertheless, Al-Maskati envisages a time in the not-too-distant future when electricity will be traded across borders. 'Of course it will be traded eventually,' he says. 'For example, in Bahrain, we will purchase power as we won't have any future gas and will need to import energy. Basically, either the buyer or seller will negotiate the price, or they can ask the GCCIA to do it on their behalf, with the authority receiving a transmission fee to cover costs.'

As the system matures, the grid is expected to have an additional benefit in encouraging the private sector. Independent power project (IPP) developers and their financial backers will, theoretically, require fewer guarantees and need to take on less risk because the grid could be a potential offtaker alongside the government. Likewise, it will potentially allow the government to provide fewer guarantees to developers.

The very issue of guarantees has been the grid's greatest challenge, and one that will again have to be overcome if it is to be extended to other Arab states. 'We wanted a backbone system which could eventually transmit 4,000 MW,' says Al-Maskati. 'Ultimately, however, it's a cost exercise and no one wanted to put money in unless it was guaranteed to be successful. Until you put in all the requirements, such as the guarantee that certain power will be available for sharing, it was difficult to get everyone on board. In many ways, it is similar to an IPP - nobody will commit until there is the guarantee.'

With the first phase of the grid under construction, thoughts are turning to the future. Interconnection makes greater economic sense the greater the geographic