Electricity Markets in the Resource-Rich Countries of the MENA: Adapting for the Transition Era’

The Middle East and North Africa’s (MENA) resource-rich economies are pursuing two parallel strategies in their electricity sectors: (i) increasing and integrating renewables into their power generation mix to mitigate the impact of rising domestic oil and gas demand on their economies and boost hydrocarbon export capacities; and (ii) undertaking power sector reforms to attract investment in generation capacity and networks, remove subsidies, and improve operational efficiency. These goals imply that the design of reforms needs to be carried out with a view to a rising share of non-dispatchable resources. The lack of an integrated approach to simultaneously address these two strategies is likely to lead to several misalignments between renewables and various components of future electricity markets, as the share of intermittent resources increases in the generation mix. The key challenge is that the ‘ultimate model’ capable of reconciling these two goals is as yet unknown, and is still evolving, due to uncertainties around the development of technologies, institutions, and consumer preferences. Failure to find the right model is likely to frustrate reform efforts and governments may find themselves in need of making significant changes to the electricity market at later stages. For example, inadequate tariff structure design , following the removal of subsidies, could lead to difficulty in recovering the power systems’ fixed costs, and also to the regressive distribution of costs among ratepayers. Furthermore, introducing significant renewables without a proportionate increase in power system flexibility (both in generation and in the grid) typically leads to curtailment and/or lower system reliability. Moreover, integrating demand-side resources faces a significant hurdle when ownership and operation of the national electricity grid are not decoupled. The tension between liberalization and decarbonization in pioneering electricity markets, such as in the EU, has arisen partly because renewables were imposed upon a market designed for conventional fossil fuel electricity. Resource-rich MENA countries, by contrast, could design their electricity markets around the incorporation of renewables at the outset and tap into years of international experience gained through trial and error.

Poudineh, R., A. Sen and B. Fattouh, ‘Electricity Markets in the Resource-Rich Countries of the MENA: Adapting for the Transition Era’, Economics of Energy & Environmental Policy.

By: Rahmat Poudineh , Anupama Sen , Bassam Fattouh


Journal Article