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Economic Impact Assessment of Desertec in terms of GDP
Abstract:
Previous studies showed that there is a technical potential for solar and wind energy in the
Middle East and North African (MENA) region. Accordingly, this potential encouraged green
energy experts to develop the Desertec concept. This concept aims to provide a substantial part
of the energy needs of MENA countries as well as to meet about 15% of Europe’s electricity
demand by 2050 from renewable energy generated in MENA deserts. However, the technical
aspect is not solely enough to judge on potential power resources in the future. Other aspects are
still questionable and should be taken into consideration since they are of equal or even higher
importance than the technical one. One of these aspects is the economic potential. For this
reason, this paper aims to study the economic impacts of Concentrated Solar Power, Photovoltaic
and wind power anticipated to be generated from MENA deserts on European and MENA
countries. The study includes 44 countries (26 European, 18 MENA). The assessment was
performed in three steps. First, three electricity mix scenarios from the technologies under
assessment are designed for the years 2020 to 2050. These scenarios are: Business as Usual, the
optimistic scenario and the conservative scenario. Second, we chose Gross Domestic Product as
a representative criterion of economic impact assessment. Third, the specific investment,
operation and maintenance cost (i.e. USD/kW) for each technology is multiplied by the future
power anticipated for each of the three scenarios. The results reveal a potential addition on GDP
of about 1,400 billion USD for European and MENA countries by 2050. The study concludes
that MENA deserts not only have the technical but also the economic potential of the coming
green power resources in the future.
Keywords: Renewable energy; MENA; GDP
1 Introduction
1.1 The Desertec concept
The huge MENA deserts offer enormous solar resources. “The area receives in six hours as much
energy from the sun as mankind consumes in one year”, said by Dr. Gerhard Knies. Furthermore,
in some of the MENA countries there are areas that belong to the world’s top sites in terms of
wind potential. These significant resources would allow the local MENA countries to generate
renewable energy and by this supply their growing energy demands. Additionally, they could
export part of the generated renewable power to Europe through interconnected power lines. The
long-term goal of the Desertec concept is to provide a substantial part of the energy needs of the
MENA countries as well as to meet about 15% of Europe’s electricity demand by 2050 from
renewable energy generated in the MENA region.
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1.2 Goal of this study
The aim of this paper is to study the economic impact of power generated from the desert on
European and Middle East North African countries in terms of Gross Domestic Product (GDP)
The study will focus on three technologies which are Concentrated Solar Power (CSP),
Photovoltaic (PV) and wind and will include 44 countries (26 European, 18 MENA). The figure
below shows the countries included in the study.
European
NA
ME
Sub-Sahara NA
Figure 1-1: Study scope1 (1)
2 Desert Power Generation Scenarios
A number of parameters (2 p. 113) are set up to predict the market development of renewable
energy (RE). This includes:
• RE technology production capacities growth rates
• Annual electricity demand
• Peak power demand and reserve capacity
• Cost of electricity
• Financing opportunities
• Policy and energy economic frame condition
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MENA countries: Algeria, Bahrain, Egypt, Iraq, Israel, Jordan, Kingdom of Saudi Arabia (KSA), Kuwait,
Lebanon, Libya, Morocco, Oman, Qatar, Syria, Tunisia, Turkey, United Arab Emirates (UAE), and Yemen
European countries: Albania, Austria, Belgium, Bosnia-Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic,
France, Germany, Greece, Hungary, Italy, Macedonia, Malta, Moldova, Montenegro, Netherlands, Poland,
Portugal, Romania, Serbia, Slovak Republic, Slovenia, Spain and Switzerland
2
Figure 2-2 below shows the electricity demand in MENA and European countries. To meet this
growth in electricity demand there should be sufficient supply. It shows that European’s
electricity demand slightly increases from 2020 till 2040, and then it will start to decrease after
2040. However, there will be a steep increase in electricity demand for MENA countries that
persist even after 2040 to be higher than that of European countries.
3500
3000
TWh/a
2500
2000
1500
1000
500
0
Years
MENA
EU
2020
1139.5
2785.5
2030
1735.0
2803.8
MENA
2040
2436.5
2877.2
2050
2904.9
2555.1
EU
Figure 2-1: Electricity demand in MENA and Europe (3), (4)2
Three scenarios are designed for desert power generation from MENA countries. From this
power generated a certain percentage is estimated to be exported to Europe which corresponds to
about 15% of European electricity demands by 2050.
The first scenario is Business as Usual (BAU). It is based on data from the national strategies in
each country for renewable energy. The unavailable data are taken from DLR3’s studies, “MEDCSP (2005)” and “TRANS-CSP (2006)”. This is the reference scenario since most of the limiting
parameters are assessed in both MED-CSP and TRANS-CSP studies. This scenario takes into
account all policy measures to support renewable energy either under way or planned around the
world. It also assumes that the targets set by many countries for renewable resources are
successfully implemented.
The second scenario is the optimistic scenario. It is 25% above BAU scenario. It assumes that the
renewable market expansion will be 25% higher. This is due to the creation of a good market
environment for renewable energy technologies supported by a well-defined frame condition for
energy policy and regulation, more availability of finance, higher technology growth rates,
increased energy demand accompanied by a rise in fossil fuel prices and consequently rising CO2
certificate trading price.
The third scenario is the conservative scenario. It is based on 10% lower renewable market
growth from BAU scenario. A high risk perception by potential investors is usually associated
with new technologies, further elevating their cost. It assumes also the unclear energy policy
frame condition and internal political instability in MENA countries does not attract investors.
2
3
Europe’s electricity consumption does not include Albania and Moldova
German Aerospace Center
3
Moreover, the discovery of new reserves for oil or natural gas makes the policymaker reluctant
to renewable energy.
Figure 2-3 shows the projected installed capacity from the selected technologies in MENA
countries for the three scenarios including the cumulative annual growth rate (CAGR).
Figure 2-2: Installed capacity in MENA in GW, 2020 – 2050
Figure 2-4 shows the electricity generated from the installed renewable desert power in MENA
region and the export portion to Europe which is estimated to be 22% from the generated
electricity with 10 % losses during transmission so that it meets the target of Desertec concept,
which is to cover 15% of Europe’s electricity consumption in 2050.
Figure 2-3: Electricity generated from MENA and export to Europe
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3
The economical parameter GDP and assessment methodology:
The GDP is the market value of all final goods and services produced within a geographical
entity within a given period of time. For any of the calculation methods, it is essential for GDP
that the expenditure for consumption is final for the given time period used (mostly annual or
quarterly), i.e. the same resources will not be used for further production in the same period.
Next to final consumption expenditure, investments by firms (into capital goods) are also part of
final demand in as far as the investment goods are durable and are not used up in the same
period. Applying this logic yields two basic components of GDP from the expenditure side:
Consumption Expenditure + Investment Expenditure = GDP
In modern accounting practice, two modifications to this basic identity are made. The first one is
to treat the government and private sector separately, based on the different tasks and incentives
underlying these two sectors. The second one is to account for the fact that not all domestic
production leads to domestic consumption, but exports and imports change this picture. The
above aggregate will already include imports as their final consumption is on the domestic
market (even though production is abroad). But it will not include exports as these are used for
final consumption on the world market, yet their production is at home. One way to correct for
this is to use net exports (exports minus imports, denoted "X"), thereby capturing the net
contribution of foreign production to domestic consumption (5 pp. 10,73).
C
+
I
+
G
+
X
= GDP
Consumption + Investment + Government spending + (Export-Import) = GDP
This study will focus here on the investment component as a result of desert power generation.
The construction of new renewable power plants involves investment, operation and
maintenance costs. Part of these costs will be represented as imports since not all the
construction parts, operation and maintenance can be done by local people domestically. Thus,
the investment cost and the operation and maintenance cost fall under the investment component
of GDP. The imported part will be subtracted from these costs. Table 3-1 shows the domestic
and imported specific investment cost and operation and maintenance cost in USD / kW for the
three technologies (Wind, CSP and PV). Table 3-2 shows the domestic share for each technology
for both investment and O&M costs which is based on assumption. It is assumed that the
operation and maintenance costs will have 90% domestic share in 2020, and then it reaches
100% in 2030 due to know-how transfer. The domestic share in investment cost in case of wind
and CSP will be higher than in PV due to the complexity in PV panels manufacturing which are
the main parts of the power plant. While in case of wind it may be still difficult for MENA
countries to manufacture the motor only while for CSP, it will be the same for the receiver and
steam turbine manufacture. According to the installed capacity, the addition to the GDP can be
calculated.
5
Specific cost
Domestic Cost
Import Cost
2020 2030 2040 2050 2020 2030 2040 2050
PV
Investment cost ($/kW) 888 616 550 609 888 411 236 152
O&M cost ($/kW/a)
14
13
11
10
2
0
0
CSP
Investment cost ($/kW) 3531 3410 3780 4160 1513 853 420
189 180 160 155
21
0
0
O&M cost ($/kW/a)
Wind
Investment cost ($/kW) 599 666 725 805 399 286 181
41
43
41
41
5
0
0
O&M cost ($/kW/a)
Table 2-1: Specific investment, operation and maintenance cost (6)
2030
2040
2020
PV
Investment cost
50%
60%
70%
O&M cost
90%
100%
100%
CSP
Investment cost
70%
80%
90%
O&M cost
90%
100%
100%
Wind
Investment cost
60%
70%
80%
O&M cost
90%
100%
100%
Table 2-2: Domestic share in investment, operation and maintenance cost
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Results and Discussion
Figure 4-1: Impact of desert power generation on GDP
6
0
0
0
89
0
2050
80%
100%
100%
100%
90%
100%
Figure 4-1 illustrates the impact of desert power generation on GDP for European and MENA
countries for the three scenarios. It can be observed that the total addition on GDP for MENA
countries could reach about 1400 billion USD in 2050 where about 20 billion USD of this
amount will be added to Europe’s GDP due to their technological share in the desert power
generation projects. This addition will have a positive effect on the economy of all countries
involved. Moreover, other components of GDP parameters are not considered in the study which
adds more benefit to GDP.
5 Conclusion
According to the results obtained from this study, it is concluded that there is a huge treasures in
MENA deserts. These treasures are solar and wind energy. They can cause an economic
revolution in MENA countries. The study shows that the impact on GDP behaves more
positively for both MENA and European countries. Therefore, there is an economic as well as
technical potential of the Desertec concept for European and MENA countries.
Reference
1. Desertec countries. [pptx document] Munich, Germany : Dii, 2010.
2. Trieb, Franz. MED-CSP. Stuttgart : DLR, 2005.
3. DLR . DLR. DLR website. [Online] April 16, 2005. http://www.dlr.de/tt/MED-CSP.
4. DLR. DLR. DLR web site. [Online] June 2006. http://www.dlr.de/tt/TRANS-CSP.
5. Goossens, Yanne. Alternative progress indicators to Gross Domestic Product (GDP) as a means
towards sustainable development. Brussels : The European Parliament's Committee on the Environment,
Public Health, October 2007.
6. Teske, Sven. Energy revolution world energy scenario third edition. s.l. : Greenpeace International,
EREC, 2010.
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