DLD10 - Solar (Nikolaus von Bomhard)

Well, thank you first of all, Patricia, for a very warm welcome, and I'm pleased to be here with DLD. It's not an obvious visitor, insurer or reinsurer. Well, what does insurance or reinsurance have to do with energy, renewable energy? As some of you may know, specifically reinsurance is very active in reinsuring against catastrophe risks, and therefore we have a core business here. And everything that changes with the global climate, of course, affects us immediately, and that of course then traces into energies and renewable energies. So we think something's going on in our climate. We have global warming. We don't doubt that at all, and we have to do something about it, and renewable energy is one way to do it. And we bring a lot to the table when you discuss climate and renewable energies.

Well, Desertec actually is an old concept. It was developed under the auspices of the Club of Rome and then was driven further by the German Aerospace Research team, but it never really took off. A foundation was founded not too long ago, the Desertec Foundation. And then in the context of a presentation of our company and an interview, in fact, we mentioned it, and since then it really took off. We then thought, well, if people listen to us so well when we talk about Desertec, then let's really push it. And why could we do it? Because as an insurer, reinsurer, you're not obviously and fully in the energy business. We have, of course, as I said, with the catastrophe business an inroad into that business, but we don't have an immediate advantage of changing the energy mix in the world. Therefore, people listened to us, and we were accepted as a coordinator in the project and as an ambassador, pushing the initiative into a status now where you have a limited company fully occupied with pushing Desertec forward.

Well, I would agree it's very late. It's not too late because it's a very slow, creeping process, what happens to our climate right now. But it's very late. Therefore, since you mentioned COP 15, that was a very disappointing event as we see it, because we missed a unique chance to get the world's nations around one topic and deciding or determining how they would like to go forward. It's not too late, however. So if we succeed in bundling up initiatives and ideas into projects like Desertec, which is a big one, in fact, I think we have still a good chance to at least contain the consequences of global warming. And this is what Desertec is about. It's just one huge project, hopefully in the context of many more to come.

First of all, I would say that you always need economic interest to move things forward in our world. So to motivate people to come on board, if you have a philanthropic exercise alone, I doubt that it would really gain traction. So you need an economic interest, and what you as well need is, in political terms, support from the electorate and, by the end of all of it, of course, from politicians. So Desertec—since some of you don't know it, apparently I should make just a short word on what Desertec is about, and then coming to the real challenge of the project, if you like. Desertec is about using the power of the sun in the deserts, and 'tec' comes of course from technology. So what this project tries to achieve is, by combining the power of the sun in the desert zone of North Africa and into the Middle East, by building a renewable energy source of a gigantic size. First of all, to deliver the energy to the countries where you place these solar plants, and two, using the excess energy produced then to, by 2050, deliver something like 15% of the total energy consumption in Europe. I think this is very important to notice: that this project, even though mainly driven by European countries, is for the countries where the plot is actually going to be built. A lot of it is going to be for the North African countries, right? And only what is in excess will be then exported, right? Yeah. This is very important to make that point, because sometimes it's sort of deprecated the project as a colonial or late colonial project or colonialism. It's not. It's first about helping the countries in the region and adding to the development of these countries, because in some of these countries the access to energy is a major challenge. Two, by doing that, you could, for example, also desalinate seawater, which is another challenge of these countries: water, access to clean, potable, drinkable water. And then only once you achieve that, the excess shall be exported and then contribute, of course, as a hard currency income source, if you like.

Yeah, it's a challenge to get all these interests into a meaningful and fair balance. And as I said, you have economic interests involved, because you mentioned the big sum. As of today, we assume it's a 400 billion account that has to be settled to finance all of that. So where should the money come from? But the biggest challenge right now is the political challenge: to get so many nations around the table to agree on a grid, a power grid, to distribute the energy produced across the Mediterranean Sea to Europe or among the countries. And this, I think, is some way to go still for all of us. And you see the interests alone on the North African rim are different. Then you have the Middle East with different interests. You have Europe with different interests. You have different energy strategies in the different countries. Take France on the one side, with 96 or 92% nuclear power production. You have other countries that go rather for hydro power. To get all these interests aligned will be a major challenge for politicians, and then in their countries they must sell, if you like, this idea as well to their electorate. And it can be easily abused, like apparently it happened in one case that you mentioned, that it is another project where foreign money comes in, takes all the gain, and moves out again. That is not the plan, and we have to make sure that we get this message clearly across. It's not this.

I think one of the most important steps right now is putting it on a broader basis in terms of representation of different countries. Right now it's too much of a German exercise. The 12 founding members of this limited company are almost all German. There's one Spanish company, one Algerian company, there's one Swiss company, but most of them are big German companies. So the next round now, the immediate action of the limited company is to extend the group of 12 founding members to 20, and they will almost all be non-German now, to internationalize that setup. And then we will have a second, if you like, circle around this founding circle that will be probably something like 50 to 100 associated members, and here even more, one will have to internationalize the initiative. This is the enterprise side of it, but in parallel and already starting is the political discussion. But here the limited company, of course, does not have the lever they do need. So here's where politicians and politics must come in. We do know that the German government, foreign office specifically, is already active, and from my trips specifically to the Middle East, I do know that these governments are highly interested. Qatar, for example, expressed that very clearly, and since they think strategic long-term, they know oil isn't there forever. We have the sun and we have the financial means to do something. So they are very interested in investing.

Well, I think that would take things probably a little bit too far. We have a problem already in getting interests aligned for a relatively small Desertec, if you think so big. And I would also think that in our society, it is quite good if some of these projects do compete. And I can't imagine a mastermind masterminding the development of various projects of that size. So we have, for example, also CEC now, which is a Northern European activity in trying to build an energy grid for wind power. It's a much smaller project, but I think it's a wonderful project as well. And deep in my mind, I have no doubt that the money will be the issue after all. If you consider the investment portfolios of big energy firms, 400 billion stretched over time is not much.

Well, I think it would be certainly very helpful and probably needed in the beginning to have some sort of a subsidy to incentivize investment on the political side, which I said is the big challenge, not only in terms of internationalizing the project, but also in creating a framework, a financial framework that is safe enough to get investors involved, big investors as well. But by the end of the day, of course, I could imagine that all of us here in the room as an individual, as companies or governments, will hopefully invest. And the Desertec initiative is about getting everything in place that, by the latest in three years from now, we have prospects on the table that make it possible to say yes, I put my money down and then I will invest. That does not mean that people cannot invest already, as they do, but that should kick the investment to a level where we really march forward and change the world by this investment.

Certainly energy is a wonderful export product, and since sun is not limited in the deserts, they all in theory could produce well in excess of their local and national need. One of the challenges, but we don't consider it a major challenge, is transport itself. And you mentioned the 3,000 kilometers, but we feel that with today's high voltage direct current technology, it is certainly possible, and the leakage is such that from an economic standpoint, it's still worthwhile. 3,000 kilometers is something that you can bridge, and the idea of reaching 90% of world's population with energy produced by the sun, of course, is a wonderful thing.

Well, in the beginning, of course, if they do not have the financial means themselves, in the Middle East probably some of the countries will easily be able to finance everything themselves. That will be very different in the North African region. It will depend. I could imagine that it is a mixed financing: private money most of it, but also government monies, be it from institutional money like European money. Don't forget the Mediterranean Union that is being built; that of course has a lot to say in that project. So it could be a mixture of sovereign government money and private money in these countries. But I would think it would be good if it was mostly private, could be public-private partnerships.

This is not part of Desertec in the narrower sense. And we should not forget that the technology that you see up here, which is the concentrated solar power concept, which uses parabolic troughs to collect the power of the sun, is a new technology. The end part is just steam turbine technology, which is an old technology. So technologically manageable, these plants do exist for more than 20 years. The oldest, if I'm not wrong, is in California. The younger ones you find in Spain and in North Africa. I'm not aware yet if you find them in India and China, but I do know that the Chinese government is actively looking into it and wants by 2020 5% of its energy produced from renewable energies. They have the financial means. They have the deserts. India too. And since India is so strong in wind energy already, I don't see any reason why they should not flip over to solar as well. But the Desertec project is only looking into that region that I mentioned, but it's easily replicated.

Yeah, right. That will certainly—it will hopefully not be just the Germans to finance it, and actually it should go well beyond Germany, as I said earlier on. The question is to what extent will the government support investors by granting or securing certain prices one day to feed the energy into the grid? And we could imagine that in the beginning this will be necessary. It depends also on the price for the hydrocarbon energy, of course; the oil price plays a role there. But what we have—Patricia mentioned that the government in Germany right now cuts back the support for photovoltaic energy—I think is a good step, and you should not endlessly grant money. How much will be on the shoulders of the German consumer one day? I don't know. That is a truly political decision, and I'm pretty sure that the fact that we have a free democracy here and the parties will do their job to find the right balance. And the fact that they cut the photo subsidy is for me a clear sign that politics works. So it will be somehow financed, but that's why COP 15 is also so important, that we do share that burden and do not have one or two countries alone that always take some of that burden alone.

I don't know the project Arena myself. Is it a but master? I do know the green city, but I don't know the project Arena. Is it a solo project as well?

Difficult to say. Certainly it's different from what you discuss here, because the disruptors here sometimes start in the famous garage and then expand and extend their activities. And here one could say, well, you start pretty big right from the start, with a higher risk therefore. But I think if we have enough private money involved, there are checks and balances all the time. Does that make sense? Won't that make what we need to really be successful? And as I said, the technology as such is not so new. So the risk of doing something where you all of a sudden find out, 'Oops, it doesn't work'—for example, because these mirrors that you see here, they scratch too easily for the sandstorms, what have you—all these things have been tested. Transport has been tested. So there are efficiency gains to be made which will improve the economic account, if you like. But it's not that they start from scratch and don't have this high sort of pilot phase risk anymore. Still, however, if fossil energy is too cheap too long, it will at least take longer until these technologies have a breakthrough. But I don't doubt so much that we have to wait long. We have seen some spikes in the oil price anyway. And if the demand grows and increases again, then the price per barrel of oil will be, in quotes, helpful and push these technologies. But you're right, of course there is a risk involved. But I would think, as I said earlier on, the technological side and economic side is not as much a challenge as the political side.

Yeah, very important question, also a question of the top public domain. And first of all, let me start from the diversification standpoint. Of course, it's better to further diversify energy sources. Did you have Eastern Europe alone, did you have Libya alone, or whoever it was? Of course, it's not as good as having maybe 25 countries joining the energy producing group. The politically maybe most appealing part of Desertec is what I—and I know would positively respond to your question—is that across religions, across the economic development of these countries, you tie them, or try to tie them together with that project. Hopefully that will contribute also to stabilization in terms of political uncertainties. However, you're right in asking the question, there is a risk. You can diversify part of that risk by building several transportation lines, so that you never only depend on one country, and by building a grid in these countries also, you take some of that risk out. But you're right, there is a risk left. But I'm hopeful that by alone by negotiating and dealing with that project, these nations grow further together and it will stabilize the region to some extent.

Yeah, that is a good question. Also, I'm not sure yet what by the end of the day we will see, but there are agencies in the world already to some extent managing connections or grids or joint activities of that kind. And it will be probably by the end of the day some sort of agency that looks into it, because you have to, of course, discuss prices for using the transportation lines. We have an agency here in Germany for that, and you will have something of that kind as well, together with the private industry at the table. But it will be a political decision by the end of the day how exactly the grid or the connections will be run. Therefore, it is so important that you build a long-term certainty as to what politicians might do, because otherwise investors will not invest. They will not risk having every two or three years a complete change in the strategy. But that again comes back to the first question: that stabilizes countries and regions, and the more they are dependent on that export, the more of a stabilizing factor Desertec can become.