July 13 (Bloomberg) -- Siemens AG, Munich Re and 10 more companies agreed to draw up blueprints for a project to harness power from the Sahara Desert sun to bring extra electricity to European homes.

The plan, including technical and financial requirements to pipe power from the Sahara under the Mediterranean Sea to Europe, will need three years to be developed and incorporated under German law, the companies said today.

Siemens, Germany’s largest engineering company, will try to prove the estimated $555 billion Desertec project is cost- effective, utilizing a free energy source from the sun to provide 15 percent of Europe’s electrical needs by mid-century. The spending may help spur growth in Algeria and Morocco as well as create up to 2 million jobs, Desertec’s developers said.

The solar venture in North Africa and the Mideast “can make a significant contribution to sustainable energy supplies,” Siemens’s renewable energy chief executive officer, Rene Umlauft, said today in an e-mailed comment.

“We are pursuing a visionary plan,” Munich Re management board member Torsten Jeworrek said in a statement. “If it is successful, we will make a major contribution to combating climate change.”

Solar Tech’s Future

E.ON AG “is convinced that the future belongs to solar technology in the long term,” Herve Touati, managing director of E.ON’s climate and renewables unit, said. E.ON, ABB Ltd. and Deutsche Bank AG also are among the companies in the venture.

Years of designing lie ahead before the mostly German promoters can address eco-political hurdles for the venture, Siemens spokesman Alfons Benzinger said. The companies today signed a memo of understanding in Munich to start the process.

Governments in Europe need to create the conditions for investment and development of networks to transport the electricity, including providing research funding with money generated from nuclear and coal-fired power plants, the environmental group Greenpeace said today.

Nine of the companies in Desertec are German and three aren’t, including Spain’s Abengoa SA and ABB of Zurich, the world’s largest builder of electricity grids. The project, which may be extended east to Saudi Arabia, will eventually evolve into an “open and international” group of participants, said Alexander Moranti, a spokesman for Munich Re.

Part of the project also calls for wind turbines to be installed mainly on the northwest coast of Africa.

Potential hurdles include setting up the legal framework in North African countries and the European Union and finding willing investors.

A ‘Fantasy?’

“It’s a fantasy to think that we’ll be shipping electricity from the Sahara to Germany,” said Fritz Vahrenholt, head of the Innogy renewable-power unit of the German utility RWE AG in Berlin. Vahrenholt expressed skepticism that the project will achieve its full size.

The plans so far are based on scientific studies by the German DLR aerospace center that RWE and others spent less than 1 million euros ($1.4 million) to fund, Vahrenholt said.

The project will require high-voltage cables to move power from sparsely populated areas of North Africa under the Mediterranean to Europe, whose transmission grids already are struggling to accommodate power increasingly supplied by new solar and wind farms.

Siemens, based in Munich, and the partners are considering installing solar-thermal systems that heat a fluid by concentrating the sun’s rays onto a tube. The liquid then produces steam that turns turbines. The world’s largest solar- thermal system is in California’s Mojave Desert.

Costs would fall as the project gets larger, helping to lower the price of electricity, said Siemens’ Benzinger, who pointed to the declining price of electricity generated from wind turbines as a possible model. Over the past 20 years, the cost of 1 megawatt of electricity from wind power has fallen from 3 million euros to 1 million euros, he said.

“Saving the world is the future’s biggest ethical challenge, and at the same time it will be the biggest business opportunity,” Gerhard Knies of the Desertec Foundation said today at the news conference in Munich.

The other companies involved in the project are HSH Nordbank AG, M & W Zander Holding AG, MAN Solar Millennium and Schott Solar AG.

To contact the reporters on this story: Jeremy van Loon in Berlin at jvanloon@bloomberg.net.

Last Updated: July 13, 2009 12:02 EDT