In this context, a careful understanding of the implications of these wider dynamics for the Mediterranean region is of utmost importance for the countries concerned. It is often recalled that the Mediterranean Basin is a zone of trade and cultural exchange, but also of deep-rooted tension between the countries belonging to the three continents bordering it. Therefore, the region shows the main characteristics of the “world economy,” while preserving a peculiar national and local dimension. The Mediterranean has, however, huge potential to become a global laboratory for innovation and cooperation in the field of sustainable development, since it is engaged in an open multilateralism that represents a resource toward building a common future.

This composite background has triggered the development of a “Mediterranean approach” for researchers working on this area, watching over the state of the environment in the Mediterranean and its future trends, yet lacking a systematic review in the many facets of the sustainable development debate (Rubino, 2014).

Energy cooperation is one of the main pillars of this composite area of research that has profound ramifications on the economic, social, and environmental domain. The Mediterranean energy sector is currently facing multiple challenges because of the combination of institutional, technical, and social factors.

Natural gas is of critical relevance for the overall Mediterranean energy trade. The region displays a relevant consumption level of over 300 billion cubic meters (bcm)/year. However, the gas traded is around 80 bcm/year, barely a quarter of the regional demand. Infrastructure investments have, therefore, a high potential to boost regional gas trade.

It is however electricity which plays the main role in the energy development of the region. From the technical point of view, there are exist two main electricity interconnection corridors running through the region: the Maghreb block, which includes Algeria, Morocco, and Tunisia; and the eight-country block (Egypt, Iraq, Jordan, Lebanon, Libya, Palestine, Syria, and Turkey – EIJLLPST), which is part of an effort to upgrade these countries’ electricity systems to a regional standard. Although the Maghreb and EIJLLPST interconnections have existed for some time, electricity trade among these countries has remained at modest levels especially when considering availability of resources and geographical proximity. This is due to barriers such as limited generation reserve margins, the absence of a harmonized regulatory framework, and institutional weaknesses, both at the national and regional level (MEDREG, 2015).

While increasing penetration of nonprogramable generation is a prevalent feature of modern electricity systems in the last decade, the Middle East and North Africa (MENA) region presents a generation mix dominated by fossil fuel sources. The prevailing technology is a legacy of an energy system that has been unable to keep up with the institutional and regulatory innovation that, on the contrary, has been a common feature in Europe and America. Whereas the final balance of the liberalization process in place in the last two decades is still an open question, it is largely agreed that the organization of the existing electricity systems in most MENA countries appears unsustainable. Those systems are characterized by scarce dynamic efficiency, meaning that the revenues accruing from the retail activities cannot guarantee a level of investment in line with the ever-increasing demand, as well as from an intertemporal point of view. In addition, the quality and security of electricity provision is declining, due to an aging generation fleet. Electricity supply is not able to provide the desired level of revenues for two main reasons: (1) the lack of market dynamic as electricity prices do not adjust to reflect a scarcity signal and (2) the widespread diffusion of subsidies in the supply chain.

The combination of these factors has increased the burden on the public budget, at a time when public spending needs to be committed to other social needs, worsening the overall outlook of macroeconomic indicators. As a result, it is natural to wonder whether the electricity sector in the MENA region has the possibility to maintain its current status quo or whether it needs to inaugurate a transition process to ensure the sustainability of the sector, as happened in many western economies in the 1990s.

There is evidence that some sort of transition has begun. Most contributions in this book evaluate the dynamic at play at this stage and the direction this process is taking. However, it seems unclear who are the actors involved in the transition process and one may question if those currently involved are the right ones.

The electricity sector in the MENA countries, and in the Mediterranean region in general, is dominated by strong incumbent utilities, often publicly owned, which are mostly vertically integrated, thus supporting the security of supply of their internal markets. In addition, these utilities often represent a relevant part of the wider mechanism that defines and governs domestic energy policy. This means that the stakeholders called to define the direction that the transition process needs to take are often the same that might lose the most if the existing situation changes. In other words, there might be in place a system of perverse incentives in the selection of the viable process of reforms and of the alternative governance models.

To minimize this potential problem, a number of new and independent actors are now called to play a significant role. In particular, National Regulatory Agencies (NRAs) will play a pivotal role in the reform process. Other actors, such as International Financing Institutions (IFIs), independent transmission system operators (TSOs) (where they exist), and the wider community of energy stakeholder will also become more important in this new phase.

In the book, we evaluate how traditional internal stakeholders (relevant ministries, energy utilities, the political system) combine with new independent players (NRAs, MEDREG, TSOs, Med-TSO, IFIs) and other external actors (such as the European Union, the Union for the Mediterranean (UfM), Energy Charter, energy community) adding an extra complexity to these processes. It is important to evaluate which role each actor will be playing and the wider dynamics that this complex stakeholder matrix is able to determine.

A related area of analysis that mainly concerns the connection between the institutional dimensions explored earlier, the technological, and the social one is the speed at which the reforms can be implemented, accepted, and internalized in the system. Since electricity and gas are now a fundamental component of daily life, they present a significant social dimension that cannot be disregarded. Therefore, measures that are perfectly plausible from an economic and institutional point of view might lack effectiveness if not accompanied by appropriate social compensation measures.

A typical example of this type of interaction is the implementation of energy subsidies reforms. While it is now widely accepted that energy subsidies (and in particular the electricity ones) are highly distortive for the market, unfair in terms of wealth redistribution, and inefficient to ensure social protection, the implementation of an effective subsidies reform remains a challenging task for the governments of the region. In other cases, the social dimension is more dynamic than the institutional one, demanding reforms that fail to be implemented rapidly by the relevant institutions. For instance, the diffusion of microgrids and demand scale renewable energy source (RES) generation is widely accepted by the population, but still faces institutional (and sometimes technical) delays that makes its effective penetration suboptimal. Therefore, our analysis looks at the main challenges that the region is facing and we have been able to identify a number of areas of concern.

The first one is the definition of the appropriate governance set-up that could allow the system to be sustainable in the long run. Investments in systems open to competition are no longer coordinated by the same mechanisms as in the past. The planning activities that enabled a monopolistic vertically integrated producer to adjust base, peak load, and transmission capacities has been replaced by a series of decentralized decisions, partly based on prices. If correctly applied, this new decision-making process, which involves many agents and combines market signals with regulation, should result in an investment level that is consistent with the public interest (social optimum). On the contrary, where this centralized system is still in place, the public budget is unable to guarantee investments of this magnitude while existing price signals are not strong and stable enough to attract private investment.

In addition, it is difficult to determine the generation mix that should be preferable in the long run. Ideally, an efficient power system should provide the optimal level of investment for both generation and transmission, with the goal to minimize the cost of electricity for current and future consumers. Therefore, by way of market dynamics or through a centralized decision-making process, the right amount of transport and generation capacity should emerge. However, available evidence fails to show results anywhere near optimality in most countries belonging to the Mediterranean Basin. Indeed, a good number of governance, institutional, and market problems manifest themselves in the planning, financing, and fulfillment of investment plans. We therefore consider it natural to have a deeper look at the regulation and investment environment in order to grasp the inner determinants of these major challenges and propose tentative solutions.

The Association decided that the Forum would involve MEDREG’s external partners in a discussion on selected topics of particular relevance for MEDREG. This event had to be conceived and designed in order to increase the visibility of MEDREG’s agenda and provide a concrete feedback from regional energy stakeholders. To fulfill these objectives, the MEDREG Secretariat and Presidency Board decided that the setting up of the event was to follow an ambitious strategy and rely on high-level contributors, speakers, and partners in order to make the Forum a landmark in the Mediterranean energy sector. With the aim to timely account for the main changes taking place in the energy debate of the Mediterranean region, MEDREG established that the Forum would be organized every 2 years.

The Association, aware that the coordination of the scientific content of the Forum would require both a strong knowledge of the main debates going on in energy regulation and a long-lasting experience in the Mediterranean area, appointed Ms Maria Teresa Costa Campi, former President of the Spanish energy regulator and Professor of Energy Sustainability at the University of Barcelona, as chair of the scientific committee. The work of Prof. Costa Campi as Chair of the Scientific Committee of the first MEDREG Forum was supported by Hafez El Salmawy (Managing Director, EgyptEra, Egypt), Claude Mandil (former IEA General Director, Member of the Board of Directors, Total France), Ilhan Ozturk (Professor of Energy Economics at Cag University, Turkey), Pippo Ranci Ortigosa (Professor of Economics at the Catholic University of Milan, Italy), and José Sierra (former Commissioner of the Spanish energy regulator).

The Scientific Committee (SC) worked to draft and define the annual Forum’s structure and program; select the panel speakers, chairpersons, and discussants; collect and evaluate abstracts and papers to be produced and presented by the speakers at the Forum; and ensure the overall coherence of the event according to high-level standards, in line with MEDREG’s objectives and activities as defined in the Action Plan of the Association. In addition, the SC decided, in accordance with MEDREG, and in consideration of the main elements defined earlier, to devote the first edition of the Forum to a discussion on energy infrastructure investments. The topic of energy infrastructure investment has risen prominently among the working priorities of the Association and represents an open issue in the energy cooperation in the region; few key elements have contributed to define the perimeter of the debate during the Forum. We shall examine these factors in the wider context of the relationship between investment and regulation.

In the EU-Mediterranean countries, investment planning is harmonized by EU legislation. At the national level, every year the TSO submits a 10-year development plan to the regulator, indicating the main transmission infrastructure that needs to be built or upgraded. This plan presents the main projects to be developed or updated for the following 10 years, and lists the investments to be implemented in the coming 3 years. All these aspects are accompanied by a detailed timeline. If the TSO does not implement an investment foreseen for the subsequent 3 years, the regulator may take measures to ensure that the investment in question is made, if it is still considered relevant. Regarding the annual investment plan, regulatory powers differ according to the TSO unbundling model implemented at the national level.²

On the contrary, looking south and southeast, regulatory frameworks for investment planning widely differ. For example, in Egypt existing interconnection projects were established before the creation of the regulator. However, when planning future projects, the transmission company that is affiliated to the electricity holding company under the supervision of the ministry of electricity and renewable energy is solely responsible for planning the interconnection projects. In Algeria, the regulator gives the highest priority to securing electricity supply at the national level through new generation projects. Investments in interconnection projects are given a lower priority. Establishing interconnections represents both a regulatory and an investment challenge. Uncertainty on different aspects can influence the decision to invest. The key determinants for interconnection investments can be grouped into three broad categories: financial feasibility, a clear legal and regulatory framework including cross-border cooperation, and the ability to address environmental and social concerns. These challenges have resulted in developing different financing schemes to improve the cross-border interconnection of grids.

Impacted aspects include the following:

Overall, these challenges lead to an unclear prioritization of barriers to investments in the different Mediterranean countries. In a recent public consultation³ held by MEDREG, respondents were asked to create a priority list on the impact of barriers choosing from a provided set. According to the response received, three main barriers to investment appear to dominate the scene. They are: (1) political instability and lack of a clear institutional framework; (2) lack of internal reforms; and (3) insufficient market demand.

This ranking seems to confirm that the absence of a stable and reliable investment framework is the main cause of concern for investors. The mention of insufficient market demand suggests that the lack of a unified solution for the development of regional and subregional markets may hamper the balanced increase of electricity and gas usage by existing consumers, as well as the access of new ones. The first Mediterranean Forum on Energy Regulation offered the opportunity to address real problems concerning energy investments with a rigorous approach combining the analysis of urgent issues that require very short-term solutions, with a commitment to a long-term energy model. In a Euro-Mediterranean energy context marked by security of supply issues, deep structural changes, and climate challenges, regional cooperation plays a major role in the 2030 perspective and beyond. As energy sources and routes diversify, with both the liquefied natural gas and RES becoming more and more affordable options in the future, the role of MEDREG and Mediterranean energy regulators is fundamental for the progressive evolution and integration of electricity and gas markets at a regional level. This also includes providing a place and time to gather stakeholders working on the different aspects of the energy markets that compose the core of energy regulation.

The first part of this book is entitled “A Roadmap for a Mediterranean Energy Community” and discusses how the role of RES and the changing landscape of security of supply, due to new gas discoveries, can impact the institutional approach of Mediterranean countries and the EU as well as the chances to create a Mediterranean Energy Community. The case of the energy community of the Balkan Region and its efforts to incentivize investments is reported as a case study.

Prelevic’s contribution, in Chapter 1, provides an overview of the possible regulatory instruments to attract investments in new electricity infrastructure projects as well as recommendations for possible regulatory support options and investment incentives. This chapter tends to underline a regional approach as the key element of such a policy, and thus contains possible solutions for regulatory regime harmonization. According to the author, three main conclusion can be drawn: investments in the transmission network are necessary to create conditions for strengthening the single competitive European market for electricity; national regulators, when creating their tariff methodologies and market rules, need to follow the best European practice; and investment mechanisms on the interconnection capacity and lines of international relevance should be harmonized on a regional basis.

In Chapter 2, Vantaggiato investigates how the EC redefined its Euro-Mediterranean energy relations over time, focusing on how priorities emerged in the EU external energy policy. Through the analysis of the launch of the European Neighbourhood Policy (ENP) and the failed endorsement of the Mediterranean Solar Plan (MSP) she observes that the EC moved Euro-Mediterranean regional energy cooperation from the EU’s energy policy to its “external relations” framework, also causing the EC to predicate its policy interest in Euro-Mediterranean energy cooperation on drawbacks in its relations with Russia pushing the EC to fall back on existing policy templates (such as the UfM).

In Chapter 3, Tagliapietra analyses the existing renewable energy potential of the MENA region, which is however accompanied by underdevelopment in terms of solar and wind energy deployment. The author argues that this paradox is mainly due to the fact that the deployment of renewable energy in the region faces four key barriers: commercial, infrastructural, regulatory, and financial. In order to effectively tackle these barriers, a “double-track” approach seems to be essential. These barriers are so resilient that they should be faced both singularly and globally, in a single action. Particularly, in the medium-term all SEMCs should advance an energy subsidy reform process, phasing out universal fossil fuel consumption subsidies in favor of targeted subsidies aimed at effectively addressing the problem of energy poverty.

In Chapter 4, Vidican provides a review of the energy mix diversification taking place in North African countries. While she acknowledges that initial steps toward a modernization and diversification of the national energy mix have been initiated in Egypt, Morocco, Tunisia, and Algeria, she considers that only the interaction between the various dimensions affecting power sector transition at a national level can ensure the creation of a system where renewable energy becomes pivotal. The transition toward a sustainable and decentralized electricity system requires a systemic approach rather than one-off measures. However, the author argues that there are significant obstacles that are likely to impede, or at least to slow down this process: vested interest in the status quo, insufficient market dimension, persistency of fossil fuel subsidization, and flawed and fragmented regulatory set-up can together play an adverse effect toward an effective “green” transition. Vidican maintains that a greater effort is needed to understand the political economy behind this process.

In Chapter 5, Brand critically analyzes the national RES targets (also roadmaps) that have recently been published by most MENA countries. He argues that RES targets main rationale was to attract investors and stakeholders attention. Their nonbinding nature coupled with the absence of a coherent set of reforms might fail to provide the appropriate incentives for a transition toward more sustainable energy systems. On the contrary, a lock-in effect could prevail, imposing further barriers for renewable generation diffusion.

After reviewing the regional energy landscape in Chapter 6, Hafner and Tagliapietra identify six main milestones that can foster a new Euro-Mediterranean cooperation: enhancing hydrocarbon cooperation in the region, challenging the persistence of energy subsidies, promoting energy efficiency, unlocking the renewable energy potential, promoting a new interconnected regional market, and financing the sustainable energy transition represent the key priorities to promote sustainable energy development in the SEMCs. Therefore, a coordinated energy roadmap, rather than spot intervention, will be necessary to tackle the main energy challenges that the region is currently facing.

Chapter 7, by Escribano, closes the first part of the book. Escribano approaches the discussion on the development of a Mediterranean Energy Community in three steps. It starts by describing the different pathways that could lead to it, highlighting the need for differentiation both at the geographical (or energy corridor) and energy source levels. Second, he contextualizes this institutional construct within the harsh and volatile southern Mediterranean geopolitical realities. Finally, he presents some elements for a functioning Mediterranean Energy Community that should be based on the definition of a single European energy model. He concludes by calling for a renewal in the EU’s energy narrative toward its Mediterranean neighborhood to increase its attractiveness to the region.

The second part is entitled “Challenge of Market-Based Regulation” and evaluates the adequacy of the designs of energy markets in the region, also building on the mistakes made in the past, focusing on the technical and economic advantages that cross-border cooperation can provide. The geographical characteristics of the region call for the exploitation of renewables and the combined increase in efficiency levels. These objectives are coherent and compatible with those of the EU Energy Roadmap, which could therefore be expanded to include a section detailing how the considerable technological knowledge of the EU can be shared with the southern shore in order to ensure that the development of markets is balanced and interesting to investors.

In Chapter 8, Cambini and Rubino address the challenge of market-based regulation in the MENA region through a survey that assesses how energy rule promotion takes place in the Mediterranean region. The authors take into consideration three rule-diffusion patterns: top-down (referring to the EU and other international actors as rule promoters), bottom-up (impact of domestic actors in promoting rule changes and rules adoption), and network approaches (the role of networks in rule diffusion). The results show that the respondents consider direct bilateral actions from the EU as the most effective in rule promotion in the region. It also emerged that MEDREG’s role and visibility has increased since 2011, and is the largest when compared with other energy networks in the Mediterranean. Finally, the results also confirm the Euro-Mediterranean region is still characterized by a fragmented scenario where domestic actors play a leading role in promoting rule adoption and institutional change. In this framework, vertically integrated utilities and national champions can exercise a significant veto power and are able to halt or slow down the process required for the creation of an integrated regional market.

In Chapter 9, Capros, Fragkos, and Kouvaritakis evaluate in quantitative terms the implications of alternative strategies regarding the configuration of the energy demand–supply system in the SEM–EU region. The analysis is based on a large-scale energy system modeling both the southeast Mediterranean and the EU regions and assesses two alternative cooperation strategies. The first strategy would propose centralized actions involving large-scale exploitation of renewables in utilities scale, export-oriented installations. The second strategy would give priority to decentralized investment, exploiting dispersed renewable sources, combined with proactive removal of current energy pricing distortions and incentives for energy savings by energy consumers. The final objective of the analysis is to evaluate in quantitative terms the implications of alternative strategies regarding the configuration of the energy demand–supply system in the SEM–EU region. The results show that the current policies in SEM countries are insufficient to achieving the required level of sustainability. However win–win cooperation can be achieved between the SEM region and the EU by extending the EU Emission Trading Scheme (ETS) to the SEM region with free allocation of allowances and, developing a large-scale renewable infrastructure in the SEM region to export electricity to the EU through direct current (DC)-based interconnections.

In Chapter 10, Gómez presents his experience in the European Market Coupling Project, promoted by the power exchanges and TSOs in order to implement a pan-European market coupling algorithm (price coupling of regions, PCR) that integrates the day-ahead markets of 17 countries in the EU. Mejia explains that the main benefit of the market coupling approach is the improvement in market liquidity combined with the beneficial side effect of less volatile electricity prices and best use of the existing cross-border capacity. As market coupling is paving the way toward establishing a solid day-ahead electricity price for Europe, the author posits that a European market coupling project will affect all surrounding countries, including the MENA region, by providing a more robust price formation. Although it is not yet realistic to think about an extension of market coupling in the short term, neighboring countries could benefit by having a reference price upon which they could decide, efficiently, whether to increase imports or start developing their own new-generation resources.

In Chapter 11, Åberg, Myrsalieva, and Emtairah discuss the reforms undertaken by several countries in order to open up their power market to private sector involvement particularly in relation to renewable energy (RE) sourced electricity generation. In particular, the chapter provides a revision of the unbundling regime in MENA countries. The authors observe that the MENA region is characterized by a lack of clear signals from governments. In addition to increased legal certainty, most MENA countries need to improve and diversify the possibility for the private sector to participate in RE power generation activities. Most countries in the region have imposed themselves ambitious RE targets. However, given the current power market structures and schemes, these targets are likely to be undershot unless governments manage to increase the amount of tenders for power purchase agreements (PPAs) and make sure to streamline these processes in order to make them more timely and certain.

In Chapter 12, Huttunen provides another example of market integration. He refers to the electricity and gas market of the Baltic Sea as an interesting comparison to the case of the Mediterranean Basin. The economic and political environments are naturally different, but many features are also common in both regions. For example, both these regional markets are divided by the sea and characterized by the presence of important gas and oil producers. In addition, they fulfill a strategic role for the EU with several member states involved in significant energy trade and exchanges. In light of this, conclusions drawn from the Baltic experience may inspire Mediterranean actors. It is important to develop interconnections crossing the sea, to transport electricity between the southern and the northern shore of the basin. In addition, taking into consideration that investments of this size entail strong political agreements between countries, only a clear and focused regulation generates the necessary stability and predictability. Finally, in some cases subsidies might be necessary to launch large infrastructure investments.

The third part of the book looks at the role and opinions of financial institutions under the topic “Investment for Grids and Generation Projects” exploring the main hurdles that prevent investments and financing mechanisms that can be used to meet the needs in energy generation and infrastructure in the Mediterranean. The growing energy demand of the region requires a comprehensive strategy from governments to improve the activity of financial markets. In order to incentivize the participation of the private sector, governments should resort to an articulated toolbox comprising international and bilateral agreements to foster cross-border exchanges; better and harmonized regulation; phasing-out of the current production and consumption subsidy schemes; and improvement of the overall quality of institutions. Therefore, following the organization of the table at the Forum, we have organized the book into three parts, each focusing on the sections developed during the MEDREG Forum and briefly discussed earlier.

In Chapter 13, Somma and Rubino discuss how global infrastructure investments are evolving after the global crises. They particularly look at private participation in infrastructure for energy investments in MENA countries. Evidence shows that the MENA region is lagging behind both in relative and absolute terms. Only two countries, Morocco and Jordan, are able to attract private participation in infrastructure investment, mostly in RES generation. The authors observe that while a stable political and institutional environment undoubtedly favors a better investment climate, the MENA region should provide investment incentives aligned to the existing financial and institutional uncertainty that most Mediterranean countries experience these days. Public and private partnership (PPP) in a region dominated by political and social uncertainty, requires shorter lead times and returns (opportunity cost, risk adjusted) that are similar, or above, the returns of other investments. The stabilization of the remuneration provided with the most common regulatory tool for RES technologies (feed-in-tarrifs (FiT), establishment of RES quotas and targets) could provide the necessary guarantee. In this context, RES investment then, offers a valid alternative to other more capital-intensive alternatives, also typically dominated by greater irreversibility. However, the necessary institutional and legal framework needs to be established in order to provide an appropriate regulatory design able to offset, at least partially, the higher country risk that investors are likely to face.

In Chapter 14, Abrardi, Cambini, and Rondi posits the importance of NRAs in all Mediterranean countries, with the twofold aim of increasing infrastructure investments and converging toward a homogeneous and harmonized regulatory framework with Europe. The authors developed a model that examines a sample of MENA countries and study the rate of growth of their generation capacity over a time span of 22 years. The model finds that the inception of a freestanding regulatory agency external to the direct ministry’s direction seems to have a positive effect on investments. Even when NRAs do not enjoy a high degree of substantial independence from the executive power, the establishment of a regulatory agency distinct from the ministry may lend credibility to good regulatory practices. The presence of a NRA is therefore positively correlated with indicators measuring the enforcement of the rule of law and of the control of corruption. This confirms that the establishment of a regulatory agency is often associated to the institutional endowment of the country.

In Chapter 15, Allal and Urbani explore the issue of financing electricity infrastructures in the SEM, highlighting the existing regulatory and market challenges, as well as socioeconomic opportunities that could provide positive signals to promote investments that are urgently required to deal with the expected increase in energy needs. Allal and Urbani show how financing Mediterranean energy infrastructure is a complex and articulated undertaking, as financial aspects are interrelated with economic, political, institutional, technical, and regulatory features, in a context where geopolitical risks is high. It is therefore imperative that nondiscriminatory conditions are applied, entailing transparency and total reciprocity between countries.

In Chapter 16, Bonafé provides an analysis of the structural reforms that are taking place in MENA countries. The author affirms that there is a generalized tendency toward open and market-based approaches. National interventions are now combined within the activities of three Euro-Mediterranean regional platforms (acting on electricity, gas, and renewables, respectively) that shall be able to provide a regional spin to the otherwise local initiatives. Bonafé argues that the launch of the UfM platforms can be framed in the wider revised external energy policy that takes into consideration the different role and aspirations that regional countries might play. Bonafé considers the role that the Energy Charter might have in accommodating these evolving needs within a framework of legally binding agreements, able to ensure legal certainty for the investment sought in the region.

In Chapter 17, Ponti tries to answer a simple question: what do investors want in order to put their money in new (or existing) energy infrastructures? He provides an answer to this question presenting a historical overview of the utilities sector in Europe. Ponti argues investments in energy utilities are not safe, as they are exposed to both commodity risk and government interventions. The author details the minimum regulatory requirements that should be in place to provide consumers and tax payers with concrete benefits. MENA countries should grant higher returns on investment to offset the country risk. The author maintains that allowing a high level of transparency and consistency in the regulatory process is ultimately, what maximizes the benefits to consumers and minimizes the cost to tax payers in any given country.

Mediterranean countries are facing significant social, economic, and environmental challenges and they all have heavy repercussions on the energy balance and trade in the region. Those dynamics, in the past mostly national and domestic, are now increasingly regional in their diffusion and present global characteristics. It is therefore possible to identify some common challenges that are widespread in the Mediterranean Basin, and present some interesting communalities among the different countries. The analysis carried out in the following 17 chapters identifies security of supply (SoS), economic and environmental sustainability, and empowerment of demand side/consumers as the main common challenges for the energy sector in the Mediterranean region.

Most pressing challenges are SoS, affordability, and competitiveness. The current and expected increase in demand, highlighted as one of the main drivers for the emerging energy scenarios in the coming decades, requires a correspondent significant increase in available generation capacity. However, in order to tackle the sustainability challenge the capacity to be added into the system needs to be both economically and environmentally sustainable. On the contrary, the existing paradigm does not possess the necessary dynamic efficiency that allows the electricity supply industry to recover fixed and variable costs necessary to finance its long-term viability. In addition, it does not comply with the emerging emission standards. In this regard, RES appear to be able to play a pivotal part in enhancing SoS in the region in a cost-effective way, while conforming to the increasingly stringent environmental measures. Renewable sources therefore, emerge as the second key driver, beside SoS matters, which will shape the present and future energy outlook in the region. A third demanding task for the energy system of the countries belonging to the Mediterranean Basin is to cast a new and more active role for energy consumers. This includes empowerment and protection of consumers, and the possibility to overcome the widespread subsidization policies that support energy consumption. Consumers’ empowerment and protection should also aim at facilitating the promotion of the consumer–producer and consumer–investor role, typical of more mature and market-oriented energy systems.

Tackling these complex challenges is a demanding task and requires immediate action. It is now apparent that the existing “status quo” is unsustainable, also because current electricity generation is hardly able to cover the existing demand, in most countries, while at the same time the quality of power supply is deteriorating across the region. Although piecemeal solutions can represent an attractive alternative in the short run, in particular to accommodate the most pressing needs, the aim of the MEDREG Forum and the ambition of this publication is to identify a long-term vision able to address the main challenges identified earlier. It is fair to say that the contribution collected in the book and the discussion held at the Forum confirm that there is no single way to tackle, at the same time, SoS, sustainability, and consumer empowerment. However, it is possible to define a set of milestones that should be able to drive the transition of the existing energy systems bringing a more secure and sustainable energy supply to benefit current and future energy consumers that need to be empowered with more opportunities, while receiving an appropriate level of protection.

The main conclusion that arises from this book is that a clear roadmap toward a new regulatory model is needed, in order to create favorable investment conditions. This approach is to be centered on market-based mechanisms. Currently, the existence of a competitive market (segment) is restricted, and often the only space for commercial initiatives is limited to new RES installations. Whereas the presence of the state in the Mediterranean region is a common feature, most MENA countries fail to distinguish clearly the roles and responsibility of state-owned utilities, public bodies (such as relevant ministers and public administrators), and regulators. In particular, all national regulatory bodies of MENA countries should accompany the transition of their energy systems, with stronger power and competences. Transition toward new market-based regulation is expected to enhance the attractiveness of new infrastructure investment in generation, transmission, and distribution, reinforcing the desired link between regulation and investment. Therefore, casting a greater role for competition in sectors where this is possible (typically generation and retail) calls for a stable and robust regulatory framework, able to define a levelled playing field that allows state-owned and private initiatives to compete in the market, and for the market. An enhanced stronger role for NRAs requires a parallel step back in terms of public presence in other sectors of the energy value chain, in particular in the competitive fringe of the market. It also requires granting equal access to transport and distribution infrastructures. In particular, security of supply challenges, as well as problems of affordability and the lack of competitiveness, calls for effective regulation, based on the establishment of a market approach. This regulatory model is expected to deliver, in particular, price signals to all agents. The market approach involves the elimination of final energy price subsidies and the reinforcement of NRA independence. NRAs should be entrusted with clear responsibilities to establish rules and monitor compliance, ensuring the development of necessary infrastructure facilities and progressive liberalization of the market to make room for new private participants, thus facilitating energy exchanges within the region that are based on a market approach.

As mentioned earlier, the correct implementation of this market approach model involves stronger powers for NRAs. Regulatory authorities, in turn, should provide the necessary regulatory tools to create a wholesale market for the electricity trade, introduce the right of free establishment for generators and retailers, design a network access tariff that fully compensates costs, monitor the competition conditions for all the operators in the market, prevent market power, and set-up unbundling between all the stages of generation, transport, distribution, and retail. As experienced in most liberalized energy systems, this lengthy process requires a gradual introduction of the necessary reforms. An approach aiming at introducing, at the same time, the entire reform package could prove to be unsustainable for the delicate institutional ecosystem of the Mediterranean region. Most countries have introduced some interesting reform packages, but the transition process that started in the power sector of most MENA countries in recent years has not yet been completed. Problems including weak security of supply, final price subsidization, and limited energy exports within the region are still current.

As in many other energy system reforms, the transition in MENA countries cannot focus solely on security of supply problems, but is expected also to take into account climate change mitigation. Globally, countries are transforming their power sectors in order to cover the demand, coupling it with measures that allow the fight against climate change. To that aim, renewable energy technologies have evolved steadily in recent years. At the same time, the Mediterranean region has a vast untapped potential to produce clean energy from solar and wind. A strategic plan is needed for the development of all this potential while the energy mix is still dominated by conventional generation technologies (mainly fuel). For renewable energies and energy efficiency initiatives to achieve their market potential, policy frameworks and financial instruments are required to provide the necessary assurances and incentives to shift investment away from carbon-emitting conventional technologies to small, medium, and industrial investment in clean-energy systems and energy efficiency interventions. The benefits expected from increasing the installed capacity of renewable energy are: (1) improvement of SoS; (2) reduction in emissions; and (3) increase of MENA exporting capacity, as long as the development is parallel to the improvement of interconnection lines. To that end, regulation and regional cooperation will be crucial to reach the additional generation required to keep the system in balance and to achieve the emission reduction targets set in each country through infrastructure investment. Additionally, the price signals that the new market-based regulatory model is able to deliver will provide the opportunity to launch cost-effective energy efficiency programs. In addition to being essential to the reduction of emissions, energy efficiency can also contribute to ease SoS problems.

The complementary characteristics of the energy systems in the Mediterranean Basin, coupled with their high potential for RES generation, increases the importance of cooperation among regulators and with the wider community of institutional, social, and industrial stakeholders. Cooperation is needed to establish a mechanism that encourages investments in infrastructure. This investment will depend on the implementation of financial facilities for private capital coming from international financial institutions, industrial partners, and local investors. On the other hand, cooperation between NRAs and MEDREG will allow the definition of the main features of a harmonized Mediterranean energy market capable of benefiting citizens by reducing energy prices and assuring that “the lights will stay on.” What is more, a better integration of renewables targets and standards will be obtained for the entire region. Moreover, the role of other institutions, namely the EU, also in relation to the Euro-Mediterranean energy platforms created in the context of the UfM, will be crucial to fully profit from all the positive aspects that the energy sector transition could bring to Mediterranean countries.

All levels of cooperation will need to be developed and reinforced. As the contributions to this book shows, reinforcing the energy exchange for mutual needs and SoS collaboration should begin bilaterally between neighboring countries. Afterward, subregional agreements should be deployed (the so-called “corridor” approach) for countries with similar levels of market development. Finally, the creation of a regional market needs to be defined with the aim of being cost-effective. This book shows several examples of best practice drawn from the European energy market, as well as a number of mistakes, which should be avoided. The lengthy process that led to the opening of the internal EU energy market, a process that is not over yet, represents a useful benchmark, although it can hardly be considered a model for its peculiar political dimension, to get things done properly from the outset in the MENA region.

Stronger cooperation requires that the regulatory and legal frameworks from different countries belonging to the Mediterranean Basin are harmonized. Besides that, the first step will be the creation of national markets in all countries and the construction of cross-border interconnections. The rules under which these markets operate must be similar so that tangible steps can be taken toward the creation of subregional markets, and finally, a regional integrated market. This convergence process, aiming at the creation of a Mediterranean Energy Market, will bring benefits in the form of easy cross-border energy flows, effective opening of national markets, and the financing of the transition to sustainable energy. The role that MEDREG is called to play is clear, while complex: encouraging all the NRAs to adopt a regional vision. The dimension of the national markets and the fragmented economic and political nature of the Mediterranean Basin is a powerful obstacle to attracting investment. However, the creation of a harmonized regulatory framework, the promotion of coherent RES target, and the existence of better cross-border interconnections might all play a positive role for the benefit of each individual energy system, to the advantage of greater regional welfare. MEDREG should remain a permanent voluntary platform enabling Mediterranean regulators to discuss the different matters that concern the implementation of a regional vision. In addition to that, a certain degree of delegation of power, from NRAs to MEDREG, should be considered in the future, in order to allow the definition of a binding commitment in the process of market integration. The definition of a common regional landscape requires that some of the powers currently held at national level are entrusted to supranational organizations, that might provide a better understanding of global dynamics extending well beyond domestic borders. Climate change mitigation guidelines could represent a good example of a policy dimension that requires the combination of national and regional powers, and that could represent a first step toward the definition of a more stable regional set up. In this field, a step forward is needed, with a definition of a more ambitious agenda for MEDREG and its role in the region.

The contributions collected confirm that theoretical evaluation stands at a significant distance from its practical implementation. We must accept that the ideal, of a Utopian energy cooperation, will elude us, but instead we can engage regulators and institutional and industrial stakeholders to elaborate principles of gradual and pragmatic convergence based on more efficient decision-making processes. Such is the hope of this undertaking.