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Could Political Instability Rule out North Africa as a Major Solar Energy Producer

Higher oil prices are usually good news for clean energy because they make costly technologies like solar and wind less daunting to investors.

But for one of the world’s most ambitious clean-energy projects, Desertec, the instability in North Africa behind the price increases signals a less certain outlook. Desertec aims to tap the vast solar and wind resources across the deserts of the Middle East and North Africa and, over coming decades, deliver as much as 15 percent of the electricity needed by the European Union through high-voltage transmission lines to be laid under the Mediterranean Sea.

With little assurance about how long instability in the region could last, concerns are growing that investments in Desertec may never materialize, or that interest in the project will fade because it risks creating new dependencies on an unstable and potentially hostile region for energy.

At the same time, the sudden surge of interest in promoting democracy and prosperity in North Africa as old regimes are toppled could be a boon for Desertec if the region becomes a more attractive investment destination.

Dii, a company that leads a powerful group of energy and financial companies backing Desertec, has emphasized that it has a long-term rollout plan reaching to 2050, when the current turmoil could be a distant memory.

But Dii also has acknowledged that some projects probably will be delayed. Even though there were no new obstacles to the first pilot project in Morocco, “Of course in other countries in North Africa it’s not so easy to start pilot projects for the time being,” said Paul van Son, the chief executive of Dii.

“The start date may be a little bit later” in Tunisia, van Son said.

Because of its plentiful sunshine, North Africa could be one of the world’s major growth markets for the solar industry. But a recent survey of nearly 400 executives from solar companies by CSP Today, part of a business intelligence group in London, indicated that nearly 40 percent of respondents thought political stability would be the major issue in coming years for developing solar in North Africa and the Middle East.

By comparison, about 27 percent of the respondents said financing was the major issue.

CSP Today said the survey, conducted in February, had been its first on the topic and included responses from representatives of companies including Schott Solar and Hitachi Power.

The unrest in North Africa is not the only challenge for Desertec. As is the case with other major industrial initiatives in Europe, companies in Germany and France could end up dueling over some of the projects. Dii is based in Munich.

Its shareholders include German financial titans like Deutsche Bank and Munich Re, huge energy companies RWE and E.ON, as well as First Solar, a company based in the United States.

Medgrid, a Paris-based second group working to develop a Mediterranean electricity network stretching to Europe, has shareholders that include:

- the French engineering company Alstom,
- the nuclear company Areva,
- the energy companies Électricité de France and GDF Suez,
- along with backers in Syria and Jordan.

To help ensure that the project has wide backing, the E.U. energy commissioner, Günther Oettinger, has pushed Dii and Medgrid to cooperate and create a venture on a European scale.

Some companies like Siemens, a German engineering giant, have become shareholders in both projects, and in recent months Dii and Medgrid have agreed on a memorandum of understanding.

Dii will adjust its work plans so that efforts are not duplicated, said van Son, who added that Dii will focus on power generation, some transmission issues and financing.

Georges de Montravel, the chief executive of Medgrid, said his company will design a master plan for high-voltage connections between North Africa and Europe. He said the current unrest should not delay the master plan, which should be complete by 2013.

Other challenges come from some environmental groups, which warn that building a solar hub in Africa

will provide an excuse for European governments to ease back on support for domestic solar projects. The potential cost of the project has raised questions, too.

Christian Egenhofer, the head of the energy and climate program at the Center for European Policy Studies in Brussels, said solar power from North Africa was unlikely to be competitive with homegrown and decentralized renewable sources as costs declined over the next two decades.

Egenhofer said that meant Desertec could end up depending on public subsidies. He also said if North African nations, with fewer environmental constraints than E.U. member states, built new coal plants and other utilities that emitted greenhouse gases, its high-voltage transmission lines could be used to sell cheap and dirty power to Europe, Van Son said those concerns were overblown.

He noted the EU could easily take measures to prevent heavily polluting coal-fired plants outside the Union from exporting power to Europe. He said projects in parts of North Africa with favorable conditions could break even by 2020 if investment in solar technology in these regions were accelerated.

He also said renewable electricity needed to be produced within Europe, as well as imported from North Africa, to deliver large quantities of clean power to Europe.

As part of the planned pilot project in Morocco, a cluster of solar thermal and photovoltaic plants and wind parks could start producing electricity for sale to the Spanish grid by 2015 or 2016, according to van Son.

Costing between €2.1 billion and €2.3 billion, or $2.9 billion and $3.2 billion, that project should eventually produce 500 megawatts of power, or about half the amount produced by some nuclear reactors.

Proceeds from possible buyers like utilities and governments would be used to pay off loans from possible lenders, which might include the World Bank and the European Investment Bank and KfW, a German government-owned development bank. The projects also were likely to benefit from higher tariffs in Europe favoring renewable energy, or from programs that obliged utilities to buy a certain quantity of clean energy.

But if economies in North Africa grow briskly enough in coming years, driving up demand for energy to power burgeoning industries and meet vital needs like desalinating water, the largest proportion of electricity generated by Desertec could end up being sold locally, van Son told the New York Times.

Source: Economywatch

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