As of 2020 European Union member states will be obliged to meet at least 20 percent of their energy demands with renewable sources. Germany might need to cover an even bigger proportion with renewables, because the country is shutting down its last nuclear power station in 10 years' time, which is why Berlin is avidly funding the expansion of its renewable energy sector.

But it appears that subsidizing German solar energy is a dead end. German Chancellor Angela Merkel has publicly criticized the fact that 50 percent of the subsidies allocated to renewables in Germany is being spent on solar energy, even though it provides only two percent of the overall power supply. Merkel would like to see the subsidies coordinated at EU level and the sourcing of solar energy from sun-spoilt Greece boosted.

This idea is the brainchild of Finance Minister Wolfgang Schäuble, who first discussed it a year ago with then Greek Finance Minister and current Environment Minister Giorgos Papakonstantinou. The project has since been dubbed Helios. "It will be a state-run company that will establish subsidiaries to produce solar energy," explained Papakonstantinou. Helios is to cooperate with private investors who could, for instance, set up solar panels in state-leased areas.

Helios needs customers

But despite this preferential treatment, there is a problem. Private investors will only be found once it's clear who will be buying Greek solar energy, which is expensive compared to other European sources. EU member states have until 2017 to subsidize their own renewable energy sectors.

Papaconstantinou is confident Helios will see the light of day

But these subsidies can only be used for electricity produced within the respective country. Greece may be spoilt by the sun, but it's lacking the necessary funds to subsidize its solar industry. This means Greek solar energy would be too expensive to feed into the German grid.

But Papakonstantinou says the answer lies in the 2009 EU directive on renewable energy which allows for "bilateral deals among member states." This forms the basis for "negotiations with the German and other governments to support the first phase of the Helios project," the minister says.

If the Greek solar energy sector does indeed receive such support, it could mean that the German government will completely cut its subsidies for German solar energy - a move that would bankrupt many producers in Germany.

That's why both the German and the Greek governments are keen to develop new opportunities for German solar firms to invest in Greece. The Federation of German Industry (BDI), the state-owned KfW Bank and some private banks could help make that a reality. But if it's not clear who will buy Greek power, no one will want to invest.

Ten gigawatts of solar power by 2020

Germany's solar industry could take a backseat if Helios is a success

If it were down to Papaconstantinou, business licenses would be handed out "this year already." The environment minister said that "photovoltaic plants would be built in 2013 and go online in 2014."

In the first phase of the Helios project, which is set to last until 2017, solar plants with capacity of up to 1.5 gigawatts are to be installed. As subsidies are set to expire after that, it is hoped that Greek solar power will ideally be competitive by then. Production would then be raised to 10 gigawatts by 2020, according to Papaconstantinou.

There is just one rather large snag - the existing power lines cannot cope with the amount of electricity that would have to pass through them into western Europe. Papaconstantinou knows that this is a problem that can only be solved at European level.

"The European Commission has already approved a 10-billion-euro program designed to expand the European grid, which Greece will take part in," he said.

Greecewill hold parliamentary elections at the end of April, and it is far from clear who will be running the country then. It is highly likely though that Helios will survive, as it is already factored into the Greek debt reduction scheme.

Author: Panagiotis Kouparanis / nk, ng

Editor: Ben Knight