That this was possible is entirely due to the development of the Mediterranean ring which, when completed, will connect the electricity grids of all the countries of North Africa and the Levant to Europe through Spain and Turkey. Power generated in Algeria or Egypt will be instantly available for sale to consumers in Paris or Palermo.
The benefits are numerous. Those countries enjoying a comparative cost advantage on power generation will be able – if installed capacity is large enough – to export electricity. For Middle East states with extensive hydrocarbon reserves, the ring effectively offers another means of exporting energy.
Far more important is the fact that the grid allows its member states to dramatically reduce investment levels in generating capacity.
‘Because electricity can’t be stored and because installed capacity has to exceed the absolute maximum peak load, for most countries there is considerable idle capacity most of the time,’ says Mervat Badawi of Kuwait-based Arab Fund for Economic & Social Development (AFESD).
The argument for grids is simple and compelling. Within any one country, or distinct geographical area, the marginal cost of electricity increases the closer output gets to maximum capacity. This is mainly because the larger turbines – which enjoy economies of scale – are used for base loads, while the smaller units are brought on line as and when local need dictates. These smaller units have lower capital costs but their running costs, per generated unit, are higher.
‘If you build grids, you can shave costs, as the differences in load profiles can be exploited and one area can buy part of the base load from another area where it is not being used, which will be cheaper than firing up its own peak capacity,’ says Badawi. ‘Grids allow you to maximise use and minimise costs, and allow you to sell your surplus to neighbouring countries.’
As the consumer is constantly purchasing the lowest-cost electricity available on the grid, the transfers allow for direct savings. According to Badawi, these totalled about $168 million on the Mediterranean ring last year.
In addition, grid building allows countries to reduce their investment in installed generating capacity by shrinking the need for both spinning – used to cover small trips – and cold reserves, which are fired up when maintenance work is under way. As most reserve planning is based on the principle that peak demand can be met with the network’s two largest units offline, or with a 15-30 per cent redundancy margin, the potential savings on infrastructure investment can be huge.
‘Grids allow for the reduction of reserve capacity, which reduces investment hugely,’ says Badawi. ‘The load curve is shaved and spinning reserves can be better utilised as tripping-induced needs can be drawn from other grid capacity.’
The magnitude of the investment savings should not be underestimated: about $6,000 million has been retained through the development of the Mediterranean ring. And the project is nearing completion. Virtually the whole of the Maghreb is already interconnected, with the last section linking Libya and Tunisia due to be completed by the end of the year. Equally, on the eastern loop of the ring, all is completed bar the connection between Syria and Turkey – also scheduled for completion by year-end.
The rapid progress in the Mediterranean has not been matched in the GCC, however. ‘When we did the original studies for building grids we looked at the GCC first and thought it would be the first completed,’ says Badawi. ‘Geography lends itself to a GCC grid and it would be technically simpler than the Mediterranean loop.’ One of the formidable barriers the Mediterranean ring had to overcome was the crossing of the 850-metre deep Red Sea to link Egypt and Jordan.
The lack of completed national grids in the UAE and Saudi Arabia is often cited as a primary cause of limited progress on a Gulf-wide grid. ‘This has not been the real problem,’ says Badawi. ‘In fact, movement on a GCC grid would probably accelerate internal grid building. The real delay has come because no one has championed a GCC network. Our fund does not finance projects in the Gulf as it does in other parts of the Arab world, so we have not been able to drive forward grid building as we’ve done in the Maghreb and the Levant.’
There might be light at the end of the tunnel, with plans moving ahead for the creation of a single company for a GCC grid, which will be part government and part private-sector owned.
‘All they need to do is sort out their thinking and commit the funds,’ says Badawi. ‘It would only take two to three years for a Gulf grid to be built.’
And the savings could be immense. With a number of GCC states currently behind the curve on their installed generating capacity development programmes, the construction of a grid would bring some much-needed relief. ‘By reducing the need for reserve building, more than $4,000 million could be saved in the GCC,’ says Badawi. In addition, the savings generated annually through load-sharing electricity transfers would also be considerable. Whether this is incentive enough to provoke faster movement remains to be seen.