The future of Desertec

The future of Desertec and "electricity from the desert"

We are witnessing the end of an era: Since the beginning of the year we have watched the courageous uprisings and political upheavals in the Arab world, first with incredulity and astonishment, now with admiration. With extreme concern we are also following the nuclear crisis in Japan caused by the disastrous earthquake and tsunami of 11 March 2011. At first glance the two events have nothing to do with one another. But both are highly relevant to the future organization of energy supply.

History is being made

What seemed unthinkable before 11 March became possible after Fukushima and in the run-up to Germany's state elections on 27 March: the temporary shut-down of the seven oldest German nuclear power stations. Less than a month before, on 17 February 2011 the CEO of the RWE utility company, Jürgen Großmann, warned in the daily newspaper the Süddeutsche Zeitung that "the nuclear energy 'bridge' must not be too short, or it will collapse." And, in Strasbourg on 8 March 2011, the German Economics Ministry presented a report that referred to the nightmare of Germany ceasing to be an industrial power if the EU unilaterally raised its CO2 reduction target to 30 percent.

The main question we face today is how the expansion of renewable energies and electricity supply systems can be sped up. In this context the Middle East and North Africa (MENA), with their considerable wind and solar energy potential, are also attracting attention.

Impact on "electricity from the desert"

The upheavals in the Arab world have, so far, led to the fall of two presidents who had ruled autocratically for decades. Inspired by the events in Tunisia and Egypt, the masses took to the streets in other Arab countries, too, demanding freedom, democracy and better living conditions. Alarmed, the autocrats (still) in power are reacting with force, promises of reform and good deeds for the people. From the reform-oriented King of Morocco, for example, came both the order to double food and fuel subsidies and an announcement of constitutional reform, while the absolutist King of Saudi Arabia called emerging protests un-Islamic and launched a US $36 billion subsidy program. The rulers of other Arab countries, too, are trying to hang on to power with generous subsidy programs.

The recent massive expansion of the subsidy programs for carbon-based fuels and energy in MENA countries may slow down the ambitious plans for electricity from the desert: The Mediterranean Solar Plan and the Desertec Industrial Initiative (Dii). In 2009, global fossil energy subsidies amounted to US $312 billion. While renewable energy sources (RES) entail capital-intensive investments, but limited follow-up costs, the cost of the primary sources of conventional energies continues to be incurred. The higher the subsidies on fossil primary energy carriers are, the greater the difference from the cost of generating electricity from renewable sources - and the less incentive to take energy efficiency measures.

Fear of stranded investments

Another important factor for the implementation of renewable projects is a safe legal and administrative environment, since an investor fears nothing more than stranded investments. Germany and 50 other countries provide this safe environment because they apply the principle of declining feed-in tariffs. National feed-in tariffs in the MENA countries would be a way to finance renewable energy projects, but they are unlikely after the political upheavals and the massive expansion of subsidy programs for conventional energy sources. One way out is suggested by the EU's Renewable Energy Directive of 2009. Article nine of the directive lays down rules on the import of "green electricity" from non-EU countries. The question that then arises is how far new RES capacities will actually be installed to supply electricity to the desert countries or whether they are intended to earn export revenues from the outset.

First Desertec reference project underway in Morocco

In February 2011, despite or perhaps even because of the upheavals in the Arab world, the Desertec Industrial Initiative announced a first call for tenders for a 500 megawatt (MW) reference project in Morocco. The plan is to generate 400 MW from concentrated solar power (CSP) and 100 MW in a photovoltaic power station. However, Dii will be neither investing in nor operating the power stations.

What financing considerations are there for the projects that have been announced? The proposed export figures provide the answer: 80 per cent of the larger CSP share, which will, above all, be capable of providing baseload power, is to be exported; the smaller, photovoltaic share, which will also be suitable for decentralised use, is to be consumed predominantly in Morocco. This makes it clear that Article 9 of the EU's RES Directive is to apply, which means that Europe will be the main beneficiary of the projects.

From the development perspective, however, Desertec's aim should not be to supply electricity to Europe, but to meet the development requirements of the South. Most non-EU Mediterranean countries are in great need of development, and one of the prerequisites for development is energy.

While the budgets for the subsidisation of conventional energies, inflated by the political changes in the Arab world, are hampering the financing of renewable energy projects for MENA countries, the nuclear disaster in Japan will, on the whole, accelerate the expansion of renewable energy sources.

But even in the future the financing of RES projects and the marketing of their output in developing countries will be obstructed by the high subsidies on fossil energy sources and the absence of a favourable investment environment. The hope associated with the establishment of the private-sector Desertec consortium, that renewable energy projects in developing countries will become normal business transactions in the future rather than aid projects, dependent on concessionary financing by development banks or through official development assistance, has yet to be fulfilled.

Intensified energy partnerships with developing countries needed

The Desertec project is exemplary in one respect: It meets the demand from the development community to involve companies from the South from the outset. Now everyone must do their homework: subsidies for conventional energy sources must be reduced rather than raised and, as decided at the Pittsburgh G-20 Summit, phased out altogether.

Capital-intensive renewable energy sources need a clear legal and investment environment so that their expansion may be stepped up, with a view both to their replacing fossil and nuclear energies in the medium to long term and to achieving climate protection targets. And finally, the countries of the South need access to innovative energy generation capacities for the development of sustainable energy infrastructure.

Matthias Ruchser is an energy consultant and Head of Communications of the German Development Institute / Deutsches Institut für Entwicklungspolitik (DIE). The German Development Institute is one of the leading think tanks for development policy world-wide. DIE draws together the knowledge of development research available worldwide, dedicating its work to key issues facing the future of development policy.

Author: Matthias Ruchser

Editor: Anke Rasper