Matteo Urbani Tunis, 11-12 September 2013

1. Matteo Urbani Tunis, 11-12 September 2013 3rd MEDREG-IMME Seminar Reform and Opening of Maghreb Electricity Markets The added value of RE generation in the reorganization of the electricity markets in the Maghreb countries

2. Outline • Energy trends and challenges in the Mediterranean • Benefits from cross-border interconnections and electricity markets integration • The added value of RE generation deployment within the progressive integration of electricity markets in the Maghreb • Towards a West-Mediterranean electricity area and RE deployment : obstacles, rules, and suggestions

3. 1 - Energy trends in the Mediterranean, a quick overview • Current energy trends in the Mediterranean are not sustainable. Conservative scenario is not an option: • Overall energy demand could grow by 40% to 2030. • CO2 emissions would exceed 3000Mt in 2030, up from 2200Mt currently. • Electricity boom ahead: average annual growth rate of about 4% and 7% in the South in the next two decades • Fossil fuels will continue to dominate the energy mix and natural gas will overtake oil.

4. Population growth million inhabitants Economic growth GDP - USD billion Average annual growth rate 2010-2030: North: 2.1%, South: 2.8 / 5% 1 - The real energy challenge is in the South… Average annual growth rate 1970-2010: North: 2.6%, South: 4.0% • Population will grow by over 80 million people; • GDP per capita will increase by 75% to 2030. • Overall energy demand and CO2 emissions would double in the South;

5. 1 - The real energy challenge is in the South… • Electricity demand would nearly triple; 200 GW of new generation capacity to be installed by 2030; • Energy demand may not decouple from GDP growth and electricity intensity is set to continue increasing in the South.

6. 2 – Benefits from cross-border interconnections and electricity markets integration • More diversified supply mix reduce energy vulnerability • Mutual support in emergencies improves security of supply • Economies of scale with larger generation units and optimization of existent power plants • Energy exchanges on an economic basis - especially when interconnected countries have different load profiles (yearly or daily), load peaks can be smoothed, thus reducing fuel costs and energy prices. • Mitigation of market power by favouring new entrants (if markets are open), thus increasing competition and providing grater transparency of price signals, which is a crucial factor for long-term investment decisions. • Better integration of electricity from RES -if a wider region is considered, intermittency can be smoothed out, and investments in renewable generation can be located in the most profitable place. • However, massive electricity exports from Maghreb to Europe are not for tomorrow… In fact, EU markets face overcapacities, whereas energy demand is booming in North Africa, thus in the short run power will most likely flows from North to South.

7. 3 – The added value of RE deployment within the integration of electricity markets in the Maghreb • The rising electricity demand matched with conventional power generation will put pressure on state budgets of fossil fuel importing countries, on the one hand, and on fossil fuel exportersbyreducing their revenues from oil and gas exports. • RES deployment could represents an added value, not only in regards to the electricity generation costs, but also in regards to their integration as part of phase out programs for energy subsidies, by increasing fossil fuels export in producing countries, and lowering imports in net importing countries. • For a better RE deployment markets integration is crucial contributing toincrease their availability diversifying sources and enlarging the geographical spread… • … and if the overcapacity in Europe, enhanced by substantial RE additions (wind and PV), is today more than sufficient to meet ongoing demand by 2020, for 2050, when many national and EU roadmap look for at least 80% RE penetration, the vision of a truly integrated EU-MED electricity market would certainly see a major role for electricity import to Europe • (Art. 9, one of the main mechanisms to carry out this vision, is no longer a priority, but a medium/long run instrument).

8. 4 - Towards a West-Mediterranean electricity area and RE deployment : obstacles, rules, and suggestions • Market obstacles • Lack of bankable reference projects • Competition with traditional sources: subsidies forconventionalenergies create market distortion • So far very little technology transfer and capacity building which are crucial aspects to ensure a more effective economic development. • Uncertain institutional, legal and regulatory framework • Financial obstacles • High up-front costs for investors especially relevant for off-grid applications • High cost of capital for RE investments (risk perceived) • Other obstacles • Grid infrastructures and access • Social acceptance, permitting, etc.

9. 4 - Towards a West-Mediterranean electricity area and RE deployment : obstacles, rules, and suggestions • In a first time, rules should be progressively adapted and harmonized to foster RE deployment, and so avoid distortion due to fossil fuel subsidies: • allow RE independent power producers (IPPs), auto-producer schemes, and access to third-party buyers. • develop/strengthen independent regulators, consolidate regulated grid access rules and grid cost allocation schemes • introduce/develop power market reforms towards cost-reflective electricity prices for all customers, while protecting vulnerable consumers through tariff or fiscal shields • phase out high energy subsidies (where present) which tend to become an unsustainable burden on state budgets. Even at today’s levels they limit the fiscal ability of countries to invest in new sources of economic growth • ensure RE projects with different options for selling power to utilities and to all kind of customers, including self-production of industrial sites at all voltage levels and Power Purchasing Agreements (PPA) • allow new market operators, with low entry barriers, in generation, trading and marketing of power; in particular private and/or foreign companies should be encouraged to invest, also in form of private-public partnerships

10. 4 - Towards a West-Mediterranean electricity area and RE deployment : obstacles, rules, and suggestions • In order to meet the fast growing demand and deploying RE: • investment protection guarantees are essential to attract private capital • the functioning of the IMME should be improved also by the activity of MEDREG and MED-TSO within the integration with the IEM: • by setting clear and joint rules for cross-border trading (CBT) • defining common procedures for the assessment of the NTC (Net Transfer Capacity) across the borders • harmonising these rules and ensure a full transparency by guaranteeing the independence of national regulators (NRAs). • OME is willing to give its support to the implementation of these measures • preferential connection of renewable generation plants to the grid and access to transmission infrastructures • authorization regimes and/or the award of concessions shall be transparent and non-discriminatory • In the short/medium term priority to medium size RE plant which don’t need for huge up-front capital costs, in times of financial constraints • ... and to distributed generationsuch as PV rooftops, small energy plants whichdeserve greater attention in SEMCs, due to grid/market parity conditions already achievable in several specific instances.

11. Thank you for your attention Contact: Pedro Moraleda pedro.moraleda@ome.org