Greece and Saudi Arabia agreed on Wednesday to set up a jointly-owned company that will look at linking their power grids, taking the first step in their plan to supply Europe with cheaper green energy, the Greek energy ministry said.

Greece's IPTO and Saudi Arabia's National Grid will set up a company, Saudi Greek Interconnection, tasked with examining the commercial viability of the power interconnection, the ministry said in a statement.

IPTO and National Grid will each hold a 50% stake, it added.

The deal comes after Greece and Saudi Arabia discussed last year the possibility of such a tie-up.

About 40% of power in Greece is produced by renewables and the Mediterranean country is already looking to build an undersea cable linking its grid to Egypt as it seeks an enhanced role in supplying cheap energy produced by renewables.

Greece has also agreed with Cyprus and Israel to build the world's longest and deepest underwater power cable to link their grids at a cost of about $900 million.