Industry group to develop €400bn African solar plan

London, 25 June: Munich Re is backing a €400 billion ($560 billion) plan to build solar energy plants in north Africa that could supply 15% of Europe’s energy needs by 2050.

The German reinsurance giant is putting together an industry group to pursue the ‘Desertec’ concept, under development since 2003, following an initiative from the German branch of think-tank the Club of Rome.

Munich Re and the Club of Rome will host a meeting on 13 July involving utility companies RWE and E.ON, solar plant manufacturers Solar Millenium and Schott Solar, engineering companies Siemens and ABB, Deutsche Bank and other interested parties.

A Munich Re spokesman said participants would need to make a “small financial commitment” to help establish an association that will, over the next two or three years, develop a roadmap for building concentrated solar power (CSP) plants in north Africa, and connecting them up to local consumers in north Africa, the Middle East and Europe.

According to the Desertec Foundation, the programme is likely to kick-off with a 1GW demonstration plant, and around 20GW could be built by 2020. It estimates that the cost of power generated by CSP plants, including its transport via high-voltage DC transmission lines, would be €0.10-0.20/kWh.

“However, these costs will drop significantly with economies of scale and refinements in the technologies. If environmental and hidden costs are properly accounted for, it is likely that electricity from CSP plants is already cheaper than electricity from coal-fired or nuclear power plants,” the Foundation said.

“[Desertec is] a viable idea, but there’s a lot to address before it can be turned into reality,” said Sebastian Waldburg, managing partner at SI Capital, a Barcelona-based private equity investment company that has financed the construction of CSP plants in Spain.

CSP plants need water for cooling and for cleaning the mirrors that focus the sunlight, so are ideally located close to sources of water – which might rule out desert areas, Waldburg suggested. In order to get financing, the plants would need support from favourable electricity tariffs and they would have to agree a long-term power purchase agreement with a utility, he said.

Infrastructure to connect the plants to customers would be a major issue, Waldburg added. The Desertec Foundation reports that the cost of 20 transmission lines of 5GW each would be approximately €45 billion. Meanwhile, a 50MW CSP plant requires an investment of around €250 million.

Munich Re said it saw opportunities for its insurance business and as an investor. “We do indeed see ourselves as an investor with a diversified portfolio of renewable energy sources. Here too, we think in longer terms, with time scales of more than ten years,” said Torsten Jeworrek, member of the board and chairman of Munich Re’s reinsurance committee.