Business and Power: Green Mega Project "Desertec" Goes

UNCLAS SECTION 01 OF 02 MUNICH 000028

STATE FOR OES/ENV, COMMERCE FOR NOAA

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SIPDIS

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TAGS: ENRG PREL SENV EU GM XF

SUBJECT: Business and Power: Green Mega Project "Desertec" Goes
into Next Round

REF: 2009 Munich 166

MUNICH 00000028 001.2 OF 002


SUMMARY
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1. (SBU) The 400-billion euro project "Desertec," designed to
capture Saharan solar energy and transmit it to European homes, now
has a corporate structure and a CEO. Consortium leader and initiator
Munich Re is confident they can overcome all obstacles, including
big financial and technical problems. The major challenge lies in
politics, working out deals with potential North African host
countries as well as gaining the support of France. There could be
multiple business opportunities for U.S. renewable energy companies
to work with the twelve members of the "Desertec Industrial
Initiative Company. End Summary.

EU Closed Shop but Business Opportunities for U.S. Companies
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2. (SBU) The Desertec Industrial Initiative (DII) (Reftel) includes
ABB, Abenga Solar, CeVital, Deutsche Bank, e-on, HSH Nordbank, m+w
Zander, MAN Solar Millennium, RWE, Schott Solar, Siemens, under the
leadership of Munich Re. Since last November, Desertec has
developed from a consortium to a limited liability company (GmbH)
with a renowned energy expert as CEO and an office address.
Negotiations with French energy companies are also making progress,
according to Ernst Rauch (Head of Corporate Climate Center and
Desertec spokesman of Munich Re),who recently met with Munich
Economic and Commercial Service officers. "EU-based rules and
political relationships" make membership in DII a closed shop for
American firms," he cautioned. Nevertheless, Rauch could envision
business opportunities for American firms either as associated
members, or as second and third-tier suppliers to member companies.
Chinese firms have contacted DII already, but Rauch said they had
not heard from U.S. firms yet. He added that he fully respected
U.S. achievements in renewable energy technologies, particularly in
wind energy. Munich Re would welcome American businesses seeking
Desertec business opportunities. The Managing Director of General
Electric Global Research Europe recently opined that in the course
of implementation Desertec "would probably move further and further
away from the original concept, and adapt to reality." He
nevertheless thought that it was a "promising initiative," and he
did not foreclose that "GE might do business with Desertec one
day."

Challenges: Politics, Money, Water, Sand and Transmission
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3. (SBU) Munich Re anticipates that it will not be financial or
technological issues but political ones that will demand most of the
energy and attention of the newly founded DII Company in the coming
phase. Although the Desertec concept also includes photovoltaic,
wind, hydro, biomass and geothermal energy, the main focus is on
solar thermal power plants that will need to be located in
politically unstable regions. Rauch believes DII will have to
"depend particularly on the contacts o France in North Africa to
overcome political obstacles in potential host countries." He added
that despite the French preference for nuclear energy, negotiations
with French energy companies on joining DII were promising.


4. (SBU) Our interlocutors did not anticipate problems with fund
raising. The German Aerospace Center DLR estimates that the project
will require 400 billion Euros to meet overall costs by 2050.
Rauch said he did not see why large participating banks and
investors like Deutsche Bank and Munich Re itself should not be able
to raise such amounts.


5. (SBU) On the technological side, securing an adequate water
supply is the biggest technical challenge, according to Rauch.
Producing one kilowatt-hour of solar thermal energy requires five
liters of water for cooling turbines and rinsing solar reflectors,
Rauch explained. This huge demand would likely come from
desalinated seawater. Large amounts of fresh water created by the
plants and not used by Desertec would be an important "side-effect"
that arid host countries would highly value, he predicted. Another
challenge is transmission of electricity via high voltage direct
current (HVDC) using cables laid under water and across long
European distances, which is expensive and complex. However, a
senior Siemens representative told Munich Pol/Econ Chief recently
that Siemens has new technology that will make HVDC more feasible

MUNICH 00000028 002.2 OF 002


and profitable for a project like Desertec. He agreed that "water
is the number one challenge, after money and political security for
the project."

Reality Check Copenhagen
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6. (SBU) The Desertec initiators were disappointed about the
results of the Copenhagen climate change conference. Even though
Munich Re, as an insurance company, would probably benefit
short-term if the risk of climate-driven natural disasters
increased, they would have wished for a more concrete agreement at
Copenhagen due to their involvement in Desertec. The increased
price tag for carbon dioxide emissions provided by a global Cap and
Trade system would make the costs for an alternative like Desertec
look more reasonable," Rauch said. He added that as a result of
Copenhagen, DII will seek to work more with the private sector
instead of relying on "positive political forces."

COMMENT
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7. (SBU) Renowned economists remain skeptical about the financial
feasibility of the high-risk Desertec project. Although Munich Re
might benefit as an insurance company, international regulation of
carbon dioxide emissions will be essential to raising sufficient
long-term funds from investors. Besides money, there are hefty
political and technological problems. GE has not closed the door to
Desertec. Now is the time for other American firms to get to know
Desertec in order to position themselves for the long term.

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