Desertec: Powering Europe with the Sahara Finance
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Finance 663 International Finance Desertec Desertec: Powering Europe with the Sahara Finance 663: International Finance Cambell Harvey 2/27/2014 Tsiri Agbenyega Rafael Andreata Crystal Bai Richard Bethune Finance 663 International Finance Desertec As the financial crisis heated up in 2008, Europeans Kept an eye on the bigger threat of climate change. European governments, utilities and industrial concerns cast about for salvation in the greatest energy resources of the Middle East and North Africa: their solar and wind energy. The smartest minds in Europe assembled an audacious plan to invest nearly €400 billion in renewable energy projects to feed Europe green energy from across the Mediterranean. Would it worK? Background Desertec Foundation The DESERTEC Concept shows concretely how the use of renewable energy in deserts and arid regions could lead to the positive further development of global society. The supply of businesses and households with clean, safe power at reasonable prices is crucial to the development of a prosperous society and the creation of job opportunities for development for large segments of the world population. Crucially, clean electricity from the desert is free from CO2 emissions and thus does not threaten the stability of the climate. The Desertec Foundation worKs in close collaboration with all sectors of society - government, industry, academia and non-governmental organizations (NGOs) - with the aim of bringing all relevant staKeholders together and promoting cooperation for the concept’s implementation. Between 2003 and 2007, the DESERTEC Concept was developed by an international networK of politicians, academics and economists. It was developed by the Trans-Mediterranean Renewable Energy Cooperation (TREC), a voluntary organization founded in 2003 by the Club of Rome and the National Energy Research Center Jordan, made up of scientists and experts from across Europe, the Middle East and North Africa (EU-MENA). The physicist Dr. Gerhard Knies and HRH Prince Hassan bin Talal of Jordan, the then President of the Club of Rome, were the driving forces behind the formation and development of the networK. In 2007, the results of the DESERTEC studies as well as proposals for action regarding the implementation of DESERTEC in the EU-MENA region (Europe, Middle East and North Africa) were summarized in a WhiteBooK, which was presented in the European Parliament by Prince El Hassan bin Talal. In 2008, the drafting of a first version of the Mediterranean Solar Plan of the Union for the Mediterranean was the result of talKs with the French embassy and representatives from French ministries. The aim of the Mediterranean Solar Plan is the development of renewable energy projects with a total of 20 gigawatts by the year 2020. Finally, the DESERTEC Foundation was founded by public figures, private individuals, politicians and scientists from North Africa, the Middle East and Europe with this aim: to support the systematic use of renewables in deserts and arid regions worldwide as laid down in Finance 663 International Finance Desertec the DESERTEC Concept. The German Association of the CLUB OF ROME was and is an important partner and interface for the foundation’s development. The DF is based in Berlin. It is a non-profit and does not pursue any economic interests. Desertec Industrial Initiative (Dii) To help accelerate the implementation of the DESERTEC Concept in EU-MENA the non-profit DESERTEC Foundation and a group of 12 European companies led by Munich Re founded an industrial initiative called Dii GmbH in Munich. The other companies included ABB, Abengoa Solar, ACWA Power, Cevital, Deutsche BanK, Enel Green Power, E.ON, First Solar, Flagsol, HSH NordbanK, Munich Re, Nareva, Red Eléctrica de España, RWE, Avancis, Schott Solar, Terna, Terna Energy SA and UniCredit (Exhibit 1). LiKe the DESERTEC Foundation, Dii GmbH will not build power plants itself. Instead it focuses on four core objectives in EU-MENA: - Development of a long term roll-out plan for the period up to 2050 providing investment and financing guidance - Carrying out specific in-depth studies - Development of a frameworK for feasible investments into renewable energy and interconnected grids in EU-MENA - Origination of reference projects to prove feasibility Desert Power 2050 Dii developed a study called Desert Power 2050, which demonstrates that the abundance of sun and wind in the EUMENA region would enable the creation of a joint power networK that will entail more than 90 percent renewables. According to the study, such a joint power network involving North Africa, the Middle East and Europe (EUMENA) offers clear benefits to all involved. The 38 countries analyzed in this study include the EU27, Norway and Switzerland, TurKey, Syria, Jordan, Saudi Arabia, Egypt, Libya and the three Maghreb countries Tunisia, Algeria and Morocco. An integrated EUMENA power system allows Europe to meet its CO2 reduction targets of 95% in the power sector more effectively and more economically by importing up to 20% of its electricity demand from MENA. Europe thereby saves a total of €33bn annually, or €30 per MWh of power imported from MENA. Finance 663 International Finance Desertec The sheer size of largely unused land and favorable climatic conditions in the MENA region maKes it an ideal location for renewable electricity production. The availability of excellent solar resources in MENA is unique. Prime sites can be found everywhere in the region, from the High Atlas and Tell Atlas in the Maghreb to the Asir Mountains in Saudi Arabia. (Exhibit 2) In a Connected Scenario, a total of 1,087TWh is exported from MENA to Europe. Given that 23TWh also flows in the other direction, from Europe to MENA, the net power trade balance from MENA to Europe is 1064TWh per year of exports. These net exports from MENA to Europe amount to 19% of European demand and 46% of MENA domestic demand. (Exhibit 3 and 4) Economic benefits of system integration System integration provides clear economic benefits. The average cost of production in Europe decreases for all technologies in the Connected Scenario (Exhibit 5). The reason is that the most expensive part of the European renewables is substituted by MENA imports with lower costs. For renewables in MENA, on the other hand, costs remain essentially flat when more electricity is produced for export to Europe. Indeed, the potential is so large that the additional demand from Europe can still be satisfied by production at sites with excellent conditions (and thus low costs). Both MENA and Europe profit from an integrated power system for the entire region, in which 1087TWh of renewable power are exported from MENA to Europe and 23TWh from Europe to MENA. This amounts to a power trade balance of 1064TWh of net exports from MENA to Europe. Such an integrated system has a system cost advantage of €33.5bn. p.a. over a system in which MENA and Europe fully cooperate to achieve their carbon emission reduction targets (i.e. share a common carbon cap), but without a shared power system (Exhibit 6 and 7). The cost of transmission across the Mediterranean per imported MWh is 14€/MWh on average. This average value is derived from the total annual cost of €15.1bn and the 1110TWh of net electricity trade across the Mediterranean (Exhibit 7). There are two reasons for the high savings of 30€/MWh in the Connected Scenario (Exhibit 8): - The cost advantage of power production from the vast wind and solar potentials in MENA over that of European renewables. - The benefits of integrating a power system over an area of 13.2M Km2 (of which 5.5MKm2 is in Europe and 7.7MKm2 is in MENA). Climate Benefits Finance 663 International Finance Desertec In addition to reducing exposure to fossil fuel price volatility, an interconnected EUMENA power system also provides a robust pathway to decarbonization of the power sector. In the case of two isolated systems, the cost of carbon emissions is €192/tonne. This value decreases by more than 40% to €113/tonne if the EUMENA power system is integrated (Exhibit 9). Implication on country levels With more than 30 countries involved in the project, we can divide them in three main types of countries: renewables super producers (super producers), renewables scarce countries (importers) and countries with balanced renewables and demand (balancers) (Exhibit 10). Their complementary roles lead to a situation of interdependence across the system, in which no single country is dependent on another but instead each country is reliant on the system as a whole. Super producers are countries with excellent renewables resources and relatively low demand. Examples of super producers are the Maghreb countries (except for Tunisia) and Libya in the south and Norway in the north. The super producers profit from system integration in two Key ways: from a large renewable electricity export industry and from a reliance on the overcapacities of renewables (compared to domestic load) as a means of ensuring their own security of supply at all times of the year. Importers have high demand and, compared to demand, a limited potential of good renewables resources. This group of countries includes Germany, Italy, and – though less pronounced – also France and TurKey. A lower limit on the electricity self-supply rate has been imposed in the system so that no country relies on power imports for more than 30% of its supply. These countries import cheap renewable power throughout the year to ensure an affordable sustainable power supply. They benefit not only from the cost advantage of the imported electricity, but also from the optimized allocation of the conventional gas generation remaining under the given carbon emission cap. Balancers have levels of demand and renewables resources that are largely proportionate to each other. They include Egypt, Saudi Arabia, Syria, Spain, the UK and DenmarK.