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Energy Strategy Reviews 2 (2013) 59e70

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Energy Strategy Reviews

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ANALYSIS

Model-based analysis of the future strategies for the MENA energysystem

Panagiotis Fragkos, Nikos Kouvaritakis, Pantelis Capros*

National Technical University of Athens, Department of Electrical and Computer Engineering, 9 Iroon Politechniou Street, Zografou Campus, 15773 Athens, Greece

A R T I C L E I N F O

Article history:

Received 28 September 2012

Received in revised form

7 December 2012

Accepted 14 December 2012

Available online 12 January 2013

Keywords:

Energy strategies

Energy modelling

Energy policy

* Corresponding author.

E-mail address: kapros@central.ntua.gr (P. Capros).1 We acknowledge research funding by the European

work research program MEDPRO (http://www.medpro-fo

2211-467X/$ e see front matter � 2012 Elsevier Ltd. Al

http://dx.doi.org/10.1016/j.esr.2012.12.009

A B S T R A C T

This paper introduces a large-scale energy demand and supply model that is used toquantify alternative energy system strategies for the Middle East and North Africa (MENA)region to 2030. MENA contains major hydrocarbon producers and a vast and currentlyuntapped potential for renewable power generation.It examines mutual benefits that MENA and the EU could derive by cooperating in the

field of energy and climate policies. It also investigates a strategy emphasising decen-tralised RES deployment together with accelerated market reform leading to a reductionin power generation costs and a large increase of exportable hydrocarbon surpluses.Recognising the risks that characterise the region a case of policy failure is alsoconsidered.

� 2012 Elsevier Ltd. All rights reserved.

1. Introduction1

The Middle East and North Africa (MENA) countries face major

energy policy challenges in rapidly changing situations. Fossil fuel

producing countries are concerned with an optimal intertemporalmanagement of their ultimately finite resources, while net importers of

fossil fuels aim at reducing their dependence in order to decrease theirvulnerability and improve their economic development prospects. The

region contains countries that fall in both categories. At the same timemost of them are characterised by a very large potential for expansion

of the use of renewable energy sources. CO2 emissions in MENA havebeen growing very fast and there are strong indications that cost-

effective abatement options exist opening the way for collaborationwith the EU where climate policy is high on the agenda.

In view of these policy goals, there has been a growing interest withrespect to the development of the Mediterranean energy system,

aiming at determining the optimal future mix of electricity generationand specifically addressing the central question of deployment of

renewable or nuclear energy. Marktanner and Salman [4] focus on thewider economic and geopolitical impacts of large-scale development of

Commission within the frame-

resight.eu/).

l rights reserved.

RES and nuclear technologies in North Africa, while Brand and Zingerle

[5] summarise the renewable energy targets of the Maghreb region andthen employ a linear power market optimisation model to assess the

impact of the accomplishment of these targets on electricity supply

costs. Supersberger and Fuhrer [6] present the effects of integration ofRES and nuclear energy into North African energy systems for the

region’s balance of trade and highlight the fact that while RESdeployment will allow North Africa to ensure independence from

energy imports and to guarantee fossil exports for a longer period, inthe case of nuclear development the North African countries will

strongly depend on fuel and technology imports.Reflecting the increasing interest on the potential cooperation of

Mediterranean countries on the fields of energy and climate action,several studies have been published recently (e.g. Trieb and Muller-

Steinhagen [7], Folkmanis [8]). The MENA region has huge potential forsolar and wind energy, which has remained to a large extent untapped.

Boudghene-Stambouli [10] emphasises the vast RES potential of Algeria(mainly concerning CSP). Viebahn et al. [9] identify the CSP technology

as the most cost-effective carbon-free power generation option for theMENA countries. In the last decade the concept of large-scale CSP

deployment in North African countries together with the potentialexport of green electricity to the EU through high-voltage direct-

current (HVDC) lines has attracted a growing attention. Both nationalregulatory authorities and international (mainly European) private or

governmental initiatives, like the Desertec Foundation, MEDGRID andEUROMED, have conducted feasibility studies and costebenefit analysis

P. Fragkos et al. / Energy Strategy Reviews 2 (2013) 59e7060

[11,12,14] in order to assess the sustainability and the economic

viability of this concept and project the future evolution of the EU-MENA power supply system.

Another strand in the literature investigates econometrically thelong-term relationship between GDP per capita, energy consumption

and CO2 emissions. In Ref. [1] El Hedi Arouri et al. use a panel model toestimate the long run elasticities of CO2 emissions with respect to

energy consumption and real GDP and “to explore the nature of thecausality relationship between economic growth, energy consumption

Ci;t ¼ Ci;t�1*

�ACTVi;t

ACTVI;T�1

�a

*

�APi;tAPi;t�1

�b1

*

�APi;t�1

APi;t�2

�b2

*Ynk¼ 1

�APi;t�k

APi;t�k�1

�4ðk=nÞ*g(1)

and emissions of CO2”. In Ref. [2] Al-Mulali examines the impacts of oilconsumption on economic growth in the MENA region.

The literature is much poorer with regard to the development ofmodel-based energy system analysis for the MENA countries apart from

the power generation sector. Only IEA [13] and the Mediterranean EnergyObservatory (OME) [15] quantify energy demand and supply projections

for the entire energy system. OME uses an econometric model to simu-late the evolution of final energy demand, power generation mix and

primary fuel supply for the Mediterranean countries.This paper presents a detailed2 and technology rich integrated

demand and supplymodel for the countries of the region (Section 2). Thismodel has been used to analyse contrasting and policy induced

demandesupply configurations and the main results of the analysis arepresented in the remainder sections. In viewof the rapidly evolving social

and political context in the region, the emphasis of the policy casesexamined is placed on alternative positions with regard to integration in

the world economy and the development of bilateral and multilateralcooperation and their implications on the entire energy system.

2. Methodology e model description

MENA-EDS3 is a large-scale energy demand and supply model4 thatsimulates the formation of prices in energy markets, estimates the

quantities demanded and supplied by the main energy system actors inan exhaustive manner and incorporates energy related CO2 emissions,

environmentally oriented policy instruments and emission abatementtechnologies. MENA-EDS is designed for medium-term and long-term

projections and produces analytical quantitative results for eachcountry until 2030. Historical energy demand and supply data for the

years up to 2010 are derived from the IEA and ENERDATA databases.The model has been applied to the “MED-9” region that includes

Algeria, Morocco, Tunisia, Egypt, Libya, Israel, Syria, Lebanon andJordan. It calculates CO2 emissions and energy system costs (including

power generation costs) and can simulate energy strategies and policyinstruments such as taxes and subsidies, carbon pricing mechanisms

and incentives promoting energy efficiency and renewable sources.MENA-EDS is a recursive dynamic model with annual resolution and has

a predominantly triangular structure in order to limit contemporaneoussimultaneity. On the other hand, simultaneity is modelled through lagged

instances of endogenous variables. The MENA-EDS model takes as anexogenous input demographic, macroeconomic and sectoral activity

projections, covering the major energy consuming sectors in industry,

2 The model contains approximately 6000 equations for each country.3 Middle East and North Africa Energy Demand and Supply model.4 E3MLab constructed and operates the model.

households, services and transportation.Theseactivity forecasts, together

with consumer prices for fossil fuels which are themselves derived frominternational fuel prices (coming from the latest PROMETHEUS projections

[19]), taking into account country specific characteristics, such as distri-bution costs, taxation and fuel subsidies, are used to determine the

evolution of energy demand by sector. Long-term and short-term priceeffects are accounted for separately by using different elasticities. The

general equationbelowdescribes themainmechanismfor determining theevolution of final energy demand ðCi;tÞ in each sector i at time t

where 4ðk=nÞ are the weights of the polynomial distributed lag used toestimate the long-term price elasticity in each subsector, ACTVi;t is the

activity indicator for each sector (either GDP, sectoral value added,disposable income, tn-km or passenger-km), APi;t is the average energy

price for sector ia represents theactivityelasticity,b1andb2 theshort-termprice elasticities that capture demand reactions toprice thatdonot require

significant investments and g the long-term price elasticity reflectingenergy saving investments over a longer period. All the above parameters

have been estimated econometrically and 4ðk=nÞ is a second order poly-nomial distributed lag schemeofdepthnwithnearand far zero restrictions.

Final energy demand is simulated for five main sectors:

� Industry, where ten sub-sectors are included in the analysisdepending on data availability

� Services� Households

� Agriculture� Transport (including private passenger cars, road freight transport,

passenger aviation and rail transport depending on dataavailability)

Energy demand arises from net increases in consumers’ energy

needs, the replacement of scrapped capacity and surviving equipment.Regarding new energy demand, a compact but analytically rich speci-

fication encapsulates the dynamic process of technological substitutionin all sectors taking into account the technical and economic charac-

teristics (investment costs, energy efficiency, fixed and variable

operating costs) of the technologies available. The evolution of thepassenger car stock in different countries is simulated in detail by

considering the effect of economic development and behaviouralchanges on both the number and the use of vehicles, also allowing for

potential saturation effects.A detailed representation of the power supply sector has been

implemented in the MENA-EDS model, as electricity generation isprojected to play an increasingly important role in energy and climate

policies. Generation requirements are determined by final electricitydemand, own-consumption of power plants, electricity trade between

countries and transmission and distribution losses in each country. Thesectoral origin of electricity demand is used to construct an annual load

duration curve, by taking into account that demand in energy intensiveindustrial sectors is mainly base load, while pronounced peaks char-

acterise demand in services and households.A wide variety of technological options compete to satisfy elec-

tricity demand. The main categories of power generation options are:

� Gas-fired technologies, using steam turbine, gas turbine orcombined cycle technology

P. Fragkos et al. / Energy Strategy Reviews 2 (2013) 59e70 61

� Coal-fired technologies, which include thermal, fluidised bed,supercritical and integrated gasification technologies using coal or

lignite as a fuel� Oil-fired technologies, including thermal fuel oil and peak devices

fuelled by diesel� Nuclear technologies, third and fourth generation

� Biomass-fired technologies, including thermal and integrated

gasification technologies� A wide variety of renewable technologies, including hydroelec-

tricity (large or small scale), wind (onshore and offshore), solar(CSP,5 photovoltaic) and geothermal

Capacity installation decisions are based on long-term marginal

costs (that include the annualised and discounted capital costs, thefixed and variable operation and maintenance costs and fuel costs) in

combination with expectations for the load duration curve. The marketshare of each technology in new investments for the year t is modelled

as a quasi-cost minimisation function and is determined by the long-term marginal costs ðCj;tÞ of the competing options.

sharej;t ¼wj;t*C

�gj;tP

jwj;t*C�gj;t

(2)

In this specification, the parameters wj;t can be interpreted as

reflecting the relative economic and technical “maturity” of eachtechnology while the parameters g represent the sensitivity of the

market share with respect to the total cost of each technology. For thecalculation of long-term marginal costs the technical and economic

characteristics of the PRIMES model [18,20] are used, taking intoaccount regional specificities, such as the higher capacity factors for

CSP and photovoltaics.Scrapping rates of power plants are endogenous in the model and

include both normal scrapping, due to plants reaching the end of theirlifetime, and premature scrapping, due to changes in variable and fuel

costs which render the continuation of a plant’s operation economi-cally unsustainable. The model also accounts for already decided

investments in specific power plants and the plans adopted fordecommissioning of old and inefficient ones, as obtained from a wide

variety of literature review.The annual load duration curve together with variable operating

costs and the installed capacity of the different technologies are usedto determine capacity utilisation for each time segment (dispatching of

power plants) and hence electricity production and associated fuelinputs for each technology. Firstly, the year is divided into 9 h

segments, which are symbolised by the index u, u ¼ 0,.,8. The annualload duration curve is approximated by a rectangular section repre-

senting base load and an exponential section accounting for the shorterdurations. Total electricity production for the year t (TOTPRODt) is

then approximated by the following formula:

TOTPRODt ¼X8u¼ 0

hðMt � BtÞ*e�lt*ð0:25þuÞ

iþ 9*Bt (3)

where Mt is the highest load demand considered, Bt is the base load

demand and the parameter lt is calculated implicitly from theequation:

1� e�8:76*lt

lt¼ PRODt � 8:76*Bt

Mt � Bt(4)

where PRODt represents electricity generation.

5 Concentrated Solar Power.

The price of electricity is determined as a function of long-term

average marginal costs and is differentiated between the sectors(industry, residential), reflecting the differential costs for each sector

(differences mostly arise from the fact that different technologiessupply different segments of the load duration curve and from differ-

ential distribution costs). Any taxes and subsidies are added exoge-nously and constitute policy instruments.

Primary production of fossil fuels is a function of reserves, invest-ments in productive capacity and, in the case of gas and coal, demand

(both internal and for export). For crude oil it is assumed that the worldmarket can absorb whatever quantities can be produced. Reserves are

determined by a motion equation that calculates net additions in termsof discoveries minus production. The rate of discovery depends on fuel

prices and the undiscovered resources of the fuel as estimated bygeologist experts [3]. The difference between primary consumption

and primary production gives net trade through an identity. Natural gastrade between countries takes into account existing pipeline and LNG

infrastructure and projects their future evolution.

3. The policy alternatives

The MED-9 region has been over many decades in a state of political,

social and economic flux. There are as yet no clear indications that thissituation is changing. Consequently, any projection concerning the

region is subject to greater uncertainty than is usually the case withmedium to long-term projections. Clearly the evolution of its energy

system will depend largely on these uncertainties. The MENA-EDSmodel has been used in order to address questions arising from

possible directions of energy policy in the various countries covered by

the model. Such policies will to a large extent depend on the inter-national context within which the region may evolve and in particular

the degree of cooperation between the countries themselves and theirintegration in the wider regional and global economic systems. The

analysis involves the examination of alternative courses that suchcooperation and integration may follow in the two coming decades.

The results of the present work are presented in terms of compar-ison of alternative quantified projections primarily with a reference

projection. The latter assumes a very gradual normalisation of theregion with energy policies and measures that are currently on the

political agenda of the different countries implemented at varying butgenerally cautious rates. Since this projection is used as the benchmark

for comparisons it is presented separately and briefly on Section 4. Thispresentation aims to introduce exogenous assumptions on the most

important drivers and trends for key variables that characterise theenergy system of the region.

The Mediterranean region is of strategic importance to the EU bothin economic and political terms. In the 1995 meeting in Barcelona, the

EU committed itself to promoting Euro-Mediterranean economic andpolitical cooperation and at the July 2008 summit decided to upgrade

the Barcelona Process and to create the Union for the Mediterranean.6

The Mediterranean and the EU countries cooperate in the field of

regional environmental protection and sustainable development [16].These initiatives indicate that there is political will for cooperation

across the Mediterranean. It is clear however that there is plenty ofscope for deepening relationships and in particular engaging MED-9

countries in EU climate policy efforts. The “MED-EU Initiatives”strategy assumes that projects such as Desertec will to a large extent

materialise and that the EU Emissions Trading Scheme (ETS) will expandto include MED-9 with special provisions for these countries (free

allocation of permits to the extent of reference projection emissions).Only energy intensive industries and power generation are subject to

6 See: http://www.eu2008.fr/PFUE/lang/en/accueil/PFUE-07_2008/PFUE 13.07.

2008/sommet_de_paris pour_la_ mediterranee_4758.html.

Table 1

Main scenarios assumptions.

Reference MED-EU Initiatives Global Integration Fragmentation

Energy price reform Gradual, incomplete by 2030 Accelerated, especially in

industry and power generation,

incomplete by 2030

Accelerated, complete by 2025 Continuation of present

energy subsidies

Electricity exports No 235 TWh in 2030 to the EU,

assisted by EU feed-in tariffs

Limited depending on costs No

RES policies Only policies that are

already firmly decided

RES facilitating policies RES facilitating policies Delays in present plans

Efficiency standards Present policies Present policies gradually

strengthened

Additional standards, vigorously

but gradually introduced

Present policies

ETS carbon prices No For industry and power generation No No

Cooperation Continuation of the

present situation

With the EU primarily in the fields

of climate policy and RES promotion

Multilateral No

Investment climate Gradual reduction of risks Lower risk premiums leading to

higher capital turnover and more

FDI, mainly industry and power

generation

Much improved with lower perceived

risk vis a vis the rest of the world and

internally

Continuation of the

present situation

7 Calculated by the authors using historical data from the IEA and ENERDATA data-

bases for the MED-9 region and EUROSTAT for the EU.

P. Fragkos et al. / Energy Strategy Reviews 2 (2013) 59e7062

allowance obligations. The MED-9 countries do not face an additional

cost associated to emissions, but may benefit from an opportunity ofgenerating revenues by reducing their emissions and by selling their

allowances to EU countries. Such sales are projected to amount to 64.6bn V’08 cumulatively between 2012 and 2030. Apart from direct sales

of emission permits, the exploitation of emission reduction opportu-nities may result in benefits for MED-9 countries arising from an

increase in foreign direct investment (FDI). This prospect implies thatrenewable facilitating policies (licensing and others) accompany the

ETS enlargement. Renewable electricity exports to the EU will requireinvestments into new electricity high-voltage DC interconnectors

linking the MED-9 countries with the southern countries of Europe. Theexported renewable electricity is charged at pre-defined fixed tariffs

which are set at a sufficient level to allow recovery of total capital andoperating costs and allows for a reasonable rate of return on capital (at

an 8% discount rate). The cumulative value of electricity exportsbetween 2020 and 2030 amounts to 85.9 bn V’08.

The “MED-EU Initiatives” strategy assumes cooperation and actionsaffecting essentially emissions from energy intensive activities and in

particular the power generating sector with few spillovers to othersectors. On the other hand, there is a huge potential for improvements

on a very wide front addressing challenges such as economic and energyreforms, trade liberalisation, infrastructure upgrading and sustainable

development. The “Global Integration” strategy assumes that MED-9countries individually undertake vigorous measures in order to

promote energy efficiency, the development of renewable energysources, a reduction of import dependence for net importers of energy

and enhancement of the export capability of the energy exportingcountries. More specifically price reform is accelerated, grid

improvements are brought forward and additional measures promotingefficiency standards are introduced. It also assumes that relations of

individual MED-9 countries with the rest of the world deepen and asa consequence perceived risks are diminished thus encouraging FDI. On

the other hand, the promotion of renewable electricity exports to

Europe is assumed to be at a much more limited scale compared to themassive effort assumed in the “MED-EU Initiatives” strategy. The

“Global Integration” strategy is characterised by multiple decentral-ised actions, often at a small local scale, that taken together constitute

a major attempt at transforming the energy system. Naturally, for suchconditions to prevail within the forecast horizon, very rapid political

normalisation must occur and there are currently no clear signs thatthis is happening. It is considered here primarily in order to chart the

potential for rationalisation of the energy system of the region.The MED-9 area in the “Fragmentation” case is characterised by

increased fragmentation, sporadic and festering conflicts and a failure

of concerted action with the EU and other global players. In terms of

the energy economy the main implications are a shortage of capital,increased investment risks leading to high risk premiums and a stalling

of market reform including the price reform that is assumed to beintroduced gradually in the reference. Under these circumstances of

course there is no scope for investing in interconnections to enable theexport of renewable electricity to the EU. The perceived risks assumed

in this “Fragmentation” case are not evenly associated with thedifferent countries and they depend on their current condition and

their recent history thus they are most strongly felt in countries likeSyria and Lebanon and less acute in countries like Israel and Tunisia.

Table 1 summarises the main assumptions of the four scenariosexamined.

4. The reference projection

4.1. Present situation e summary

MED-9 consists mostly of emerging economies that are charac-terised by different stages of development. These differences are to

a certain extent reflected in the primary energy demand and electricityproduction per capita indicators. In most cases there is clearly a large

scope for MED-9 countries to increase their consumption per capita inline with economic development and standards of living and comfort.

On the other hand, the region is characterised by a different climate

than EU-27 and need not necessarily converge at saturation levelscomparable to Europe.

Looking at dynamic trends as they are reflected by crude elasticitymeasures of energy demand with respect to GDP it is worth noting that

over the period 1990e2010 the region as a whole has registered a valuethat is very close to unity compared to a mere 0.12 for EU-27. Over the

same period the empirical elasticity of power generation with respectto GDP for the region has been more than double the equivalent for EU-

27 (1.59 instead of 0.717). In general electricity demand in the MED-9countries shows little sign of reaching saturation levels in the

medium term.

4.2. Assumptions for the reference projection

The MED-9 region as a whole has been characterised by relatively

high rates of population growth in the recent past. The reference

Table 2

International fossil fuel prices in $2010/boe.a

2000 2010 2015 2020 2025 2030

Oil price 36.2 79.5 111.5 114.9 115.7 120.8

Gas price 25.3 50.2 69.8 79.8 76.4 83.7

Coal price 10.0 21.2 28.5 29.3 30.7 31.1

a Barrel of oil equivalent.

Table 3

Shares (in %) of energy forms in final energy demand of industry in the MED-9 region.

2005 2010 2015 2020 2025 2030

Solids 4.7 3.6 3.1 3.1 3.1 2.9

Oil 45.0 29.8 22.1 17.6 14.2 11.7

Gas 27.4 40.6 44.2 47.4 48.6 48.9

Electricity 22.9 26.0 30.6 31.9 34.0 36.5

P. Fragkos et al. / Energy Strategy Reviews 2 (2013) 59e70 63

projections are derived from the medium fertility variant of the World

population prospects of the United Nations [17]. This projection impliesa marked deceleration in population growth for all countries in the

region. This trend is particularly pronounced in Jordan, Lebanon, Israeland Syria. The reference projection also assumes a continuation of the

trends in terms of urbanisation with marked consequences for changesin lifestyles and energy consumption patterns.

Economic activity growth in MED-9 countries over many years hasbeen strongly influenced by political instability. Nonetheless in the

period from 1990 to 2010 growth has on average occurred at high rates.For the reference projection a certain amount of political normal-

isation is assumed leading to increased trade and cooperation.Another driver for energy demand is the evolution of consumer

prices for energy. In principle movements in international fuel prices8

(Table 2) should be reflected in domestic consumer prices. However,the MED-9 region is characterised by a great variety of pricing regimes.

Looking at transportation fuels, Israel and Morocco have prices andtaxation comparable to the prices that prevail in the EU. In Tunisia and

Lebanon transport fuel taxation is very low. The other countries in theregion effectively subsidise transport fuels since prices for the

consumer are lower than tax-free spot prices for exports. Clearly thissituation makes little economic sense since such spot prices (i.e. the

prices at which the fuels could be sold if they are not consumed locally)constitute an opportunity cost. The reference projection assumes

a very gradual movement towards rational transport fuel prices in thesecountries.

Concerning electricity prices, it is generally agreed that in order tohave a sustainable generation and distribution system consumer prices

must cover long-term marginal costs (i.e. apart from operating coststhey should also include appropriate capital annuities to ensure that

investments will be profitable). Industrial consumer prices in Jordan,Syria and Egypt do not cover long-term marginal costs calculated using

an 8% discount rate. In the case of Algeria and Libya industrial pricesare particularly low but they cover long-termmarginal costs because of

the extremely low prices of natural gas inputs. Residential prices in theregion cover long-termmarginal costs only in Tunisia and Israel. Even in

countries like Morocco where energy price reform has progressedsignificantly residential electricity prices are still subsidised albeit to

a lesser extent. The usual justification for such subsidies is that elec-tricity uses in households effectively perform a social service in facil-

itating the enjoyment of material civilisation for every citizen. In thereference projection price reform is assumed to take place gradually

and at a different pace depending on the country (more slowly forAlgeria, Libya, Egypt and Syria).

4.3. Industrial energy demand

In the projection period due to the gradual opening up of the

economies and a shift in domestic demand towards services, the shareof industrial value added in GDP is forecast to follow a declining trend

(between 2010 and 2030 the average industrial growth is 2.7%

8 International fuel prices are derived from the latest PROMETHEUS model reference

projection, carried out in 2012.

compared to almost 4% for GDP). On the other hand, the persistence of

low energy prices in most MED-9 countries means that internationalspecialisation will favour more energy intensive sub-sectors and as

a consequence specific energy consumption of industry declines ratherslowly.

The projection implies a big increase in the share of electricity in

total final energy demand for industry9 as a result of a penetration ofelectrical industrial processes and increased demand for specific

electricity needs, such as electric motors. Another striking feature ofthe projection is the increased penetration of natural gas for heat and

steam raising purposes mostly at the expense of oil (Table 3). Thissubstitution occurs primarily for purely economic reasons: with the

expansion of the natural gas grid there is greater potential for moreattractively priced gas to substitute residual fuel oil.

4.4. Energy demand in residential/commercial sectors

The residential/commercial sectors currently account for around

30% of the MED-9 region’s total final energy demand. Energy demandfor space heating is not particularly important, while for cooking and

water heating purposes there is a big variety of fuels used, includingLPG, natural gas, traditional biomass and electricity. The use of

traditional biomass is projected to decline continuously throughout theperiod because of increased urbanisation and rising living standards.

LPG use is projected to lose share to the extent that households areconnected to the natural gas grid. Natural gas is forecast to increase its

share in total residential/commercial demand from 16% at present to26% by 2030 (Table 4).

Electricity demand, which is projected to increase 2.8 times fromits 2010 level, is pushed forward by the rapid penetration of electric

appliances, such as refrigerators and deep freezers, washing machines,television sets and many other appliances that in many countries of the

region are far from having reached saturation levels. A special mention

in this context concerns air-conditioners mostly used for coolingpurposes. They already tend to modify the load curve in many

countries.

4.5. Energy demand in the transport sector

The major uncertainty with regard to energy consumption fortransport in the region arises from the possible evolution of car

ownership in the different countries (Table 5). At present most coun-tries have very low car ownership rates [22]. Lebanon is an exception

with a rate approaching 400 vehicles per thousand inhabitants. Themodel-based projections resemble to S-shaped penetration curves

simulating take-off and saturation effects.There is an overall tendency for reduction in vehicle utilisation

rates as motorisation increases. On the other hand, the share of urban-driving in conditions of congestion increases significantly over the

forecast horizon in all countries of the region. The average size ofvehicles will have a slight tendency to increase as incomes rise. Better

9 Electricity demand for desalination purposes primarily through reserve osmosis is

included in industrial demand. The projections have been introduced exogenously

following [23].

Table 5

Evolution of private cars per thousand inhabitants in the MED-9 countries.

ALG MOR TUN EGY LIB ISR LEB SYR JOR MED-9

2010 82 61 82 33 235 273 395 31 115 73

2020 122 89 135 50 377 382 440 46 148 106

2030 176 126 213 75 495 508 495 71 223 147

Table 4

Shares (in %) of energy forms in final energy demand of residential/commercial

sectors in the MED-9 region.

2005 2010 2015 2020 2025 2030

Solids 0.1 0.1 0.1 0.1 0.1 0.1

Oil 36.6 30.8 23.5 17.6 13.6 10.8

Gas 13.7 16.0 19.9 24.1 26.1 26.0

Traditional

biomass

7.5 6.5 5.5 4.6 3.6 2.8

Electricity 42.1 46.7 50.9 53.5 56.7 60.3

P. Fragkos et al. / Energy Strategy Reviews 2 (2013) 59e7064

vehicle efficiency will occur through car imports. The modest pumpprice reform assumed for some of the countries will have a relatively

small effect on vehicle choices. The net result of all the above is thatfuel consumption per vehicle displays a modest improvement of 1.2%

p.a.Commercial road transport in 2010 accounted for approximately

35% of total energy consumption in road transport. Energy consumptionfor trucks is closely linked to economic activity and is projected to

increase vigorously (2.7% p.a.). Air transport activity is expected toshow particular dynamism as the number of passengers carried is pro-

jected to grow by 5.1% p.a. over the forecast period, compared toa growth of 3.9% p.a. for GDP. Aircraft occupancy rates will slightly

decline but improvements in the energy efficiency of aircrafts will

mean that fuel consumption by the air transport sector will grow at anaverage rate of 4% p.a.

4.6. Electricity sector

The sustained electrification of industry and the rapid penetrationof electrical appliances in the residential sector translate into vigorous

growth in final demand for electricity (Table 6) for most countries in theregion (the main exception is Israel where saturation effects become

apparent). Growth of demand for electricity is projected on averagefaster than the growth of GDP and means that by 2030 the region

becomes a major electricity market (1042 TWh) requiring large-scaleexpansion of productive capacity (from 92 GW in 2010 to 243 GW in

2030). In all countries of the region (with the exception of Israel) thereis considerable scope for transmission and distribution losses reduction.

The reference scenario assumes their gradual but sustainedreduction.10

The nuclear option has at various times been considered bya number of countries including Algeria, Morocco, Israel and Jordan.

The Fukushima accident has brought into the fore a considerableamount of scepticism concerning most of these projects. Even if some

of them finally go ahead, experience from the past shows that givenpresent concerns the whole process of planning, tendering, licensing

and construction may take even more than the two decades thatseparate us from the projection horizon. The hydro-electric potential

of the region has already to a large extent been tapped. A minorexpansion of hydropower is projected for Morocco (it concerns 560

additional MW).Wind power is already being exploited in the region notably in

Egypt, Morocco and Tunisia. Most countries have ambitious plans forincreasing the contribution of wind power. The main instruments used

for promotion are direct investment by state owned enterprises,

investment subsidies, feed-in tariffs and quotas accompanied by

10 In the cases of Syria and Algeria recorded losses are so high that they clearly point to

unrecorded and unpaid deliveries. The projection incorporates adjustments on demand

in the household and services sectors in these countries in order to avoid biased elec-

tricity requirements. In this sense for these countries the figures for these sectors

represent electricity purchases rather than consumption.

economic instruments. The reduction in capital costs of recent years

together with the availability of many suitable sites (enabling highutilisation rates) in combination with the various promotion policies are

likely to produce a large expansion of wind capacity in the coming twodecades (Table 7). However, even so this represents a small fraction of

the potential.With regard to solar thermal power production the main technology

considered in the model is CSP with varying storage capacities. Theregion as a whole but especially its Saharan parts is considered to

contain among the most suitable sites for this type of technology in theworld. CSP is characterised by relatively high cost especially when

compared with its most obvious competitor, which is the combinedcycle gas turbine technology. Under these conditions CSP deployment

necessitates a special support system that goes even beyond the one

created in order to encourage wind power. In very recent years suchsupport systems have started being put in place and there is consid-

erable interest in the promotion of many CSP projects in a number ofcountries, such as Algeria, Morocco, Egypt, Israel and Jordan. The

reference projection presented here does not incorporate large-scaleexports of renewable electricity from MED-9 countries to the EU.

However, it assumes that the present effervescence concerning thepossibility of such exports leads to the undertaking of a number of

projects and the creation of a suitable framework in which CSP isinitially deployed.

Photovoltaic generation is less systematically pursued than CSP. Itinvolves mainly relatively small units and also requires considerable

support to become competitive under the conditions prevailing in theenergy markets of the MED-9 countries; another factor limiting wide

development of PV is the lack of adequately meshed low/mediumvoltage grids and the relatively high investment that would be needed.

Only two countries (Morocco and Israel) currently use coal for powergeneration and no other country is projected to use such options. The

share of coal in power generation will substantially decrease in theforecast period, as no new investments in coal-fired power plants are

projected for Israel since domestically produced gas fuels the majorityof additional capacity.

Oil as a fuel for power generation has seen its shares drop sharply inrecent years. This process is forecast to continue in all countries until

2030 by which time many of them will generate virtually no oil-firedelectricity. This rapid transition takes place in the light of competition

from gas, facilitated by higher production and increased intraregionaltrade for the latter.

Natural gas already dominates the power generating sector of theregion and its position overall is projected to strengthen in the coming

two decades. The dominant option for new gas-fired capacity is thecombined cycle gas turbine technology. It combines relatively low

capital costs with very high efficiency rates thus making it attractive

even in natural gas importing countries where the prices of the fuel

Table 6

Average annual growth of total final electricity demand (in %).

ALG MOR TUN EGY LIB ISR LEB SYR JOR MED-9

2010e2030 6.3 6.3 6.6 5.2 4.1 2.0 3.8 6.5 5.6 5.2

Table 7

Evolution of electricity production in the MED-9 region in the reference projection

(in TWh).

2010 2020 2030

Electricity supply 392.4 651.0 1042.0

Nuclear 0.0 0.0 0.0

Gas 247.6 486.3 824.8

Oil 82.2 68.0 62.6

Solids 41.7 46.4 47.8

Hydro 18.0 19.1 20.0

Wind 2.9 20.1 46.9

Biomass & waste 0.1 0.6 3.3

Solar 0.0 10.4 36.5

P. Fragkos et al. / Energy Strategy Reviews 2 (2013) 59e70 65

approach international levels. Gas-fired power generation is also

convenient in complementing intermittent renewable power produc-tion and facilitates load management especially when renewable

shares are relatively high.

5. Analytical comparisons

5.1. Impacts on final energy demand

In the MENA-EDS model, consumer prices are major drivers of final

energy demand. The different strategies examined involve pricereform aimed at economic rationality and providing appropriate signals

to consumers that promote efficiency gains and the desired substitu-tion between fuels. The scope and pace of such reform differs

according to the strategy pursued and varies between countriesdepending on existing pricing practices. Fig. 1 below illustrates the

extent of price reform as reflected on two key consumer prices

(average prices for gasoline at the pump and electricity to residentialconsumers). The averages shown exclude Israel, Tunisia and Morocco

where the need for reform is less urgent. It is worth noting that with theexception of the Fragmentation projection, the strategies imply a clear

and early break with the recent past. Nevertheless prices in the regionremain generally lower than those currently prevailing in the EU even

for the proactive strategies.In the MED-EU Initiatives strategy energy intensive industry is

specifically targeted (participates in the common EU-MED-9 ETS). Asa consequence final demand in industry is strongly affected. This is

particularly pronounced in countries like Algeria and Libya, where fuel

Fig. 1. Comparison of average fuel prices of

prices in the reference projection are very low, implying a very large

increase in fuel costs. On the other hand, countries like Tunisia, Israeland Morocco, where fuel prices are high even in the reference

projection, the impact of the MED-EU Initiatives strategy is relativelysmall. In Algeria, Tunisia, Egypt and Libya, where natural gas in the

reference projection overwhelmingly dominates industrial energydemand, substitution possibilities are more limited. In the “Global

Integration” strategy the industrial sector has a more limited potentialfor efficiency gains compared to residential uses. This is mainly due to

the fact that industrial consumers who generally make intertemporaldecisions using much lower implicit discount rates than private indi-

viduals, already in the reference projection achieve a considerableamount of energy efficiency gains. In the Fragmentation case failure of

price reform combined with a relative scarcity of capital, result inconsiderably higher consumption in most countries (with the exception

of Israel which is less affected).In the MED-EU Initiatives strategy, the residential/commercial

sectors are only slightly and indirectly (through somewhat acceleratedprice reform) affected since they are not specifically targeted. On the

other hand, in these sectors the scope for specific energy consumptionreductions is large as indicated in the results obtained for the “Global

Integration” strategy (Table 8). It materialises primarily through theintroduction of standards for lighting and appliances as well as insu-

lation of buildings. The opposite trends are registered for the Frag-mentation case where current account difficulties imply a slower

turnover of energy consuming equipment. This is particularly the casein the residential sector due to a combination of subsidised electricity

prices and low credit for the purchase of more efficient electrical

equipment.In the “MED-EU Initiatives” strategy energy demand for transport is

virtually unaffected. Even in the “Global Integration” efficiency gainsare somewhat more limited than in other sectors, especially in coun-

tries like Morocco and Israel where prices in the reference projectionare already high. In this context earlier retirement of vehicles is

assumed and hence a faster turnover of the fleet with new vehiclesgenerally having lower specific consumption characteristics than older

vintages, but the process of transformation remains relatively slow.The proportion of new technologies like hybrid vehicles in the total car

fleet increases from 8.1% in the reference to 12.8% in the “GlobalIntegration” strategy in 2030. In general, using MENA-EDS, the trans-

port sector as a whole and more specifically road transport appears tobe less responsive to price signals than most other sectors. This is

the region in the alternative strategies.

Table 8

Changes in MED-9 final energy demand in 2030.

In Mtoe Changes from reference in 2030 (in %)

Present

situation

(2010)

Reference

(2030)

MED-EU

Initiatives

Global

Integration

Fragmentation

Final demand 129.6 268.0 L5.5 L17.7 12.0

By sector

Industry 35.2 65.5 �12.8 �15.4 14.4

Residential 31.2 69.4 �4.5 �25.2 19.5

Services 8.1 18.5 �4.5 �18.4 12.1

Agriculture 6 10.9 �2.7 �15.2 6.8

Transport 49.1 103.7 �2.3 �13.3 6.2

By fuel

Solids 1.2 1.4 �59.1 �61.3 5.1

Oil 77 124.1 �3.4 �18.1 9.0

Gas 20.1 57.8 �2.5 �22.2 15.4

Electricity 28.7 80.1 �11.0 �14.5 12.7

Traditional biomass 2.6 4.6 0.0 �3.9 18.0

Share of hybrids

in car stock (in %)

0.0 8.1 8.5 12.8 1.6

P. Fragkos et al. / Energy Strategy Reviews 2 (2013) 59e7066

illustrated by the relatively modest increase registered for the Frag-

mentation case despite the fact that in this context the average life ofvehicles increases thus rendering the renovation of fleets and the

subsequent improvements in efficiency slower. Hybrid vehicles’ sharesremain so low that they merely represent a niche market.

Overall the different projections examined have important impli-cations in terms of the final energy intensity of GDP. Over the period

1990e2010 the MED-9 region was characterised by a complete stag-nation in this index. The Reference projection represents a slight

improvement (�0.21% p.a. between 2010 and 2030). The Fragmenta-tion case marks a deterioration (0.29% p.a.). In the “MED-EU Initia-

tives” strategy the improvement is of the order of�0.5% p.a., while forthe Global Integration an improvement of �1.15% is registered and is

directly comparable to the performance of EU-15 over the period1990e2010. On the other hand, the EU-15 region is projected to

improve this intensity at a rate of �1.9% p.a. in the period 2010e2030[21].

5.2. Impacts on primary energy supply

Hydrocarbon supply plays a major role in the economies of theregion. For important exporters like Algeria and Libya hydrocarbon

exports constitute a major item in their current account. On the otherhand, predominantly importing economies are particularly vulnerable

especially when international prices are high. Furthermore, there arecountries like Egypt and Syria that have in the past produced export-

able surpluses, are currently close to self-sufficiency but could becomemuch more import dependent as fewer and smaller new fields are

discovered while demand is growing at a fast pace. Under such condi-

tions variations in the balance between demand and supply, such asthose that result in the projections examined, can have important

economic ramifications for the countries involved.Libya has good prospects for production expansion in the short term

through enhanced recovery and in the longer term with the develop-ment of known fields and the parallel expansion of pipeline infra-

structure (Table 9). Algerian production in the reference projection isprojected to increase in the short term (2020) but decline in the longer

term on the basis of the maturity of its oil fields. Similar trends but ata different scale apply to Egypt and Syria (the former is already

marginally an oil importer, while the latter is projected to become one

by 2030). The “Global Integration” strategy assumes an increase in FDI

but not to the same extent as the “MED-EU Initiatives”. Consequently,primary production of oil increases compared to the reference

projection but stands below the “MED-EU Initiatives” levels. On theother hand, the “Global Integration” strategy has a much wider scope

for reduction in oil demand, especially because of the efficiency gainsin the transport sector that play a key role in determining the overall

demand reduction. The exportable surplus for Libya in 2030 goes from148.5 Mtoe in the reference projection to 167 Mtoe in the “Global

Integration” strategy. The quantities for Algeria are 52.1 and 58.3 Mtoerespectively. However, even the higher figure for the “Global Integra-

tion” strategy does not prevent a reduction in Algerian oil exportsbetween 2020 and 2030. In this context, Syria clearly remains in a net

oil exporting position by 2030 (exports representing one third ofprimary production), while the import dependence of Egypt is only 22%.

All other countries experience considerable reductions in net imports,compared to reference.

According to the reference projection, gas production in MED-9region is set for a major expansion (more than doubling between

2010 and 2030). This result is dominated by projected developmentsin Algeria and Egypt where increased production is sufficient to meet

the rapidly expanding local demand and at the same time nearlydouble exportable surpluses (Table 10). Libya’s exports also expand

considerably albeit from a smaller base. Israeli production expansionfrom offshore fields in the Mediterranean produce a surplus equiva-

lent to almost 50% of output. The remainder countries meet theirexpanding needs primarily from imports with intraregional trade

projected to increase sharply from a very small base. The “Global

Integration” strategy has pronounced impacts on gas demandesupplybalances. Unlike the “MED-EU Initiatives” strategy, where the

participation of Europe in a major decarbonisation effort meansa substitution away from gas and hence a contraction of this crucial

market for MED-9 suppliers, the “Global Integration” strategy sees anexpansion in exports arising from higher production due to more

investment in productive capacity as well as a sharp reduction indomestic demand due to the efficiency gains in final demand sectors

and substitution towards renewables in the power generation sector.The exportable surplus of the region stands not only higher than the

reference, but also a full 54% higher than the “MED-EU Initiatives”strategy.

The negative investment climate assumed for the “Fragmentation”case produces pronounced effects on the supply of crude oil in the

region. The effects (particularly strong in Libya) are due to delays inexploration programs that produce lower reserves and a more limited

expansion of productive capacity. In this context Jordan does notundertake shale oil production by the end of the forecast period. The

drop in production in conjunction with increased primary consumptionof oil leads to major changes in hydrocarbon trade for the countries of

the region. In the Fragmentation case net importers increase theirdependence and net exporters reduce exported volumes as a conse-

quence of higher domestic use. Viewing the MED-9 region as a whole, itis worth noting that in the reference projection it continues to be a net

exporter of oil (131.3 Mtoe in 2030), while in the Fragmentation casethe situation is reversed and it becomes a marginal net importer.

Underinvestment in the hydrocarbon sector has a negative influenceon gas productive capacity. Production in 2030 is 8.5% lower compared

to the reference. Intraregional exchanges are either heavily reduced orcompletely eliminated as a matter of policy. Israel does not develop its

LNG export capability and hence produces for the local market. Algeriaregisters a relatively small reduction in production and its primary

consumption increases by more than 20%. Consequently its total

exports drop from 93.6 Mtoe in the reference to 77.8 in the Fragmen-tation case. Egypt registers a bigger drop from 30.1 Mtoe to 11.4 Mtoe

mainly as a consequence of the contraction of its export markets inSyria, Jordan and Lebanon.

Table 9

Comparison of primary production and consumption of oil (in Mtoe) in 2030.

ALG MOR TUN EGY LIB ISR LEB SYR JOR MED-9

Present situation (2010) Primary production 78.7 0.0 3.9 34.7 74.6 0.0 0.0 19.1 0.0 211.0

Primary consumption 16.4 10.7 3.9 35.3 11.9 10.7 4.9 14.6 5.1 113.5

Reference Primary production 74.4 0.0 2.7 32.0 165.3 0.0 0.0 17.5 1.8 293.8

Primary consumption 22.3 16.0 6.2 54.2 16.8 16.9 4.2 18.0 7.9 162.5

MED-EU Initiatives Primary production 78.9 0.0 2.8 33.5 187.7 0.0 0.0 17.9 3.1 323.8

Primary consumption 21.8 13.2 6.0 48.2 14.6 16.7 2.7 14.2 6.1 143.4

Global Integration Primary production 77.1 0.0 2.8 32.8 178.9 0.0 0.0 17.9 2.6 312.0

Primary consumption 18.7 12.5 5.3 40.2 12.0 15.2 2.4 11.9 5.2 123.4

Fragmentation Primary production 70.0 0.0 2.3 29.5 98.3 0.0 0.0 15.9 0.0 216.0

Primary consumption 24.2 23.5 7.0 62.8 20.2 18.5 8.8 42.5 14.1 221.6

P. Fragkos et al. / Energy Strategy Reviews 2 (2013) 59e70 67

5.3. Impacts on power generation supply

The impact of the projections examined on the power generation

sector is very pronounced primarily because of the great number ofoptions that are available to power producers, the large proportion of

fuel costs in total fossil fuel based generation and the importance oftechnical progress and financial considerations for capital intensive

modes (Fig. 2).The “MED-EU Initiatives” and the “Global Integration” strategies

have produced results that are in many aspects similar. This is becausethey both imply the opening up of the sector to competition, higher

fossil fuel prices either through the carbon permit prices or faster pricereform, accelerated learning-by-doing for some renewables and

greater access to finance at better terms involving lower riskpremiums. The major difference between these two strategies lies in

electricity exports to the EU which in the “MED-EU Initiatives” build uprapidly in the period after 2025 (67.7 TWh in 2025 and 235 TWh in 2030).

By 2030, the “MED-EU Initiatives” implies eight new HVDC lines bringingrenewable electricity from the MED-9 region deep into the EU. These

connections are: from Algeria to Italy, France and Spain, from Libya to

Italy, from Morocco to Spain and from Tunisia to Italy. They correspondbroadly with the vision developed in the TRANS-CSP scenario [11].

Apart from exports, production takes place at a large scale for thesatisfaction of domestic needs. By 2030, in most countries of the region

CSP penetrates significantly in the local market. This penetration ishighest in the main exporting countries: Algeria (36%), Libya (35%),

Morocco (23%) and Tunisia (21%). This is because in these countriesthere is earlier technology transfer and “learning-by-doing” in antici-

pation of the large export volumes. Other renewable forms (primarilywind and photovoltaics) are more extensively developed in the “Global

Integration” strategy. This is because the latter puts more emphasis ondecentralised generation. Wind generation gets an important boost

(12.1 GW higher than the “MED-EU Initiatives” strategy). Egyptaccounts for nearly half of MED-9 wind capacity, while important

increases are registered for Morocco and Algeria. Generation from

Table 10

Comparison of primary production and consumption of natural gas (in Mtoe) in 2030.

ALG MOR TUN

Present situation (2010) Primary production 71.2 0.0 2.7

Primary consumption 21.5 0.5 3.8

Reference Primary production 143.5 0.0 3.4

Primary consumption 49.8 9.9 9.7

MED-EU Initiatives Primary production 127.2 0.0 3.2

Primary consumption 37.4 9.7 7.3

Global Integration Primary production 150.0 0.0 3.0

Primary consumption 33.4 6.3 6.4

Fragmentation Primary production 139.4 0.0 3.7

Primary consumption 61.6 5.8 12.7

photovoltaics expands vigorously in almost all countries assisted by

active promotion in the form of subsidies and/or high feed-in tariffs,but their contribution in total electricity needs remains rather limited

addressing small scale development needs (6.8% of MED-9 totalgeneration compared to 0.6% in the reference in 2030). Biomass

contribution increases fivefold compared to the reference projectionbut it remains insignificant and is concentrated essentially in only one

country (Israel). Overall renewables in the two proactive strategiesreach very high shares in total generation (43% for the “Global Inte-

gration” and 51% in “MED-EU Initiatives”).The brunt of the renewable expansion is naturally taken by fossil

fuel based generation, which is reduced by 377 TWh in “MED-EUInitiatives” and 411 TWh in “Global Integration” in 2030 compared to

the reference projection. Oil based generation virtually disappears inboth strategies while coal is abandoned in Israel and only makes a slight

contribution in Morocco. Natural gas-based power generation is ina way the swing option in the region (supplying the remainder once

renewable contributions and backing out from coal and oil are deter-mined). For the “Global Integration” strategy by 2030 natural gas-fired

capacity is 56 GW lower than in the reference projection. This repre-

sents a drop of 30%, while at the same time gas-based generation dropsby 42%. Gas in this context assumes increasingly the role of following

the load especially in the context of an increase in intermittentrenewable energy share in the generation mix. Backing out from gas for

power generation gives a major boost to exportable surplus. Theamount saved represents 75% of the additional net exports generated in

the “Global Integration” strategy for 2030.The Fragmentation case with respect to the power generating

sector represents an almost opposite view compared to the proactivestrategies. Lower electricity prices, expensive investment and the lack

of coordinated measures to improve efficiency result in an increase ingeneration requirements (by 2030 17% higher than the reference

projection). The share of renewable electricity in total generationstagnates (5% in 2030 compared to 5.3% in 2010). Hydro production

remains constant while wind and CSP expand relatively slowly only in

EGY LIB ISR LEB SYR JOR MED-9

53.0 13.7 2.5 0.0 6.4 0.2 149.6

34.4 5.4 4.2 0.6 6.5 1.7 78.7

119.9 35.0 20.5 0.0 10.2 0.2 332.7

89.7 12.8 10.5 3.8 20.1 5.9 212.3

94.4 30.3 21.3 0.0 12.2 0.2 288.9

68.5 9.0 11.3 4.3 15.8 5.1 168.3

105.5 42.6 23.1 0.0 11.8 0.2 336.3

61.5 8.9 10.1 3.8 15.2 4.7 150.2

114.0 28.5 10.0 0.0 9.1 0.2 305.0

102.7 16.0 10.0 1.6 9.2 3.0 222.6

Fig. 2. Changes in MED-9 power generation mix in 2030 compared to the reference (in TWh).

P. Fragkos et al. / Energy Strategy Reviews 2 (2013) 59e7068

countries that have concrete development programs already in place

(which are assumed to be implemented with considerable delays). Coalgeneration in Morocco expands faster than in the reference but the

main characteristic of the Fragmentation case is the maintenance ofa high share of oil based generation in most countries. This comes as

a result of a slower equipment turnover and difficulties associated withthe expansion of the intraregional gas trade infrastructure. The latter

of course plays an important role in determining the impacts on gas-based generation: for natural gas producers it tends to increase,

while importers tend to desist. The net result of these two opposingtrends for the region as a whole is a slight reduction in gas-based

generation compared to the reference projection (�1.6% in 2030).

5.4. Implications on power generation costs

The “MED-EU Initiatives” and the “Global Integration” strategiesimply drastic changes in the structure of power generation costs

(Table 11). Substitution away from hydrocarbons and towards capitalintensive renewable energy sources means that investment costs

increase considerably, especially in the “Global Integration” strategy,where this substitution goes further (the calculations in the table do

not include the export projects the cost of which is assumed to be

Table 11

Cumulative power generation costs (2012e2030) in the MED-9 region.

Investment costs Variable costs Total power

generation costs

In billions

V’05

% Change

from

reference

In billions

V’05

% Change

from

reference

In billions

V’05

% Change

from

reference

Reference 323.2 415.4 738.6

MED-EU

Initiativesa436.3 35.0% 145.8 �64.9% 582.1 �21.2%

Global

Integration

459.4 42.2% 121.3 �70.8% 580.7 �21.4%

Fragmentation 322.4 �0.2% 599.0 44.2% 921.5 24.8%

a The variable costs reported do not include the price of carbon permits.

borne by EU operators). On the other hand, variable costs (which

include fixed and variable operation and maintenance costs and fuelcosts) drop very sharply. Because of the persistence of fuel price

distortions, in at least part of the projection period, the fuel pricesused to determine fuel costs are set at international levels, i.e. the fuel

costs used represent opportunity costs, which reflect better the truecost to the economy as a whole. The net result of these contradictory

movements is however a reduction in total generation costs (around21%). Because both strategies involve a contraction of electricity

consumption, the total cost per kWh generated for the domesticmarket drops more modestly (9.2% in the “MED-EU Initiatives” and 8.6%

in the “Global Integration” strategies).

Despite the much reduced role of renewable energy sources, totalcumulative investment costs in the Fragmentation case are only

marginally lower than in the reference projection. This is because theFragmentation case projects much higher electricity generation for the

domestic market. Variable costs on the other hand rise very sharply dueprimarily to the increase in fossil fuel use. Overall cumulative gener-

ation costs stand 24.8% higher than the reference projection (but only6% higher if generation costs per kWh produced are considered).

5.5. Impacts on energy related CO2 emissions

The “MED-EU Initiatives” and the “Global Integration” strategiesproject similar evolutions of carbon emissions, which lie significantly

below reference projections. This is due to renewables penetration and

the bigger energy efficiency gains. The latter play a particularlyimportant role in the “Global Integration” strategy and as a result

emissions stabilise in the 2020s despite vigorous economic growth andincreasing living standards.

The opposite occurs in the Fragmentation case where CO2 emissionsincrease steadily and in 2030 stand 163% higher than their 2005 level

with no sign of deceleration (Fig. 3). Such an outcome would mean thatthe MED-9 region’s emissions represent 40% of the emissions projected

for the EU-27 in the reference projection [21]. Emissions per capita inthe MED-9 region would increase from 2.7 tnCO2 to 4.7 in 2030

compared to 5.8 tnCO2 projected for the EU [21].

Fig. 3. Evolution of energy related CO2 emissions (in Mtn of CO2) in the MED-9 region.

P. Fragkos et al. / Energy Strategy Reviews 2 (2013) 59e70 69

6. Conclusions

Despite a deceleration in population growth, the MED-9 region is setfor a very rapid growth in energy consumption. The main driver of this

growth is economic activity bringing in its wake increased prosperityand standards of living. The next twenty years are unlikely to see

a significant deceleration in energy consumption due to saturationeffects in most MED-9 countries. Electricity demand is projected to

increase even faster as a result of continuing electrification of industry

but especially due to improvements in standards of comfort in house-holds. Energy demand for transport grows vigorously in all projections

quantified. The most dynamic segment in this respect is road transportand in particular the rate of private motorisation which is projected to

more than double in the region as a whole despite some signs of satu-ration in the more prosperous countries of the region.

Natural gas is projected to increase its share in meeting energyneeds under sharply contrasting assumptions concerning key drivers.

Failure of cooperation and modernisation will normally cause gasproducing countries to expand use as a low cost means of insulating

their energy system. On the other hand such conditions would tend tostall gas development in importing countries. In cases of cooperation

and concerted modernisation, gas use would be assisted by an expan-sion of distribution grids, competitive pricing and increased intrare-

gional trade premised on improving stability in the region. Natural gasassumes a key swing role in the power generating sector. Since it is the

most readily available option in most countries, any reduction in fossilfuel generation implies cuts in the natural gas share.

In all strategies examined that assumed a normalisation of thesituation in the region, oil becomes very markedly concentrated on

transport uses. In conditions of high risk and therefore obstacles toinvestment oil maintains a considerable share in other market

segments including power generation. This is particularly the case incountries with few natural gas resources.

The region as a whole is characterised by a huge potential forrenewable energy sources, especially solar thermal, photovoltaics and

wind. The extent to which these untapped resources are exploited willdepend to a very large extent on active government support, an

improved investment climate, local greenhouse gas emission reductionpolicy initiatives as well as foreign direct investment. An engagement

in climate mitigation efforts jointly with the EU could provide a majorboost for large-scale deployment of solar thermal power. Such coop-

eration can lead to massive exports of the region’s RES power

production accompanied by mutual benefits. Even very high RESpenetration rates are feasible given higher storage capabilities for solar

thermal and the complementary use of natural gas. Large-scaledeployment of RES implies a massive increase in investments in the

power generating sector. However, this increased investment cost is

accompanied by drastic reductions of variable, operating and mainte-nance costs, especially fuel costs. On balance they result in a reduction

of total generation costs.A good investment climate facilitates the development of hydro-

carbon resources into productive capacity, exports expand for the mainproducers, while import dependence decreases in countries without

a major resource base. This situation produces important economicbenefits for all countries in the region. An expansion of natural gas

production does however depend on the evolution of domesticdemand, intraregional exchanges and the gas market situation in

Europe.With the continuation of present policies and trends energy related

CO2 emissions are on course to nearly double between 2010 and 2030.There are important risks that this result is even worse if price reforms

are stalled and there is no specific effort to improve energy efficiencyand reduce CO2 emissions. On the other hand there is considerable

potential for reversing this situation and leading to an early stabilisa-tion of CO2 emissions while at the same time deriving important

economic benefits. This would require greater stability in the regionand the will to address the problems associated with the evolution of

the energy system. The EU has the political will and can play animportant role in this direction by engaging the countries of the region

in common efforts in the field of emission abatement and renewableenergy promotion that could produce clear short to medium-term

advantages that can be substantial for the MED-9 region while alsoproducing benefits for the EU.

The cooperation strategy is essentially based on centralised actions

involving large-scale investments on specific options (e.g. CSP) andinfrastructure, focuses on emission reduction in major CO2 emitting

sectors (power generation and energy intensive industry) and inevi-tably concentrates on a more restrained geographical area (offering

the best cost-effective prospects for electricity exports). Such inter-ventions can produce beneficial spillovers to other parts of the energy

system, but such effects will tend to be indirect and may spread overa long period of time. An alternative strategy can employ decentralised

means in order to address directly the main challenges affecting theenergy system of all MENA countries. It can address, as a matter of

urgency, market reform and especially pricing distortions that inhibitrational decision-making of energy suppliers and consumers of all sizes.

It can create incentives and establish norms for energy savingsaffecting all energy consumers (down to the individual household or

driver). The quantitative analysis carried out with the model hasidentified a huge potential in this respect. It also indicates that such

a strategy will result in more diversified and therefore more resilientchoices including a wider range of RES deployment (more wind and

photovoltaics in line with the potential of the different countries). Suchactions will have to be inscribed in a framework of a political normal-

isation of the MED-9 countries and their integration in the worldeconomy through strong multilateral links producing a favourable

investment climate for both local investors and FDI. Such investmentswill result in higher supply of hydrocarbons which combined with the

reductions in demand will produce bigger exportable surpluses espe-cially for natural gas which is the key fossil resource of the region

characterised by a very large base (more than double oil’s) and a moreeven distribution across the region. Unlike the centralised cooperation

strategy, initialisation and implementation of the decentralisedstrategy is however less obvious.

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