The Pan Arab Electricity Market (PAEM) is a significant initiative aimed at integrating the power systems of Arab countries to create a regional electricity market among the members of the League of Arab States (LAS). The initiative was formalized in 2017 when the LAS members signed a Memorandum of Understanding (MOU) to advance the concept of PAEM. Recently, a significant milestone has been achieved with LAS members signing the market agreements during the LAS Arab Council of Ministers of Energy meeting on December 2, 2024, in Cairo. This sets the stage for Pan Arab countries to expand electricity trade and to enable more effective cooperation within and beyond the region. With the ratification of PAEM’s governance agreements, the focus will shift to advancing the PAEM market design to promote its operation and trade, aiming to remove trade barriers through harmonizing technical and market rules, enhancing economic efficiency, and involving the private sector more significantly.
The Middle East and North Africa (MENA) region, often seen as one of the least integrated areas globally, holds immense potential for regional cooperation and trade, especially in the energy sector, which is the lifeblood of its economies. Establishing a Pan-Arab Electricity Market through the Members of the League of Arab States could transform MENA's electricity landscape. By coordinating expansion plans and optimizing resources, the PAEM can significantly reduce overall costs, allowing countries to optimize investments aimed at meeting peak national demands. This strategic coordination could save the region between $107 billion and $196 billion in system costs till 2035.
Moreover, the PAEM has the potential to unlock a vast reservoir of renewable energy, estimated at 192 gigawatts, which could drive substantial job growth across the region. According to the World Bank, countries like Egypt and Morocco could see the creation of nearly 2 million and 700,000 net jobs respectively in the green energy sector over the next three decades. These jobs will emerge from investments in the manufacturing, installation, and maintenance of solar and wind power infrastructure, positioning the PAEM as a crucial catalyst for local economic development and a shift away from fossil fuels.
The benefits of the PAEM extend beyond the energy sector because lowering electricity costs will then invigorate multiple sectors. The industrial sector can reduce expenses, enhancing competitiveness and job creation. In agriculture, affordable electricity can power better irrigation and processing facilities, boosting productivity and farmers' income. The commercial sector can cut overheads and increase profitability, fostering more small and medium-sized enterprises. Households will enjoy reduced expenses, improving living standards, while reliable electricity enhances healthcare and education.
Affordable electricity also addresses water management challenges in the MENA region, powering advanced irrigation, desalination, and recycling facilities which make water more accessible and sustainable. This helps mitigate water scarcity and ensures a resilient future. Overall, the PAEM can improve poverty levels, well-being, health, and job opportunities in the MENA region by reducing electricity costs, stimulating economic growth, and enhancing living conditions, healthcare, and education.
A fully integrated PAEM would be one of the largest multi-country integrated power systems globally, with a total generation capacity of over 600 gigawatts. This will significantly enhance the resilience and security of the energy system in the MENA region by diversifying the sources and origins of electricity whereby countries can reduce their dependence on any single source or type of energy. This diversification is crucial for mitigating risks associated with energy supply disruptions, price volatility, and geopolitical tensions, thereby enhancing overall energy security and resilience.
Furthermore, with the huge potential for the development of renewable energy in MENA and its proximity to energy demand markets such as Europe, the region can position itself to become a hub for clean energy supply to Europe and globally. Cross-border energy trade and clean energy development have significant potential for delivering economic benefits and job creation to MENA countries. While energy collaboration between MENA and European countries can contribute to addressing common challenges such as climate change, technology transfer, and decarbonization, and help in alleviating migration and displacement.
The World Bank Group (WBG) is committed to supporting MENA in its regional energy integration and trading agenda. The ELMED project, supported by the WBG shows our dedication to improving regional energy connections and promoting sustainable energy solutions. The ELMED interconnector is an energy bridge that will link Tunisia and Italy and allow them to share electricity and support the use of renewable energy sources. The World Bank has also launched a new study to explore other opportunities for renewable energy development and regional trade between MENA and Europe.
The PAEM initiative aligns with the WBG’s goals of fostering sustainable development and ensuring a livable planet. The Bank has been working closely with the LAS and its member countries to establish regional electricity markets. This includes helping to draft the foundational market agreements for PAEM. Additionally, the Bank has provided hands-on support to create a long-term roadmap and implementation plan for the PAEM initiative, developed guidelines for economic and financial analyses of regional transmission projects, and conducted over ten training events for electricity utilities and regulatory agencies in LAS member states.
In conclusion, the PAEM initiative and the signing of its market agreements on December 2, 2024, by LAS members represent a transformative opportunity for the MENA region, promising substantial economic, social, and environmental benefits. By optimizing resource use, the PAEM can significantly reduce electricity costs, stimulate job creation, and enhance the quality of life across the region. The initiative's focus on renewable energy development aligns with global sustainability goals and positions MENA as a potential hub for clean energy supply to Europe and beyond.
Ousmane Dione is the World Bank Vice President for the Middle East and North Africa region
Paul Noumba Um is the Regional Director of the World Bank's Infrastructure Department in the Middle East and North Africa region
