Regional Cooperation Through Electricity Trade Improves Both Environmental Sustainability and Energy Security in the Eastern Mediterranean and Middle East

Regional cooperation through electricity trade improves both environmental sustainability and energy security in the Eastern Mediterranean and Middle East

Constantinos Taliotis* and Theodoros Zachariadis**
* Assistant Professor at the Cyprus Institute
** Professor at the Cyprus Institute

KEY POINTS

We developed energy systems models for Cyprus and the entire Eastern Mediterranean and Middle East (EMME) region to explore the importance of regional cooperation through electricity trade.
Our model results highlight the benefits offered by the development of electricity interconnections between Cyprus and neighbouring countries, as well as from a broader increase in electricity interconnectivity across the EMME region.
Decarbonization is faster and cheaper if investments in enhanced electricity interconnections are implemented throughout the region. Savings of up to 35 billion USD are estimated for the entire EMME region until 2050 if increased electricity trade is enabled.
Besides lowering costs and improving environmental sustainability, interconnections and electricity trade improve energy security of EMME countries. Despite political challenges, a regional action plan from interested countries can enable a proper strategy with multiple benefits.

Τα Οφέλη στο Περιβάλλον και την Ενεργειακή Ασφάλεια από την Περιφερειακή Ενεργειακή Συνεργασία στην Ανατολική Μεσόγειο και Μέση Ανατολή

ΚΥΡΙΑ ΣΗΜΕΙΑ

Αναπτύξαμε ενεργειακά μοντέλα για την περιοχή της Ανατολικής Μεσογείου και Μέσης Ανατολής (ΑΜΜΑ) και διερευνήσαμε τις επιπτώσεις από το διασυνοριακό εμπόριο ηλεκτρισμού μεταξύ των χωρών.
Τα αποτελέσματα αναδεικνύουν τα σημαντικά ενεργειακά και περιβαλλοντικά οφέλη από την περαιτέρω ανάπτυξη ηλεκτρικών διασυνδέσεων σε όλη την περιοχή και στην Κύπρο.
Η πορεία προς την απεξάρτηση από τα ορυκτά καύσιμα στην ΑΜΜΑ θα είναι γρηγορότερη και φθηνότερη αν αυξηθούν οι επενδύσεις σε ηλεκτρικές διασυνδέσεις. Μέχρι το 2050, μπορούν να εξοικονομηθούν έως και 35 δις. δολάρια στην περιοχή αν αναπτυχθούν κατάλληλες υποδομές που θα επιτρέψουν αυξημένο διασυνοριακό εμπόριο ηλεκτρισμού.
Πέρα από τη μείωση του κόστους ηλεκτροπαραγωγής στην ΑΜΜΑ και του περιβαλλοντικού οφέλους χάρη στη γρηγορότερη μείωση των εκπομπών, οι αυξημένες ηλεκτρικές διασυνδέσεις βελτιώνουν και την ενεργειακή ασφάλεια των χωρών της περιοχής. Χωρίς να αγνοούνται οι πολιτικές δυσκολίες, ένα περιφερειακό σχέδιο δράσης από ενδιαφερόμενες χώρες μπορεί να οδηγήσει σε έγκαιρο προγραμματισμό των κατάλληλων επενδύσεων που μπορούν να αποβούν πολύ επωφελείς.

Introduction

Nearly a decade has already passed from the Paris Agreement targets, but the world is still not on track to achieve the required decarbonisation. To reverse this situation, investments at an unprecedented pace and scale are needed. At the same time, European Union member states are required to formulate their National Energy and Climate Plans (NECPs), having in mind the long-term goal of net-zero emissions by 2050. The Republic of Cyprus is gradually making progress, as indicated in its latest NECP submission [1].

One of the measures envisioned in the NECP of Cyprus is the development of the Great Sea Interconnector (GSI), which will link the electricity grid of Cyprus with that of Greece, and eventually of Israel [2]. This project would end the energy isolation of Cyprus, which currently has no grid interlinkages with neighbouring countries. Similarly, an expansion of electricity interconnections is discussed in several of the countries in the broader Eastern Mediterranean and Middle East (EMME [1]) region (Figure 1), in an effort to untap the vast unexploited renewable energy potentials.

figure 1 the emme region

Figure 1. The EMME region.

The importance of an interconnection for Cyprus has been briefly assessed in the past [3], but not with an outlook to 2050 along with the adoption a carbon neutrality target. Similarly, it has not been assessed against outputs from a regional model that explicitly represents the surrounding countries; such a model has been previously developed and used to assess the benefits of enhanced electricity trade in the EMME region [4].

This Brief provides insights on the benefits of grid interconnection deployment for the decarbonisation of the energy system of Cyprus. Two energy system models are utilised: one representing the national energy system of Cyprus and one representing the electricity supply system of EMME countries including grid interconnector representation. It aims to demonstrate that regional cooperation for long-term planning is critical to ensure the region is on path to meet the Paris Agreement targets and to avoid investments in infrastructure that may become stranded assets in the future.

Methodology

Both the national energy systems model of Cyprus and the EMME electricity supply model used for the present analysis are developed within the OSeMOSYS modelling framework, which is a cost-optimization model [5]. OSeMOSYS adopts an open-source framework to ensure transparency in the input data and assumptions. This enables and encourages future collaboration between researchers, policy makers, and other stakeholders across the relevant geographies.

The model’s objective is to minimize the cost of satisfying externally defined demands for energy services while considering a range of assumptions, such as technology cost projections, fuel price projections [2], fossil fuel reserves, and renewable energy resource availability. It has been used in the past to conduct analyses at the global, regional, national, and sub-national level [6].

The OSeMOSYS-Cyprus model is coupled with an energy demand forecast model to arrive at energy projections of the entire energy system (i.e. electricity, transport, heating & cooling) [7]. This model is populated with national statistics and data from relevant national authorities, while it is used to inform the country’s official NECP [1]. The OSeMOSYS-Cyprus model decides on whether to import or export electricity via a comparison of the internally calculated marginal electricity cost and externally defined import and export prices. The latter two have a single value for each year of the projection, while the former has a much higher-temporal resolution; this presents an important limitation.

On the other hand, the OSeMOSYS-EMME model focuses solely on electricity supply [4]. The seventeen countries of the region are represented in the model as separate systems that can trade electricity with their neighbouring systems either through existing or future grid interconnections. The model is populated with information from publicly available sources. This includes data on existing and planned generation [10, 11] and grid interconnection capacity [12–15], electricity demand projections [4, 16–28], international fuel price projections[1] [28], and technoeconomic assumptions on electricity generation [29] and storage technologies [30]. The OSeMOSYS-EMME model internally calculates the marginal cost of electricity at any given time in each country and decides on the volume and direction of electricity trade based on potential cross-border differences. Thus, it is more suited to project electricity trade than a standalone national model.

Scenarios

A set of scenarios is developed to generate insights at a regional and national level, highlighting the advantages of enhanced interconnectivity for development pathways that align with the Paris Agreement goals. The present analysis assesses the following scenarios:

Reference Trade: In this scenario, electricity interconnections are limited to existing projects. Trade is allowed to occur if deemed cost-effective using this infrastructure. In the case of Cyprus, it is assumed that development of the GSI is not successful.
Enhanced Trade: In this scenario, investment in grid interconnections under discussion is allowed, thus enabling a higher volume of electricity exchange across the region. In the case of Cyprus, the GSI is developed and trade with Greece and Israel can occur by the end of 2029 and 2032 respectively.
Late GSI: The third scenario which is only developed for the OSeMOSYS-Cyprus model, examines the impact of a delayed development of the GSI, pushing the project’s completion to the end of 2039.

All above scenarios enforce a net-zero greenhouse gas emissions constraint in each country’s electricity supply system by 2050.

Results and Discussion

Driven by an assumed continuous increase in electricity demand and the need to meet the decarbonisation target by 2050, renewable energy deployment is projected to increase substantially in all scenarios. The scenario runs with the OSeMOSYS-Cyprus model indicate a renewable energy share by 2050 of 66% without interconnection and 73% with the GSI development either occurring as planned or with delays. These scenarios foresee that natural gas with Carbon Capture and Storage (CCS) will also contribute to the generation mix. On the other hand, if no gas-fired CCS technologies are developed, as assumed in the OSeMOSYS-EMME model, electricity generation in Cyprus will be based 100% on renewable energy technologies in 2050.

The variability in renewable energy shares and the availability of interconnections in the aforementioned scenarios leads to differences in the necessity for storage technologies. Specifically, in the OSeMOSYS-Cyprus model scenarios, the total electricity storage in 2050 amounts to 1,124 MW/4,460 MWh without interconnection and between 80-326 MW/640-1,172 MWh with interconnection. The scenarios of OSeMOSYS-EMME, which foresee 100% renewable energy in Cyprus by 2050 necessitate a much higher storage capacity, reaching 958 MW/3,832 MWh with interconnection and 1,966 MW/7,864 MWh without interconnection.

An interesting observation can be made through the comparison of the electricity trade direction in each scenario for Cyprus (Figure 2). The OSeMOSYS-Cyprus scenario, which treats neighbouring country electricity prices as static, projects a high volume of electricity exports as indicated in both scenarios with GSI development. On the other hand, the OSeMOSYS-EMME model endogenously calculates the marginal price of electricity for each country at each point in time; in this case, Cyprus is a net importer of electricity for the majority of the model horizon and only becomes a net exporter towards the end of the outlook. This illustrates the price sensitivity of the projections on the volume and direction of electricity trade.

figure 2 volume of net imports

Figure 2. Volume of net imports of electricity in Cyprus in each scenario in the OSeMOSYS-Cyprus model (Late GSI, Planned GSI) and in the OSeMOSYS-EMME model (EMME Enhanced). Scenarios where no interconnection is established are not shown, as no electricity can be traded.

Furthermore, this inconsistency between the two models brings to surface an important limitation. The authors have observed that standalone national models tend to underestimate the need for electricity imports and overestimate the potential for exports. This statement is supported by a comparison of the NECPs of EU member states with official European Commission projections; whereas the latter foresees net electricity exports of the order of 8 TWh [31], the collection of draft NECP revisions lead to an approximate total of 155 TWh. This is an important caveat that national planners need to bear in mind.

In addition, the outlook of the regional electricity trade volumes is also of interest. For instance, by 2050 in the Enhanced Trade scenario, Egypt becomes a major electricity exporter with annual net exports exceeding 11 TWh, while Israel with annual net imports of 9.5 TWh is the biggest importer of electricity in the region (Figure 3).

The benefit of enhanced interconnectivity is highlighted by a comparison of the system costs of the Reference Trade and Enhanced Trade scenarios. Savings of up to 35 billion USD are estimated for the entire EMME region until 2050, if increased electricity trade is enabled.

Conclusions and Policy Recommendations

Electricity trade across the EMME region offers multiple benefits. It can lead to a decrease in greenhouse gas emissions, while reducing the financial requirements for investments in power generation technologies. In addition to national energy and climate plans, regional cooperation for the formulation of a regional action plan can promote coordinated efforts in this front.

Regional cooperation should be particularly pursued to identify the most cost-effective grid interconnection projects that can unlock major renewable energy potential. Similarly, an increase beyond the planned grid interconnection capacity should be investigated.

Renewable energy investments are projected to increase across the EMME region in all scenarios. These need to be accompanied by investments in storage technologies, while they can be greatly assisted by availability of grid interconnections.

Operation of a regional electricity market entails the existence of a level playing field across all EMME countries. Since direct or indirect fuel subsidies distort the market, this is an area that requires further policy action in many EMME countries, where electricity and fuel subsidies are still in place.

Especially as far as Cyprus is concerned, electricity trade between Cyprus and the neighbouring countries offers multiple benefits as well. It can lead to an earlier and smoother deployment of renewable energy technologies, facilitate decarbonisation efforts and reduce the investment requirements for power generation and energy storage. This is especially important when investment decisions on major infrastructure with long lifetimes are made, given that some of these may become stranded assets if the export potential of the country is overestimated.

As renewable energy investments continue to increase, the regulatory framework needs to facilitate the timely deployment of storage technologies, whether or not (and whenever) the GSI is developed in Cyprus. This will help to limit the curtailment of renewable energy at much lower levels than currently practised.

Finally, the uncertainty in the volume and direction of electricity trade has to be considered in the long-term planning of the Cyprus energy system. Investments in generation infrastructure with a supplementary aim to export electricity to neighbouring countries may be faced with inadequate demand, as an interconnected EMME region will be a competitive market for electricity exports. Similarly, in case electricity generation costs are much lower in neighbouring grid systems, electricity imports may increase considerably. If investments decisions are not planned correctly, this might pose a threat to the financial viability of domestic generation and to the long-term security of supply of the national grid.

It must be noted that the discussion in this Brief has focused on the energy and environmental benefits of electricity interconnections for Cyprus and the entire region. Challenges with regard to financing of these investments and geopolitical issues were out of the scope of this research.

This Policy Brief is based on a study that has been financially supported in part by the Hellenic Observatory of the London School of Economics and Political Science in the frame of the Research Innovation Programme on Cyprus funded by the A.G. Leventis Foundation. It is also part of ongoing research in the frame of the Cyprus Climate Initiative for the Eastern Mediterranean and Middle East that is supported by the government of the Republic of Cyprus. Views expressed in this paper are those of the authors alone and do not necessarily reflect those of the funding organizations.

Results of individual scenarios will be published in a peer-reviewed publication and are available upon request.

figure 3 electricity exchange

Figure 3. Electricity exchange between EMME countries in the Enhanced Trade scenario in 2050, assuming that electricity interconnections will be utilized according to a cost-optimal solution for the entire region. A gap between the ribbon and associated colour segment indicates that electricity trade is being imported to the respective country. Electricity starts flowing from a country without this discontinuity. The colour of the band is identical to that of the country of origin, which is identified by the colour of the inner-most circle.

References

[1] Republic of Cyprus, ‘Cyprus - Final updated NECP 2021-2030 (submitted in 2024)’. https://commission.europa.eu/publications/cyprus-final-updated-necp-2021-2030-submitted-2024_en

[2] IPTO, ‘Great Sea Interconnector’. http://www.admie.gr/en/i-etaireia/omilos-admie/great-sea-interconnector

[3] C. Taliotis, E. Taibi, M. Howells, H. Rogner, M. Bazilian, and M. Welsch, ‘Renewable energy technology integration for the island of Cyprus: A cost-optimization approach’, Energy, vol. 137, pp. 31–41, Oct. 2017, https://doi.org/10.1016/j.energy.2017.07.015

[4] C. Taliotis, M. Karmellos, N. Fylaktos, and T. Zachariadis, ‘Enhancing decarbonization of power generation through electricity trade in the Eastern Mediterranean and Middle East Region’, Renewable and Sustainable Energy Transition, vol. 4, p. 100060, Aug. 2023, https://doi.org/10.1016/j.rset.2023.100060.

[5] M. Howells et al., ‘OSeMOSYS: The Open Source Energy Modeling System: An introduction to its ethos, structure and development’, Energy Policy, vol. 39, no. 10, Art. no. 10, Oct. 2011, https://doi.org/10.1016/j.enpol.2011.06.033.

[6] F. Gardumi et al., ‘From the development of an open-source energy modelling tool to its application and the creation of communities of practice: The example of OSeMOSYS’, Energy Strategy Reviews, vol. 20, pp. 209–228, Apr. 2018, https://doi.org/10.1016/j.esr.2018.03.005.

[7] C. Taliotis, E. Giannakis, M. Karmellos, N. Fylaktos, and T. Zachariadis, ‘Estimating the economy-wide impacts of energy policies in Cyprus’, Energy Strategy Reviews, vol. 29, p. 100495, May 2020, https://doi.org/10.1016/j.esr.2020.100495.

[8] IRENA, ‘Renewable Capacity Statistics 2022’, International Renewable Energy Agency, Abu Dhabi, UAE, Apr. 2022. https://irena.org/publications/2022/Apr/Renewable-Capacity-Statistics-2022

[9] AUPTDE, ‘Statistical Bulletins 2018 - 27th Edition’, Arab Union of Electricity, Amman, Jordan, 2019. https://auptde.org/en/file-download/download/public/340

[10] EEHC, ‘Annual Report 2018/2019’, Egyptian Electricity Holding Company, 2019. http://www.moee.gov.eg/english_new/EEHC_Rep/2018-2019en.pdf

[11] AFESD, ‘Electricity’, Arab Fund for Economic & Social Development. Accessed: May 20, 2022. https://www.arabfund.org/default.aspx?pageId=454

[12] GCCIA, ‘The Interconnection Project’, Gulf Cooperation Council Interconnection Authority. https://www.gccia.com.sa/p/the_interconnection_project/55

[13] European Commission, ‘Electricity interconnections with neighbouring countries’. Commission Expert Group on electricity interconnection targets, 2019. https://ec.europa.eu/energy/sites/ener/files/documents/2nd_report_ic_with_neighbouring_countries_b5.pdf

[14] IRENA, ‘Renewable Energy Outlook: Egypt’, International Renewable Energy Agency, Oct. 2018. https://www.irena.org/publications/2018/oct/renewable-energy-outlook-egypt

[15] Republic of Cyprus, ‘Cyprus Integrated National Energy and Climate Plan’, Nicosia, Cyprus, Jan. 2020. https://ec.europa.eu/energy/sites/ener/files/documents/cy_final_necp_main_en.pdf

[16] Hellenic Republic, ‘National Energy and Climate Plan’, Ministry of the Environment and Energy, Athens, Dec. 2019. https://ec.europa.eu/energy/sites/ener/files/el_final_necp_main_en.pdf

[17] KISR, ‘Kuwait Energy Outlook 2019’, Kuwait Institute for Scientific Research, 2019. https://www.undp.org/arab-states/publications/kuwait-energy-outlook-1

[18] SEU, ‘The Kingdom of Bahrain National Renewable Energy Action Plan (NREAP)’, Sustainable Energy Unit - Kingdom of Bahrain, Jan. 2017. http://sea.gov.bh/wp-content/uploads/2018/04/02_NREAP-Full-Report.pdf

[19] L. Gallo, ‘A Long-Term Forecast of Electricity Demand in Israel’. Bank of Israel - Research Department, Dec. 2017. https://www.boi.org.il/en/Research/Pages/dp201713h.aspx

[20] OPWP, ‘OPWP’s 7-Year Statement (2021 – 2027)’, Oman Power and Water Procurement CO., 2021. https://omanpwp.om/PDF/7%20Year%20Statement%20Issue%2015%202021%20-%202027.pdf

[21] IEA, ‘Iraq’s Energy Sector: A Roadmap to a Brighter Future’, International Energy Agency, Paris, France, Apr. 2019. https://www.iea.org/reports/iraqs-energy-sector-a-roadmap-to-a-brighter-future

[22] IRENA, ‘Renewable Energy Outlook: Lebanon’, International Renewable Energy Agency, Abu Dhabi, Jun. 2020. https://irena.org/publications/2020/Jun/Renewable-Energy-Outlook-Lebanon

[23] IRENA, ‘Renewable Energy Prospects: United Arab Emirates’, International Renewable Energy Agency, Abu Dhabi, Apr. 2015. https://www.irena.org/publications/2015/Apr/Renewable-Energy-Prospects-United-Arab-Emirates

[24] A. Azzuni, A. Aghahosseini, M. Ram, D. Bogdanov, U. Caldera, and C. Breyer, ‘Energy Security Analysis for a 100% Renewable Energy Transition in Jordan by 2050’, Sustainability, vol. 12, no. 12, Art. no. 12, Jan. 2020, https://doi.org/10.3390/su12124921.

[25] F. A. Harbi and D. Csala, ‘Saudi Arabia’s Electricity: Energy Supply and Demand Future Challenges’, in 2019 1st Global Power, Energy and Communication Conference (GPECOM), Jun. 2019, pp. 467–472. https://doi.org/10.1109/GPECOM.2019.8778554.

[26] P. Azadi, A. N. Sarmadi, A. Mahmoudzadeh, and T. Shirvani, ‘The Outlook for Natural Gas, Electricity, and Renewable Energy in Iran’, Stanford University, Working Paper #3, Apr. 2017. https://sgs.stanford.edu/publications/ outlook-natural-gas-electricity-and-renewable-energy-iran

[27] International Energy Agency, World Energy Outlook 2020. Paris, France: International Energy Agency, 2020. https://www.iea.org/reports/world-energy-outlook-2020

[28] European Commission, ‘Recommended parameters for reporting on GHG projections in 2023’. Directorate-General Climate Action, 2022.

[29] NREL, ‘Electricity Annual Technology Baseline (ATB) Data Download’, Annual Technology Baseline. https://atb-archive.nrel.gov/electricity/2020/data.php

[30] IRENA, ‘Electricity storage and renewables: Costs and markets to 2030’, p. 132, 2017.

[31] European Commission. Directorate General for Energy., European Commission. Directorate General for Climate Action., and European Commission. Directorate General for Mobility and Transport., EU Reference Scenario 2020: Energy, Transport and GHG emissions : Trends to 2050. LU: Publications Office, 2021. https://data.europa.eu/doi/10.2833/35750

[1] The EMME region is defined here to consist of Bahrain, Cyprus, Egypt, Greece, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Palestine, Qatar, Saudi Arabia, Syria, Turkey, and United Arab Emirates.

[2] Even though some countries may provide fuel to generation facilities at a lower cost, international fuel price projections are used for the entire region. This is done to assess development pathways under perfect market conditions without any market distortions.

The Cyprus Institute

Regional cooperation through electricity trade improves both environmental sustainability and energy security in the Eastern Mediterranean and Middle East

Τα Οφέλη στο Περιβάλλον και την Ενεργειακή Ασφάλεια από την Περιφερειακή Ενεργειακή Συνεργασία στην Ανατολική Μεσόγειο και Μέση Ανατολή

Helpful Links

Publications & Media

Contact

EU e-Privacy Directive

Your cookie preferences