MAY 2024 © 2023 International Bank for Reconstruction and Development / The World Bank1818 H Street NW Washington DC 20433Telephone: 202-473-1000Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations,and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board ofExecutive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this workand does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability withrespect to the use of or failure to use the information, methods, processes, or conclusions set forth. The boundaries,colors, denominations, and other information shown on any map in this work do not imply any judgment on thepart of The World Bank concerning the legal status of any territory or the endorsement or acceptance of suchboundaries. Nothing herein shall constitute or be construed or considered to be a limitation upon or waiver of the privilegesand immunities of The World Bank, all of which are specifically reserved. Rights and Permissions—The material in this work is subject to copyright. Because The World Bank encouragesdissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposesas long as full attribution to this work is given. Attribution—Please cite the work as follows: Kamh, Mohamed Zakaria; Alhaddad, Waleed Tayseer, Bowman,Doug; Transmission Pricing Methodologies for use in the Pan-Arab Electricity Market. June 2024, Washington,D.C. World Bank Group. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications,The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202-522-2625; e-mail: pubrights@worldbank.org Contents AcronymsbExecutive Summary11Purpose of This Report42Background62.1 PAEM Roadmap and Governance Model. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .62.2 Role of National and Regional Regulators. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .103PAEM Overview123.1 Existing and Planned Interconnections. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .123.2 How Trade Is Currently Conducted Between PAEM Member States. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .153.3 Challenges to Advancing Trade in the PAEM. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .173.4 Benefits of International Trade. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .183.5 Proposed PAEM Trade Pricing Mechanism. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .194Importance of Open and Nondiscriminatory Access225Alternative Methodologies for Pricing Transmission Service245.1 Objectives/Principles. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .265.2 Components of Transmission Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .275.3 Alternative Transmission Pricing Methodologies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .285.4 Assessment of Alternative Transmission Pricing Methodologies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 376Postage Stamp Tariff Design Considerations406.1 Cost Components of Transmission Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .426.2 Single or Multiple Postage Stamp Tariffs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .516.3 Different Charges for Different Voltage Supply Levels. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .526.4 Responsibility for Payment: Proportions To Be Recovered From Generation and Load. . . . . . . . . . . . .536.5 Geographic Variation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .536.6 Time Variation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .546.7 Billing Determinant: Capacity and Energy Component. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .546.8 Imports, Exports, and Transit/Wheeling Service. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .566.9 Resolution of Capaci