'Key Driving Sector': Greece Turns to Energy as its Economic Savior

By Paul Glader in Athens

Greece's economy is in ruins, crushed by the country's vast debt load. But government officials say that energy may offer a way out of the mess. And the country isn't picky. Athens is looking to develop renewable energy sources at the same time as it explores for oil.

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In Greek mythology, the sun God Helios, son of Hyperion, drove his chariot across the sky from east to west each day.

Now, energy officials in the financially beleaguered nation are naming a major solar project after Helios and banking on energy more broadly as a possible way out of the financial crisis. That means exploring Poseidon's domain of the sea by expediting plans for oil exploration, offshore wind energy production and, possibly, as a future natural gas hub. It also means completing oil and gas pipelines and privatizing state-owned oil, gas and power concerns.

"Energy is one of the key driving sectors of the economy, much more today than it has been in the past," George Papaconstantinou, Greece's minister for the environment, energy and climate change, told SPIEGEL ONLINE. If you exclude traditional sectors such as tourism, he said, energy "is probably the most dynamic sector, at the moment, in Greece. And it's the one that will be driving investment in 2012 and beyond."

The potential upside for the economy is direly needed. The country of roughly 12 million borrowed its way to near oblivion in recent years, amassing €204 billion ($267 billion) in debt by 2006 and running large budget deficits. Greece's public debt rose to 160 percent of gross domestic product in 2010, putting it at the forefront of the world's most indebted economies. The European Union and its member states created two massive loan packages totalling roughly €220 billion in the past year and forced creditors to accept a 50 percent debt haircut, aiming at helping Greece reduce its debt to GDP ratio to 120 percent by 2020. But amid cost cuts and privatizations, the country must also create growth that raises revenue and reduces unemployment, which topped 16 percent this year.

In a September report called "Greece 10 Years Ahead," the consulting firm McKinsey & Co. suggests that the energy sector could provide some relief. Jobs in the sector should rise to 360,000 by 2021, up from 240,000 in 2010, the study forecast. It also said that energy would be the second largest growth opportunity behind tourism in a scenario which foresees the country adding $59 billion worth of annual GDP to its economy by 2021. Such development, the report notes, won't make Greece an energy behemoth but it would still go "a long way towards curbing the large deficits currently crippling the economy."

The Key to Greece's Future

Solar power represents a significant element of plans to develop the energy sector. Greek officials say their country, with 300 days of sunshine per year, is perfectly suited to produce and export clean solar power to northern European countries such as Germany. While Germany is a major manufacturer of solar equipment and has a huge appetite for renewable energy, it gets 50 percent less sun radiation than Greece.

Helios would involve a €20 billion investment with expectations of up to €100 billion of revenues over the next 20 years, a percentage of which would go to paying down Greece's debt. Papaconstantinou says it would also create up to 60,000 new jobs in Greece.

While EU members have supported the project, first presented in September, plenty of details remain to be ironed out, including feed-in tariffs, transmission, and financing. The project would eventually provide up to 10 gigawatts of solar energy, while the current grid only can transmit two gigawatts. "So it has to plug into the European plan for updating energy grids," Papaconstantinou said. He hopes a framework agreement can be completed soon.

Siemens AG Greece CEO Panagiotis Xynis, whose company is engaged in major solar undertakings globally, said Helios project estimates may be "overoptimistic, at least given the current investment environment." But he agrees several large solar projects in Greece are pushing the industry forward. International consulting firm Ernst & Young rated Greece 11th out of 40 countries for solar energy attractiveness in a recent study. Germany had 17 gigawatts of solar power capacity in 2010, compared to just 206 megawatts in Greece.

The project's timing isn't just auspicious in view of Greece's massive debt problems. Papaconstantinou said Helios would help Europe meet the ambitious renewable energy targets it has pledged to reach by 2020. In addition, Germany this spring elected to decommission its 17 nuclear power plants by 2022 in the wake of the Fukushima nuclear disaster in Japan. Importing clean power from Greece would provide an environmentally friendly method to help plug the resulting gap.

Harnessing the Wind

And it could also help the German economy. Germany's large solar manufacturing industry has been struggling to keep up with lower production costs in China. Papaconstantinou said the Helios project would involve Greece buying solar panels and other equipment from Germany.

But Greece is not just focusing on solar. While there are an increasing number of land-based wind turbines going up, it is the country's offshore potential which has attracted the most attention. "The Aegean is a very interesting and attractive sea for coastal and offshore wind farms because the winds are fairly significant and the waves are not nearly as large as they are in the Atlantic," said Dr. Paul D. Sclavounos, a professor of mechanical engineering and naval architecture at the Massachusetts Institute of Technology in Cambridge, Mass.

Exploiting that potential will not be easy, however. The water surrounding Greece and its islands is deep, Sclavounos points out, requiring special equipment that allows wind turbines to float rather than embedding them onto the ocean floor. Plus, Germany's Siemens AG, a leader in offshore wind turbines, notes that wind projects are extremely capital intensive. "The ability to move forward on big projects and commit capital," is the key ingredient, says Nicos Tsafos, senior manager at PFC Energy in Washington D.C. "That has been impaired."

Still, it is traditional fossil fuel which is generating the most significant levels of expectancy in the country. This autumn, Greece approved plans for oil exploration in western Greece and southern Crete. It has also invited oil companies to conduct seismic tests in the region -- from the Gulf of Patra to Ioannina and Katakolo -- in search of oil. Some estimate Greece has reserves of 300 billion or more barrels of crude oil, the exploitation of which could bring in up to €25 billion in the next two decades.

Such revenues, however, are far from secure. Many believe that the oil fantasy could be just that, and that they will end just as earlier quests for black gold did in the mid-1990s. "There is a lot of mythology around it," said Anthony Levanious, CEO of EnergyStream CMG in Frankfurt, a former energy executive and advisor in Greece. He points out that higher oil prices would be required to pay for deep water drilling.

A Strong Push for Gas

"Look. We are not Saudi Arabia," said Papaconstantinou in response to such concerns. "However, we have been pumping oil for the last 20 years. ... And we are the country in the region with the least exploration at the moment."

Beyond oil, however, Greece is hoping to become a major natural gas hub in coming years. There are currently several oil and gas pipelines in the works that would traverse southern Europe from the Caspian Basin and western Asia to consumers in Europe. Such lines would bring transit fee revenues to Greece, maintenance contracts, cheaper oil and gas prices, while also improving the country's energy security. "We are making a very strong push to make Greece a hub for gas," said Papaconstantinou.

As different pipeline projects jockey for position, Greece is aligning itself with the ITGI (Interconnector Turkey-Greece-Italy) gas pipeline that would move roughly 11 billion cubic meters of largely Azerbaijani gas to southern Europe as early as 2013. It already moves about 750 million cubic meters of gas from Turkey to Greece. New pipelines, storage facilities and natural gas shipping will expand the infrastructure to transport gas to and through Greece.

Furthermore, many believe the country could also build on its expertise in shipping and its geographic center as a regional port between Europe, Africa and the Middle-East, re-inventing itself as an energy transit hub. Greece has a Liquefied Natural Gas terminal operating from the Revithousa Island, 45 kilometers west of Athens, which is currently being upgraded and expanded. Compressed Natural Gas, which involves transporting gas by ship rather than by pipeline, may also have a future in Greece say analysts.

"The gas infrastructure for Greece is quite good," said Levanious of EnergyStream CMG. "You have Russian gas and Caspian gas coming in the form of pipeline gas and liquefied natural gas. Gas is the number one potential for Greece's future."

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