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

Abstract

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 (including regulations governing wholesale and retail markets and networks) 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. We argue that resource-rich MENA countries can, however, move towards adopting a transition model of electricity markets, the individual elements of which can be adapted to suit either centralized or decentralized future electricity sector outcomes. We outline the key components of this model for the wholesale market, retail market, and network regulation, considering governments' objectives and the specific contexts of the countries in the region.

Does the combining effects of energy and consideration of financial development lead to environmental burden: social perspective of energy finance?

“…Model for lognormal stochastic volatility can be considered as an excellent example of this process. The econometric estimation approach's ability to present a definite direction for the models bounded by multiple moment conditions and moments model parameters makes this approach unique (Poudineh et al 2020;Topcu and Payne 2018). It becomes difficult to apply the traditional static estimation methods due to the dynamic panel data model's endogenous problems (Anser et al 2020e;Steffen 2018, andAnser et al 2020d).…”

An integrated approach to electricity sector reforms in the resource rich economies of the MENA

“…This means re-designing of the whole package of reform including wholesale and retail markets as well as network regulation with a view to contextual heterogeneities in the region. For instance, Poudineh et al (2018a) argue that MENA countries could adopt a hybrid wholesale market design of short-term coordination (through energy-only markets) combined with long-term contracts, whereas retail markets can be opened to competition for large consumers, but regulated for small users without the government distorting retail prices through subsidies. They also argue that for the network segment, MENA countries can adopt a regulatory model that encourages innovation, as opposed to traditional incentive regulation with a sole focus on cost efficiency.…”

“…This deficit represents more than the average investment urgently needed in the region's electricity sector, estimated at 3% of GDP. In other words, the sector's investment 10 Refer to Poudineh et al (2018a) for a full exposition.…”

“…Apart from this, the "standard model" lacked an integrated approach to reform: for example, the design of the wholesale electricity market in pioneering countries such as the UK started to reveal its inadequacy with the growth of renewables. The "standard model" pre-dates the era of renewable energy expansion (and of zero marginal cost renewables) and is considered to be unsuitable for renewable integration (Poudineh et al, 2018a). Additionally, the emergence of new objectives related to decarbonisation has highlighted the need for a systems-level approach to reform.…”

“…reforms, and creating a level playing field for all energy vectors. This paper builds on arguments in Poudineh et al (2018a) which addresses the adaptation of the standard model of reform to local MENA contexts. Our exposition is that, while the tailoring of reform models to local contexts is very important, reform also needs to be carried out in an integrated manner which includes all aspects of energy systems, and takes into account future changes in markets, technologies and policies.…”