BMI View: News that two of the most ambitious and largest renewable energy projects in the world have been abandoned over the last two months comes as no surprise and falls in line with our underlying views of both Project Helios and the Desertec Industrial Initiative (Dii). We maintain our belief that large-scale renewable projects that will export electricity are not feasible, particularly given the current economic climate prevailing in Europe.
We have long-held a pessimistic outlook towards both the Desertec Industrial Initiative (Dii) and the Project Helios renewable energy projects - citing them as overly ambitious, costly and unnecessary given the current power demand dynamics in Europe . This view has played out, as it was announced over the last two months that both projects have been abandoned.
Desertec Industrial Initiative
The Dii is a EUR400bn solar power proposal that involves the construction of solar power plants across a 6,500 square mile area in the Middle East and North Africa (MENA) region. The project envisages generating 1,064 terawatt hours (TWh) of electricity to supply one-fifth of the EU electricity by 2050 via subsea transmission lines.
The Greek government pledged an area of 200sq km of public land in Crete for the installation of photovoltaic (PV) panels, with the aim of exporting the electricity back to Northern Europe - primarily to Germany. The initial plan was for a facility of 10GW to be built, at an estimated cost of US$27bn.
However both projects have faced numerous setbacks since inception. In October 2012, the Helios project was downgraded to a solar project of a maximum capacity of 500MW (see 'The Sun Is Setting On Project Helios', October 18 2012) and the Dii was thrown into question late in 2012 when a number of key stakeholders, including Siemens, pulled out of the project (see Desertec Remains A Mirage, 12 November 2012). Now, recent announcements in May and June suggest that both projects have been abandoned entirely.
Although on paper the projects appear appealing, we question the feasibility of large scale - export - driven renewable energy projects, and this recent announcement reinforce s this view. Our view is based on three primary factors:
The whole premise behind these type of projects is to export the majority of the generation output to Europe. However, power demand in Europe has been notably lacklustre over the last couple of years as the economic slowdown has negatively affected electricity consumption. Although we do expect this to pick up slightly over our ten-year forecast period, we expect growth to remain subdued. Without strong demand to drive the projects, it is unlikely that they will gain traction.
|Lack Of Demand|
|Electricity Consumption Growth, By Country|
In terms of infrastructure, power lines currently in place are unable to cope with the amount of electricity that would be needed to successfully implement the mammoth renewable projects. A huge amount of investment would be required in order for the transmission network to carry the planned load without incurring large line losses.
The initial capital costs for the projects are extremely high and insufficient project financing has been a recurring issue during the development of both Desertec and Project Helios. This is exacerbated when the current economic climate is taken into consideration and it seems highly doubtful that European governments will focus investment into overseas power markets before ensuring domestic funding is available .