Business model for cross-border interconnections in the Mediterranean basin

Given the complementarity of electricity systems in the north and south Mediterranean basin, greater integration and trade can help achieve national and regional energy policy objectives of security of supply, cost optimization, and sustainability. However, issues such as different electricity market structures, regulatory and institutional diversity, and disparate levels of political stability make investment in interconnection between north and south a risky undertaking. Due to high perceived risk, delivery of interconnection projects through the European Union regulated model is less likely, or only possible at prohibitively high rates of return. The merchant transmission initiative, on the other hand, seen as an exception under European Union laws, can be approved only if the project meets a set of strict conditions. Here the authors show that a hybrid business model in which the main benefits of a merchant model are maintained within a regulated structure, which involves minimal regulatory changes to national electricity markets, offers an appropriate response to the existing investment challenges in the Euro-Mediterranean basin. The article highlights the main components of the proposed model and shows how it addresses the key features of a viable business model regarding investment incentives, risks, governance, and compatibility with the region’s energy scenario.

Poudineh, R. and Rubino, A. (2017). ‘Business model for cross-border interconnections in the Mediterranean basin’, Energy Policy, 107, 96–108.

By: Rahmat Poudineh


Journal Article