One Plan to Solve the Euro Zone’s Debt and Energy Crises

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The 17-member European Monetary Union (euro zone) has been front-and-center in the media again of late as sovereign and banking sector debt problems persist. Following in the footsteps of Greece, Ireland and Portgual, Spain this weekend became the latest euro zone “periphery” member to seek EU aid as it seeks to shore up banks ailing from a hangover of bad loans made during the country’s housing and property boom.

Euro zone leaders, led by Germany, have taken on a strictly hard-line, austerity-driven approach to trying to solve the debt crisis. Calls for EU leaders to augment emergency measures taken to date with pro-growth actions have become increasingly strident as it’s become increasingly clear that strong, strict austerity measures alone is threatening these weaker euro zone members with economic depression. Such calls gained strength with the recent election of Francois Hollande as France’s president.

Renewable energy, smart grid and clean tech offer avenues for EU leaders to implement just the sort of pro-growth measures that can stand the euro zone, and broader global economy and environment, in good stead in both the short- and long-term, according to a group of European economists and scientists.

A Debt-for-Renewables Swap

Enacting concession programs to stimulate investment in renewable energy projects– including large-scale and distributed wind, solar, geothermal, waste-to-energy, biogas, marine and other clean, renewable resources– offers weaker, euro zone periphery countries the opportunity for economic expansion, which will help them reduce bad debts– while also benefiting society and the environment, the group asserts in a June 4 article published in the Netherlands’ NRC Handelsblad.

The linchpin of the renewable energy stimulus-debt reduction program would be to convert existing debts into renewable energy concessions.

“A 30% debt reduction should be possible – assuming a 2.5% average yearly inflation, a modest 1.5 Eurocent profit per kWh in the 2020-2045 period and a conservatively estimated yield of 70 Gigawatt hour per square kilometer per year. Having a 40 billion Euro debt, Ireland ought to give 550 square kilometer into concession. This is less than one percent of Ireland’s total surface,” according to the authors as quoted by Nederland Krijgt Nieuwe Energie (NKNE).

“For Portugal, with 78 billion Euro debt, this would be 1,000 square kilometer or one percent of its total territory. And Greece with a 210 billion debt would amount up to 2,800 square kilometer which is two percent of Greek territory. The energy projects don’t have to exclusively be large-scale and on a few big pieces of land. They could capitalize on vast opportunities for decentralized energy locally as well.”

The Way is Clear, What’s needed is the Will

The authors propose the establishment of a special-purpose investment vehicle just for this purpose through which “creditors should be able to exert their concession rights by financing their renewable energy projects at a low interest rate with the European Investment Bank (EIB),” NKNE writes.

This would dovetail very nicely with the EU’s drive to reduce carbon dioxide and greenhouse gas emissions, improve environmental sustainability and reduce fossil fuel consumption. It’s also eminently practical from an operational perspective, as renewable energy projects, like all energy infrastructure, tend to require a lot of capital up-front and very low operating costs over their life cycles, particularly in the case of renewables, where the cost of fuel for such resources as solar, wind and geothermal energy are free, the authors point out.

The pieces are all there; they just need to be put in place, they argue.

“A plan as presented here can only work if the creditors are willing to think and act from a long-term perspective, one of at least several decades. The advantages are numerous: the land-lease cheap or for free, a low interest rate and a structurally rising wholesale price for conventional energy. Because the demand for land with favorable circumstances (a lot of sun, wind or geothermal heat) is likely to grow, it would be in fact no more than a clever anticipation.”

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