SOLAR ENERGY FROM THE DESERT -- PART I

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21 june 2009

ENERGY DIGEST, JUNE 16-17 2009: DESERTEC RESURRECTED

[It is more than a year since both the European Parliament (via its Committee on Climate Change) and the Dutch Parliament (via a motion submitted by a Left Liberal and a Green) both presented motions in favor of harnessing the sun of the North African desert to combat climate change. Graham Watson, a member of the UK Liberal Democrat party in the European Parliament, then said: “Failure to act now means humankind will career towards a tipping point from which there is no return. What Europe needs to do is to redouble its efforts to promote clean energy. Generating power from the desert sun could speed up the process of cutting CO2 emissions at a stroke.” Unfortunately, neither proposal resulted in concrete action.

It is also about a year since we issued a climate digest. That we do so now is because of the surprising and welcome news that the Desertec plan for CSP solar energy from North Africa may be receiving the kind of financial support it needs from the corporate world: 400 billion euros from a consortium of Siemens, RWE. E.on and Deutsche Bank, with mega-insurer Munich re in the background. The final decision will not be made until July 13, but in the three weeks until then, there is hope for a breakthrough in the development of large scale solar power for Europe.

We’ve put together five articles that illuminate the background and the reception of this possibility. The first two illustrate the framework for it: two of the principle alternatives to renewables – Russian gas and nuclear power – appear increasingly unreliable or unlikely.

The first article, by the energy editor of the Financial Times, while published just prior to the news about the resurrection of Desertec, suggests its geopolitical context: fears that the increasing dependence of Germany in particular and Europe in general on Russia’s Gazprom is “raising the spectre of a gas supply crunch in Europe”. If dependency on Russian gas is problematic, the alternatives to Gazprom mentioned are hardly more geopolitically reliable: Azerbaijan, Turkmenistan and northern Iraq, all from the volatile Central Asian, Middle Eastern area that is subject to the competing imperial goals of Russia and the United States.

In the context of this conundrum, renewal of the Desertec option almost seems to be a reply to the comment by one energy expert cited in the FT article::“I don’t think renewables will be able to do enough; I don’t think clean coal will be ready for a big increase in coal-fired power plants, and while nuclear can do something, it will be limited. If you take all the other energy sources, you are still left with a rising need for gas.”

The second article, also from the Financial Times, suggests how limited the nuclear option is likely to be. After listing the numerous efforts world-wide to resurrect nuclear energy, the FT indicates their basic financial unattractiveness: “...for equity investors there is no concrete evidence that the longer-term financial model for nuclear power is as solid as its promoters suggest. The skyrocketing costs of building new-generation plants, while maintaining the ageing facilities that exist, are all putting pressure on the balance sheets of nuclear operators.”

The third article, from The Guardian, outlines the solar investment plan, indicates its dependence on the creation of an HVDC transmission line from North Africa to Europe and offers some expert commentary on it from Germany’s Aerospace Centre, from the German WWF, and from Hermann Scheer, the SPD deputy who favors local solar energy and is mistrustful of creating a new coporate energy giant.

The fourth article, from the Sueddeutsche Zeitung, is a follow-up to that newspaper’s original article on the subject, detailing the support of the German Environment Minister (SPD) for the project, the proposal of Greenpeace that the project be presented for support to the coming G-8 summit in Italy, and the financial and technological complexities of the plan.

The fifth article, from Spiegel Online, provides a round-up of German newspaper commentary on the project two days after the inital announcement.]

1. Gazprom delays raise supply crunch fears

By Ed Crooks, energy editor, Financial Times, June 16 2009

Alexei Miller, Gazprom’s chief executive, warned in a speech in Italy last week of a looming “supply crunch” in the oil market after 2012, caused by under-investment today, which could send oil and gas prices soaring.

A few days later, he drove that warning home in the most vivid way possible, with Gazprom’s own investment cuts and production delays raising the spectre of a gas supply crunch in Europe.

The decision to defer the flow of gas from Gazprom’s first development of the huge reserves in the Yamal peninsula, in northern Russia, makes perfect sense in the short term.

All the talk in the industry is of a global “gas glut”, fostered by a surge in supplies of liquefied natural gas, particularly from the mega-projects in Qatar now coming on stream.

Jonathan Stern of the Oxford Institute for Energy Studies says: “Barely a year ago everyone was saying Gazprom would not be able to keep up with demand.

“The speed of the turnround has been extraordinary."

The global recession has hammered Europe’s gas consumption, particularly for industrial users. The car industry, for example, uses gas-fired heaters to dry paint, and many assembly lines have fallen silent.

Cedigaz, the gas industry association, has estimated that industrial demand in developed economies, including the EU, the US and Japan, will be 17 per cent lower this year than last year.

Residential consumption is more stable, but the EU’s overall demand could fall 5 per cent this year, even after an unusually cold January.

Gazprom, which is the biggest gas importer into the EU, has been forced to cope with that downturn at the same time as Russian demand has been plunging.

Prof Stern estimates that EU demand will be 20bn cubic metres lower than last year, Russian demand 40bn cu m lower, and demand from Ukraine and other former Soviet states also 20bn cu m lower.

Gazprom has responded by cutting its own production and forcing independent Russian gas producers to cut theirs. It has also told Turkmenistan, one of its main central Asian suppliers, to cut its export price. An explosion in April cut the gas pipeline from Turkmenistan to Russia, and it has not yet been re-opened. The causes are disputed.

The rate at which gas demand picks up will depend on the pace of economic recovery.

Tony Hayward, chief executive of BP, said last week that although demand had steadied after dramatic falls earlier in the year, there were as yet no signs that it was rising again.

So Gazprom’s forecast that even in 2012 its production is likely to remain lower than last year is a plausible assumption.

The alarming prospect for Russia is that western European demand will never recover. If the EU could meet its objective of raising energy efficiency by 20 per cent by 2020, then its gas consumption could fall through the decade. Cambridge Energy Research Associates, a consultancy, argued recently that even going half-way to the EU target, for example by installing fuel-efficient boilers in European homes, could cut gas demand back to early 1990s levels by 2030.

However, other experts are sceptical that those savings can be achieved, or that other fuels can substitute for gas in the next decade.

Colette Lewiner of Capgemini, the consultancy, argues that European gas demand is set to rise until at least 2020.

She says:“I don’t think renewables will be able to do enough; I don’t think clean coal will be ready for a big increase in coal-fired power plants, and while nuclear can do something, it will be limited.
“If you take all the other energy sources, you are still left with a rising need for gas.”

Europe’s production, meanwhile, is in decline. The International Energy Agency estimates that western Europe’s gas production will fall by about 30 per cent over the next two decades. Imports, which supplied 45 per cent of the market in 2006, will rise to 70 per cent by 2030.

The search is on for new sources of gas to bring to Europe. The EU has high hopes for Azerbaijan and Turkmenistan, perhaps via the proposed Nabucco pipeline, and recently there has been optimism about gas from northern Iraq. But the reality is that the EU cannot do without Russia, and sooner or later that gas from Yamal will be needed.

Copyright The Financial Times Limited 2009

2. Governments in costly quest for electricity's holy grail

By Paul Betts, Financial Times, June 17 2009

In the decades of economic reconstruction following the second world war, governments launched massive reindustrialisation projects in economically distressed regions that were later ironically dubbed building cathedrals in the desert. These big industrial complexes - whether petrochemical plants, steel factories or shipyards - were rarely integrated into the local economies and have since endured repeated and painful restructurings.

At the same time, governments invested heavily in groundbreaking technological projects, some of which have befallen the same fate. This was the case of France's so-called "Plan Calcul" to create a comprehensive domestic information technology industry to secure the country's strategic independence in this key sector.

The French high-speed TGV trains have been another breakthrough, as has the development of a new generation of EPR nuclear reactors. These projects would never have got off the ground without substantial government financial backing and all have ended up costing far more than originally envisaged.

Now the cathedral builders are grappling with the problems of their latest grand project. After years of haggling, the European Union, together with the US, Russia and Japan, agreed four years ago to build in southern France a huge research and engineering project called ITER (International Thermonuclear Experimental Reactor).

China, South Korea and India have also joined the project to create an experimental nuclear fusion reactor to replicate the energy of the sun.

If successful, this would create an environmentally friendly and inexhaustible source of electricity with virtually zero nuclear waste. In other words, this would be the energy equivalent of the holy grail.

Construction on the vast experimental plant in Provence has started and the original budget has been exceeded.

The partner governments are due to meet in Japan today and the discussion promises to be lively. The project's construction costs have already doubled from the original €5bn ($7bn) to about €10bn. It will take about 10 years to complete the construction phase, so the final costs risk being even higher. The facility is then expected to operate for 20 years at a cost of another €5bn. This figure too risks being much higher.

Europe will carry 45 per cent of these costs, while the other partner countries will have to bear just under 10 per cent each. No one is keen to commit to the project's fast-rising funding needs, let alone honour their existing agreements. All the more so given the body of opinion that is opposed to the entire project, which argues that these funds could be spent far more effectively to develop other renewable energy sources such as wind, tidal or solar power.

Until ITER is tried and tested no one will know whether nuclear fusion reactors could become a viable and compellingly attractive economic alternative to existing power-generating systems. It may not work, but if it does the €20bn or more it will have cost will seem like loose change.

Nuclear bond

On the other hand, ordinary investors are grappling with questions of their own about investing in the nuclear sector.

EDF, the French electricity behemoth and operator of the country's 58 nuclear reactors, today launches its first bond for retail investors in about two decades. The apparent return to favour of nuclear power is likely to fuel great interest in the €1bn issue, as will the fact that few investments are safer than this high-yielding bond from a utility guaranteed by the government.

Yet for equity investors there is no concrete evidence that the longer-term financial model for nuclear power is as solid as its promoters suggest. The skyrocketing costs of building new-generation plants, while maintaining the ageing facilities that exist, are all putting pressure on the balance sheets of nuclear operators.

An academic report commissioned by Greenpeace analyses the risks of investing in France's two nuclear champions, Areva, the nuclear engineering group, and EDF. It highlights how deeply the fate of one affects the other.

So far both have benefited from generous state support. But competition is entering the French market, and electricity prices are on hold, making life more difficult for EDF in particular. This is an industry where massive investment has to be committed upfront before generating a guaranteed income stream 10-15 years down the line. And the report concludes that what is bad for EDF cannot be good for Areva.

european.view@ft.com

Copyright The Financial Times Limited 2009


3. German firms in African solar farm plan
Guardian World News, 16 Jun 2009

Siemens, Deutsche Bank, RWE and E.on ready to invest in ambitious plan to power Europe with clean electricity from Africa

Twenty blue chip German companies are pooling their resources with the aim of harnessing solar power in the deserts of north Africa and transporting the clean electricity to Europe.

The businesses, which include some of the biggest names in European energy, finance and manufacturing, will form a consortium next month. If successful, the highly ambitious plan could see Europe fuelled by solar energy within a decade.

The consortium behind what would be the biggest ever solar energy initiative will first raise awareness and interest among other investors for the project, known as Desertec, which is estimated to cost around €400bn (£338bn).

Torsten Jeworrek, board member of Munich Re, the German reinsurer which is leading the project, said: "We want to found an initiative which over the next two to three years will put concrete measures on the table."

Like other reinsurers, Munich Re has said it is expecting to face mounting claims in the coming years for damage caused by climate change.

The companies – including Siemens, Deutsche Bank, and the energy companies RWE and E.on – will meet on July 13 in Munich to draw up an agreement. German government ministries as well as the Club of Rome, a Zurich-based NGO of leading scientists, managers and politicians which advocates sustainable development, are also expected to be present.

It is seen as particularly significant that the companies aim to start the expensive initiative in the midst of a financial crisis. But although none of the companies is keen to go into detail yet about their involvement, they stress that the project is a chance for them to drive forward the fight against climate change and in doing so to position themselves at the top of the green technology industry. Germany, despite its relative lack of sun, has become a leader in solar energy.

The energy potential in the deserts south of the Mediterranean is enormous.

According to the European Commission's Institute for Energy, if just 0.3% of the light falling on the Sahara and Middle Eastern deserts was captured, it could provide all of Europe's energy needs.

The Desertec project aims to build solar power plants in several locations in north Africa. Jeworrek said the "most important criteria" was that the locations were "situated in politically stable lands". Morocco, as well as Libya and Algeria have been cited as potential sites, where land is also cheap.

The technique called "concentrating solar power" or CSP, uses banks of mirrors to focus the sun's rays in a central column filled with water. The rays heat the water, vaporising the it into a steam which is then used to drive turbines which generate carbon-free electricity.

The energy would then be fed via high-voltage direct current (DC) transmission lines over thousands of miles to Europe - traditional AC lines are far too inefficient.

Hans Muller-Steinhagen of Germany's Aerospace Centre, said it was technically possible, albeit expensive, to transport the energy over thousands of miles. He said solar energy from the desert is already being harvested but only in isolated plants. CSP plants are operational in the American west, including in California and Nevada, while independent plants are currently being set up in Spain, Morocco, Algeria and the United Arab Emirates. But the projects have suffered from investors' nervousness due of the vast expense of the required grid infrastructure, as well as the cheapness of fossil fuels.

German representatives of environmental groups yesterday widely welcomed the news that big businesses were prepared to give the project a backbone for the first time.

"Businesses have finally recognised that renewable energies belong to the future, and in times of economic crisis this also sends out an important signal for economic growth," said Andree Bohling of Greenpeace.

WWF Germany's climate expert Regine Gunther said while the initiative was a "step in the right direction", it was important to ensure that Africa benefited from the project. "They want to and indeed must profit from this solution as much as us," she said. Previous suggestions have included allowing host countries to retain a proportion of the electricity for free, in return for providing sites for the solar farms.

The €400bn investment would be enough to cover 15% of Europe's electricity requirements, according to Jeworrek. He added "in technical terms this project can be realised" but stressed in order for it to be sustainable it would have to finance itself in the long-run and be competitive within 10 to 15 years.

But German MP Hermann Scheer, president of Eurosolar, the European Association for Renewable Energy, called the Desertec project "highly problematic".

He said costs would be vastly higher and deadlines would be missed due to logistical problems such as sand storms and dealing with many different countries. "I would urge the investors to stay clear of it," he told The Guardian.

Scheer was also critical of the fact that the project would "duplicate the current system" whereby energy distribution is concentrated in the hands of a few multinational companies. "We should be looking instead at decentralising the system, and looking closer to home for our energy supplies, such as solar panels on homes or harnessing wind energy on the coasts, or inland," he said.

[Articles 4 and 5 will be found on "Solar Energy from the Desert - Part II]


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