Transmission Pricing Methodologies for use in the Pan-Arab Electricity Market

The World Bank has engaged with the League of Arab States (LAS) to support establishing the envisaged Pan-Arab Electricity Market (PAEM) and enhance the enabling environment for advancement of trade in the region. Until now, cross-border electricity trade among the countries in the Pan Arab region has been limited, and only 5 to 7 percent of cross-border interconnection capacity is utilized. 

Electricity trade in the Pan-Arab region is generally negotiated between governments on a country-to-country basis. Transmission pricing is for the most part ignored, except in cases when third-party transit/ wheeling is involved, like Jordan and the United Arab Emirates. In such cases, the involved countries enter into a wheeling arrangement for each individual trade, an inefficient and time-consuming process and a deterrent to cross-border electricity trade. Historically, countries have been paid for providing wheeling service, but the pricing formula for wheeling has not been transparent or published. A transparent and uniform approach to pricing third party wheeling transactions is needed to eliminate one of the many barriers to electricity trade in the region. 

The purpose of this report is twofold: (1) provide background material on what constitutes mainstream regulatory practice with respect to transmission tariff design to inform and guide the Pan-Arab Advisory and Regulatory Committee (ARC), the Arab Transmission System Operators (TSOs) Committee, and PAEM stakeholders on transmission tariff design as the PAEM evolves.; and (2) propose a simple transmission tariff design for pricing wheeling transactions between PAEM members in the near term. The recommended wheeling tariff design is an option, among others, than can be used by the Pan Arab ARC, when established, in its review and approval of transmission tariffs applied to trade in the PAEM.