* 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 (Reuters) - 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 overhead cable.
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.”