VZCZCXRO4166
PP RUEHIK
DE RUEHMZ #0028/01 0470842
ZNR UUUUU ZZH
P 160842Z FEB 10
FM AMCONSUL MUNICH
TO RUEHC/SECSTATE WASHDC PRIORITY 5040
INFO RUEKJCS/SECDEF WASHDC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RHEBAAA/DEPT OF ENERGY WASHINGTON DC
RUEHZG/NATO EU COLLECTIVE
RUCNMEU/EU INTEREST COLLECTIVE
RUCNFRG/FRG COLLECTIVE
RUEHZN/ENVIRONMENT SCIENCE AND TECHNOLOGY COLLECTIVE
RUEHEE/ARAB LEAGUE COLLECTIVE

UNCLAS SECTION 01 OF 02 MUNICH 000028 
 
STATE FOR OES/ENV, COMMERCE FOR NOAA 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
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 
------- 
 
¶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 
----------------------------------- 
 
¶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 
----------------------------------- 
 
¶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 
------------------------ 
 
¶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 
------- 
 
¶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. 
 
TRIBBLE