BMI View: A US$1.6bn deal to link Saudi Arabia and Egypt via a 3,000MW electricity cable will not only allow the pair to meet peak demand via load sharing, but will also benefit the wider Gulf region by enabling broader electricity trade between GCC members and Egypt. More options with regards to electricity trading partners will reduce the need for all interconnected countries to invest in reserve generating capacity - and could put an end to electricity shortages at peak times across the region.
Saudi Electricity Company (SEC) and state power company Egyptian Electric Holding will share the US$1.6bn cost of a 1,300km transmission cable, with a public tender to be launched as soon as the memorandum of u nderstanding ( MoU ) between the two countries is signed. Crucially , when the HVDC transmission line is completed in 2016, we believe it will compliment both Saudi Arabia and Egypt with respect to load sharing during times of peak power demand. B oth suffer from shortages at peak period s , but consumption in Saudi is greatest between noon and midnight (when air conditioning is needed most), while in Egypt peak time is after sunset.
Additionally, t he deal could certainly be part of a longer-term solution to Egypt's electricity supply problems, and h aving Saudi Arabia as an import partner will boost security of supply once the transmission line is installed . While Egypt has a relatively developed electricity supply system (the country already has connections to Jordan and Syria), strengthening the energy sector is certainly a priority for President Mohamed Morsi , especially in the aftermath of the Arab Spring. Furthermore, the 500kV electricity cable, which will run undersea for 20km, will create opportunities for infrastructure and power companies, enabling them to gain a foothold in two countries that between them generate 92% of the region's electricity (according to the Egyptian government) .
|Making A Connection|
|Saudi and Egypt Electricity Supply and Demand, 2010-2022|
Grid Interconnection To Benefit Entire Region
Yet, while this project will help both Saudi and Egypt meet demand at peak times, we believe the interconnection could also help transform the broader electricity market in the Arabian Gulf, where all GCC members are currently connected via a high voltage grid. With electricity demand across Gulf states set to surge over the next decade due to growth in energy intensive industries and populations, difficulties in meeting peak demand across the wider GCC will likely remain an issue.
Egypt, which is in a different time zone to the countries in the Arabian Gulf, could ultimately export and import electricity more widely than just Saudi Arabia. Such trade would benefit the entire region and would justify the interconnection scheme on the basis that it would negate the need for GCC states to construct or maintain costly reserve generating capacity. To this end, we note that the GCC Interconnection Authority (GCCIA), the Saudi-based body in charge of the network, hopes to encourage members to use an online bourse for electricity trading, which will be launched this year - further strengthening electricity trading links.