Helios to the Rescue

Why solar energy is the key to reanimating the Greek economy

07/02/2012 | by Sascha Müller-Kraenner, Martin Kremer

Category: Renewables, Resources and Energy, Economy and Finance, Finance, Financial Regulation, Greece, Southern Europe, Europe

How can the Greek economy be brought back on its feet? One recipe for success is investments in renewable energy. Initiatives like the Helios Solar Project, which was initiated by the government in Athens, could boost exports to Germany and other countries and thus improve Greek trade deficits.

Until now, Greece has been inadequately connected to the European energy market. Indeed, European politicians and the European economy have yet to back an expansion of the trans-European electricity grid to the sun-drenched countries of Southeastern Europe. Instead, priority has been given to the overpriced and politically insecure Nabucco gas pipeline project. A European initiative to expand renewable energy could correct this course and give new incentive for growth and integration in Europe and its problem regions.

The Future Is Renewable

The Nabucco project is the most potent symbol of the outdated belief that Europe’s energy supply can only be secured through increased imports of oil and gas. But the European Commission has embraced the fact that the future belongs to renewable energy – and that it will make up the majority of Europe’s energy supply and cover almost the entire electricity market by 2050. The future of the European energy market, which is ciritical for the security of Europe’s energy supply, lies in the forced decentralization of renewable power generation combined with an expansion of the trans-European electricity grid. The development of solar power in Greece, accompanied by a corresponding expansion of the European network, could become a genuine Nabucco for the European energy supply.

A study by the German Aerospace Center (DLR) predicts that by 2050, Greece will be able to cover 144 percent of its electricity needs with renewable energy. Consulting firm Ernst & Young’s solar potential index ranks Greece sixth out of 35 countries. In some places, Greece gets twice as many hours of sunlight as Germany. Even without aid, photovoltaic panels on the Greek islands would be competitive immediately.

If Chancellor Merkel, economics minister Philipp Rösler, and finance minister Wolfgang Schäuble have their way, the promotion of solar power within the framework of Germany’s investment and growth offensive in Greece could develop into a business model for Southern European countries. Hans-Peter Keitel, the president of the Federation of German Industry (BDI), has spoken of an “energy pact for Southern Europe,” which would allow a structurally weak Greece to invest in solar energy in order to sell electricity from renewable sources to Germany.

9 Billion Euros in Potential Growth

According to consulting giant McKinsey’s study “Greece In Ten Years,” the country’s potential for growth in the energy sector amounts to 9 billion euros. The German solar industry is now in crisis due to growing competition from China and it is searching for new export markets. Greece is geographically closer and politically more stable than the states of North Africa, where the Desertec project should be implemented by 2050.

But there are a number of problems that need to be solved before starting work on the Helios Solar Project, which aims to expand energy capacity to 13 terawatts (TW). These problems will significantly hinder Greece’s ability to find a way out of its acute financial crisis.

Until now, Greece’s electricity supply has largely been based on burning local supplies of lignite (brown coal), which is supplemented by imports of oil and gas. Despite its immense potential, Greece’s percentage of solar electricity remains low. In 2010, Greece installed just 150 megawatts (MW) of photovoltaic capacity and doubled its output to 300 MW in 2011. In contrast, Germany installed around 7400 MW of additional photovoltaic capacity in 2010 alone.

Greece will thus have to pay an electricity feed-in tariff that is twice as high as the German rate. However, the main obstacles for expansion are so-called non-economic barriers such as lengthy and expensive permit procedures (which can take up to three and a half years). Moreover, the country’s domestic electricity grid suffers from important weaknesses that have pushed back connection to the grid for up to 5 years, and connections to neighboring countries hardly exist. Domestic firms like state electricity supplier DIE and foreign (sometimes German) firms have invested little. According to Greek statements, as of late investors have had increasing problems accessing capital.

Against this backdrop, foreign and domestic investors need gradual “signals from Athens.” Greece itself has since suggested the creation of a national investment bank according to the model of the German KfW Banking Group (Reconstruction Credit Institute). For Greece, a newly formed national bank must be provided with enough aid from Europe to immediately allow investors to make transactions.

Realizing this, the European Investment Bank (EIB) has proposed a 500-million-euro program through which the EIB can lend to Greek banks and gain a share in national development banks in some EU member states. Potential alternative costs between the Greek feed-in tariff for photovoltaic and the lower prices needed to export electricity could soon cover the cost of building facilities through millions of euros of EU structural support. The European Commission has already reduced the percentage of financing that must be raised by Greece to just 5 percent.

The European Energy Community Treaty (ECT), which was negotiated in Athens between the EU and a number of non-EU countries in 2005, is a potential legal framework for linking Greece with the European electricity market. The original goal of the treaty was to bring the countries included in the Stability Pact for Southeastern Europe closer to the European single energy market. The ECT allows for “politics from a single source” for Southeastern Europe.

Even Turkey, which is today an important hub for oil and gas imports to Europe, could be given a stake in the pan-European electricity market. Turkey has already begun massive investments in renewable energy. Unlike Greece and Western Balkan states, the Turkish economy is booming. Powerful national energy companies and international investors have long since recognized the immense potential for wind, sun, and geothermal energy on the Anatolian peninsula.

Nabucco for the Sun

It is now essential for Europe to utilize Greece’s potential as a “Nabucco for the sun.” At an informal meeting of the EU Transport, Telecommunications and Energy Council in Wroclaw, Poland in September 2011, there was wide support for stronger EU engagement in financing government-subsidized investments in energy infrastructure, especially for member states in Eastern and Southeastern Europe.

To date, a number of Central and West European member states have behaved rather cautiously. But they should keep in mind that, at most, the market will only support 50 percent of the 200 million euros needed for investments in energy transport networks by 2020. When in doubt, contributions toward the targeted renovation of the energy system with sustainable cross-border infrastructure are a better investment than continuous rescue packages for the flagging economies of these structurally weak countries.

Sources of financing for the energy portion of the “Connecting Europe Facility” (so far endowed with 9.121 billion euros) within the EU budget for 2014-2020 could come from a regrouping of research budgets as well as the application of structural and cohesion funds. Under Poland’s EU presidency, negotiations on the upcoming multi-year EU budgetary framework began with an opportunity to place an emphasis on this area.

If Greece undergoes far-reaching reforms, the export of solar electricity could become the flagship project of a new business model for steady and sustainable growth. In addition to high levels of debt, Greece’s lack of competitiveness is the main cause of its crisis. In the long term, the export of solar electricity would lay the groundwork for the creation of a European Community for Renewable Energy as proposed by former EU Commissioner Michaele Schreyer. Just as the European unification process originated with the Schuman Plan, the creation of the European Coal and Steel Community, and the Euratom Treaty, future energy policy could become the driver of political and economic cooperation and integration in Europe. 

SASCHA MÜLLER-KRAENNER is European representative of the Nature Conservancy and a senior policy advisor to Ecologic, a Berlin-based institute for international and European environmental policy.

MARTIN KREMER, M.C.L. is senior fellow at the Stiftung Wissenschaft und Politik in Berlin. 

 

Most Read

Latest blog posts

  • Support For Ukrainian Unbraiding

    How Merkel went from hot to cold on Tymoshenko

    While Yulia Tymoshenko was imprisoned in Ukraine, Angela Merkel was her staunchest ally. But since her release, the relationship has cooled off dramatically. Berlin fears that Tymoshenko is turning into a fervently anti-Russian nationalist in order to win the presidential elections.

  • Paying the Gas Piper

    Former Soviet republics weakest link in EU energy security chain

    The Baltic states, overwhelmingly dependent upon Russian energy supplies, experience most directly the high costs of their neighbor's political pressure on the EU. Could diversification including renewables provide these countries some relief?

  • Greening the Heartlands of Coal in Europe

    New Böll Foundation report sheds light on renewables in Central Europe

    Germany's Energiewende has also impacted Poland and the Czech Republic, but these effects are rarely discussed or well-understood by German lawmakers. EU-wide energy policies are needed in order to ensure that Germany's transition to renewables is permanent, sustainable, and fair to its neighbors.