* EU 'projects of common interest' could get funding
* EU money could lure more private money into project bonds
* Desert economics not proven yet
By Barbara Lewis and Christoph Steitz
BRUSSELS/FRANKFURT, July 29 Germany's decision
to abandon nuclear energy and dwindling domestic subsidies for
renewables have stoked a dazzlingly ambitious plan to expand
Europe's energy market into North Africa, with an array of giant
solar and wind plants glinting in the desert sun.
Desertec, a German consortium set up in 2009, envisages
Europe will import up to a fifth of its electricity from solar
and wind parks in North Africa and the Middle East by 2050.
Spread over 6,500 square miles - more than half the size of
Belgium - Desertec's projected delivery of 1,064 terawatt hours
(TWh) would be almost enough energy to power the whole of
Germany for two years.
With a projected budget of 400 billion euros ($492 billion),
it has been dismissed as too expensive, too risky and too big.
The upheaval of the Arab Spring, the revolutionary wave of
popular protests and uprisings that began first in Tunisia in
late 2010, has added to the doubts.
Business leaders say the economics are not compelling yet,
but some say technological advances and judicious use of EU
money could change that.
The European Commission, the EU's executive arm, has raised
the prospect of financial, legal and practical support.
"A vision can be more concrete than just a dream. It can be
a political vision," said Michael Koehler, head of cabinet in
the EU's Energy Commission. "Trade in renewables between
Northern Africa and Europe is longer just a dream. It is
declared EU policy."
Massive national subsidies made cloudy Germany Europe's
biggest solar market. They are viewed as unsustainable and are
expected to disappear when 52 gigawatts (GW) of solar capacity
have been installed. It stands at 28 GW.
Solar power accounts for about 4 percent of Germany's energy
mix, but swallows about half of the 13 billion euros in costs
Germany's end-consumers pay for the expansion of renewables.
EU money, used in a more far-sighted way, could trigger
private investment to improve grid connections between
continents, though it needs approval from member states.
A possible beneficiary could be French consortium Medgrid,
set up in 2010 to develop grids across North Africa and into
Europe. Last year, it signed a cooperation deal with Desertec.
In the single energy market sought by the Commission, desert
power could be dispersed widely, but Germany, the EU's biggest
economy and biggest energy user, is particularly in need.
Following the Fukushima nuclear disaster in March 2011,
Germany decided to phase out atomic energy, effectively meaning
that 20.5 gigawatts (GW) in capacity will go offline by 2022.
That increases its need for renewable energy if it is to
continue to meet goals to reduce CO2 emissions.
Medgrid Chairman Andre Merlin said Germany offered "the most
opportunities" for importing energy from the south, but the aim
is for two-way traffic, with the EU also exporting any surplus.
Politically, the atmosphere is difficult, particularly in
countries where rulers have been forced from power by civil
uprisings, such as Tunisia and Libya.
Merlin predicts that will change.
"In Algeria and to some extent in Morocco, in these two
countries our project can develop in the short term. Tunisia
will come. Libya will come. We will see what will happen in the
East," he said.
The consortium, whose founders include power and grid firms
Alstom, Areva, EDF and RTE
, is looking at underwater connections through the
Strait of Gibraltar and between Italy, Tunisia and Algeria via
Sicily or Sardinia.
Between Turkey, Syria, Jordan and Egypt, the plan is for an
The Commission has a role in reducing investment risk.
"It's a difficult investment framework. That's exactly why
we have to work at the international level to build frameworks
to bring the risks down," said Paul van Son, CEO of the Desertec
Industrial Initiative (DII), the executive arm of Desertec.
DII brings together companies including Siemens,
RWE, Munich Re and ABB.
To embolden such investors, the Commission said it was
considering measures ranging from legal frameworks to training.
In addition, depending on member state approval, relevant
infrastructure could be ranked as an EU "project of common
interest", benefiting more than one EU nation.
That would entitle it to funding from an anticipated 9.1
billion euros earmarked for energy transmission infrastructure,
as part of the 1 trillion euro 2014-2020 EU budget. Discussions
to finalise the multi-year budget are ongoing.
The European Investment Bank estimates each euro of EU
energy money could lure 20 euros from institutional investors
through A-grade project bonds it hopes to launch next year.
For the solar industry, the business case has yet to be
proven, but the changing economics in Germany are making them
look at North Africa and the Middle East more closely.
"We have to focus on sustainable markets; basically we're
talking where no subsidies are needed," said Lettemieke Mulder,
a vice president at First Solar.
"We believe that the concept is good," she said of the North
African region. "So far there is great potential."
Christian Kjaer, CEO of the European Wind Energy Association
(EWEA), was more sceptical.
"It (Desertec) is based on the notion you can produce energy
much more cheaply by importing it than by producing it locally,"
Kjaer said. "I very much doubt that is true now. It might be
true in 2050."