Electricity, Law, Power, Electricity Law, Grid Interconnection.
By Ivie Ehanmo; Electricity Lawyer.
A Memorandum of Understanding (MOU) between Egypt and Norway that was signed in November 2022 ,to examine the feasibility of connecting Egypt's energy system to Europe through Italy with a 3 gigawatt capacity has been authorized by the Egyptian cabinet. The MoU was signed by the Norwegian Scatec Corporation and the Egyptian Electricity Transmission Company (EETC). Egypt's electric grid currently supplies electricity to neighbouring countries such as Lebanon via Jordan, Libya, and Sudan. The region's most important link trades 3,000 MW between Egypt and Saudi Arabia, with Egypt also planning to connect its network to Europe via a link to Greece.
Interconnection of electricity grids have played an important part in the history of electric power networks. Most national and regional power networks that exist today began as isolated systems, frequently as a single generator in a large city, many decades ago. Interconnections between nearby power systems became more widespread as power networks grew beyond their metropolitan cores. Power pools were formed by groups of utilities to allow them trade electricity and share capacity reserves. Long-distance interconnections emerged as transmission technology advanced, often transcending national borders. Switzerland established the first international interconnection in Europe in 1906, when it created transmission links to France and Italy.
Electricity trade between countries is increasing, improving supply security and contributing to the achievement of sustainable development goals. International power grid interconnection is especially important in regions where energy resources are unevenly distributed, such as Africa.
International power grid interconnections connect the electrical transmission systems of two or more neighbouring nations, allowing them to exchange power generation resources. Because various countries have varying natural resource endowments, energy trade among countries, as it has for decades, serves to cut energy prices and boost energy supply in importing countries while providing an income source for exporting countries. International grid interconnections can simply encompass transferring a small amount of electricity from one country to another, or can be ambitious via fully integrating the power systems and markets of all countries in a region. International power grid interconnections, at any scale, can contribute to the process of sustainable development. Grid interconnections can help increase the supply and/or reliability of electricity for use in education, job creation, health care, and many other development-related activities, and contribute to the formation of competitive electricity markets on national and regional scales, potentially lowering the cost of electricity to developing economies.
International power grid interconnections are frequently extremely complex undertakings, with technical, economic, legal, political, social, and environmental issues—costs, benefits, and considerations—that must be carefully considered before and as arrangements for power sharing are made. Technical issues include grid stability,, potential costs in the form of national grid impacts from technical problems in an interconnected network, and considerations in transferring power between grids with different technical standards for power quality and reliability. Economic issues in grid interconnection will involve one or both countries' operating requirements, costs in the form of required payments for transmission infrastructure, and considerations such as deciding on electricity pricing.
The legal issues will revolve around issues such as selection of model legal standards for all types of cooperative activities, costs such as the need to adapt national laws and practices to international standards, and complications such as determining jurisdictions for settling disputes, protocols for selecting contractors, and liability for third-party injuries caused by power line activities, which amongst other factors must be effectively ironed out in international power grid interconnection.
Regardless of how complex they are, the experience of preparing and complying with the legal agreements required in establishing grid interconnections offers several potential benefits to national legal systems. These advantages include the development of national professional legal capacity through the experience of negotiating, reviewing, and, if necessary, litigating interconnection contracts, in addition to the advantages of establishing a precedent for legal standards in cross-border trades and demonstrating national dependability in adhering to international contracts.
Legal and Regulatory Considerations
Hosting an international grid interconnection necessitates the countries involved entering into a variety of legal agreements with parties such as financial institutions, construction and maintenance contractors, national and private utilities, and national governments. Such agreements include power purchase and pricing agreements, power line siting agreements, power line operation agreements, etc.. There are however certain requirements and considerations that must be taken into account for the successful Interconnection of power grids, some of which include:
Effective Extant Legal Framework: The existence of an effective legal framework for contract enforcement in each of the countries participating in the interconnection is critical to the smooth negotiation and enforcement of contracts related to international electricity grid interconnections. Contractors can proceed with greater confidence in agreeing to undertake activities related to interconnection construction or operation because there is an independent, experienced judiciary with predictable paths for registering and pursuing legal complaints. Reliable and independent national courts also give trading partners confidence that their interconnection-related grievances will be fairly addressed.
Professional Legal Capacity: The availability of adequate professional legal capacity in each of the countries goes hand in hand with an effective existing legal framework as a prerequisite for a smoother process of negotiation and enforcement of legal contracts between the parties to an interconnection. This entails having groups of lawyers in each country who are sufficiently knowledgeable about their own country's laws and international contract law. Lawyers from each country should ideally have experience and training in contract law related to energy transactions.
Agreements for Appeal to International Courts: Some provisions of contracts between countries in interconnection projects may necessitate recourse to international courts. If the national parties involved in the interconnection have a history of following international court decisions, particularly on trade issues, some aspects of interconnection contracts dealing with dispute resolution between countries may be more easily dealt with by agreements to refer such matters to international jurisdictions.
Stability & Integrity of Governments: One of the political issues that can have a significant impact on the feasibility of international grid interconnections is the stability of national governments. Also, partners in potential interconnection projects must have confidence that agreements signed between nations will be honoured by succeeding governments.
Professional Financial Capacity: There is also the need for an efficient financial sector with capacity to service contracts. This includes ensuring that national and regional banking systems are available and reliable for handling funds to pay construction and operation contracts as needed, in addition to other tasks to ensure the timely, smooth, and efficient flow of financial resources related to an interconnection. Insurance and performance guarantee instruments, among other financial services, will be required in interconnection projects.
International electricity grid interconnections can be very complex legal undertakings, involving a variety of national, sub-national, and international parties to the agreements required for planning, building, and operating power lines used to buy and sell electricity across borders. Associated legal and regulatory factors must be borne in mind, to allow for transparent and enforceable contracts.
This publication is not expected to form the basis of, or be construed as standard legal advice; nor should any of its contents and representations be strictly relied upon for any activities. Electricity Lawyer (EL) will not be liable for decisions whatsoever that are made based on the contents of the document.
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