Can the sun save the Greek economy?

German Finance Minister Wolfgang Schäuble has proposed that developing green-energy resources could be a good way for Greece to generate much-needed economic growth. On paper, it sounds like a perfect solution to the country’s dire fiscal problems: Greece, according to Schäuble, could export solar electricity to Germany.

At first glance, monetizing an abundant natural resource (solar energy) to strengthen the national accounts sounds like a straightforward idea, particular given that electricity in central and northern Europe is becoming more scarce and expensive, owing to Germany’s decision earlier this year to phase out nuclear power. But has Schäuble really found a magic bullet to hold down German electricity prices while restoring economic growth to Greece? Yes and no.

First, the bad news: electricity currently produced in photovoltaic installations is far from price competitive with conventional technologies. “Grid parity”– meaning that the cost of electricity produced by a rooftop solar panel is equal to that of electricity from the wall socket – will only be reached in the middle of this decade.

Even then, solar power will still be more expensive than conventionally produced electricity, because “grid parity” excludes transmission and distribution costs, which typically account for about half of the final electricity price. Moreover, even if solar power were competitive, exporting it to Germany would not make economic sense: the required transmission lines do not exist, and the power losses incurred in transporting electricity over long distances is a disincentive to building them.

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