Saturday, August 23, 2014
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Re-Energizing the Eurozone

UTRECHT – As Europe’s sovereign-debt crisis threatens to unravel the common currency and roils the region’s banks, Europe’s pioneering “green energy” sector could be at risk. In a recent article, the Dutch economist Sweder van Wijnbergen argued that addressing the eurozone’s economic woes would require debt reduction and an investment program. In fact, Europe’s financial crisis and its looming energy crisis can be tackled with one program: converting existing debt into renewable-energy concessions.

The eurozone’s troubled periphery – including Greece, Italy, Portugal, Spain, and Ireland – offers excellent conditions for harvesting renewable energy from the sun, wind, and geothermal sources. By lending small areas of their territory for renewable-energy concessions, these countries would benefit in the short term by reducing debt and stimulating their economies. They would also help to put the eurozone – as well as the global economy – on an environmentally more sustainable long-term development path.

Consider a scheme in which such concessions’ size is commensurate with that of a country’s debt. For example, Ireland’s sovereign debt totals €40 billion ($50 billion), so it might “concede” 550 square kilometers – which amounts to less than 1% of its territory. Portugal, with €78 billion in debt, should concede 1,000 square kilometers, or 1% of its territory. And Greece, with €210 billion in debt, should concede 2,800 square kilometers, or 2% of its territory. Assuming 2.5% average annual inflation, a modest €0.15 profit per kWh in 2020-2045, and a conservatively estimated annual yield of 70 GWh per square kilometer, these countries’ debt could be reduced by up to 30%.

Projects would not have to be large-scale, or use significant expanses of contiguous land. On the contrary, concessions for projects could be distributed more widely among smaller areas.

Beyond reducing debt, renewable-energy concessions would stimulate troubled eurozone economies by employing people to construct and maintain the projects – thereby helping distressed countries to reduce their record-high youth unemployment. And, amid fears of sovereign default, this approach would be a welcome relief for creditors.

In order to facilitate such a strategy, a special-purpose investment vehicle should be established, through which creditors can finance their renewable-energy projects with the European Investment Bank. As renewable-energy installations typically require high initial capital investment, low interest rates are crucial. Once installed, operating costs are very low. After all, the energy sources – the sun, wind, and heat – are free.

Moreover, Europe’s leaders should support the continued expansion of the European super grid, which would connect participating countries with a high-voltage direct current (HVDC) power grid. This would allow the entire region to share the most efficient power plants, creating a reliable, balanced supply of renewable energy.

Related schemes should also receive European support. For example, DESERTEC invests in renewable-energy projects, such as solar-power stations, in Northern Africa and the Middle East, in order to supply electricity to Europe via HVDC lines.

With rising conventional-energy prices, the time is right to invest in renewable energy. But this plan can work only if creditors are willing to act in their long-term interests. By taking advantage of such a concession program, forward-thinking investors would not only help themselves; they would stimulate European economic growth and contribute to a more sustainable future.

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