Desertec Italy

E.ON AG (EOAN.XE) and Abengoa SA (ABG.MC) plan to jointly invest EUR550 million to build two thermal solar power plants in Spain, E.ON said Wednesday.

The companies will share the investment and running of the plants equally.

The move marks E.ON's entry into the thermal solar power market. If its cooperation with Spanish solar company Abengoa proves successful, Germany's largest utility by market value plans to pursue more projects with Abengoa in Spain and the U.S., E.ON said.

The Duesseldorf-based power and gas utility said it will join Abengoa in building two thermal power plants near the Spanish city of Seville. Each of the power plants will have a power generation capacity of 50 megawatts. They are expected to be operational in 2011 and 2012, E.ON said.

Once operational, the power plants will produce 190 gigawatt hours of electricity a year, enough to supply 52,000 households, E.ON said.

Thermal solar power combines renewable energy and conventional electricity generation technologies. Sunlight is bundled with mirrors to heat a liquid. That in turn drives a steam power turbine, which is used in conventional power plants.

Frank Mastiaux, chief executive of E.ON's renewable energy unit E.ON Climate & Renewables, said that his company isn't acting as just a financial investor in the project. E.ON is also contributing its expertise in conventional electricity generation, while Abengoa adds its knowledge about thermal solar power plants, he said.

"Solar energy will be the next strong pillar in E.ON's renewables portfolio. Our entry into concentrating solar power complements our recent moves into the photovoltaic business," Mastiaux said.

E.ON and Abengoa are also among the partners in the Desertec Project, which evaluates options to build thermal solar power plants in the Sahara desert in North Africa.

So far, E.ON's renewable energy activities have focused primarily on wind power. Earlier this year, E.ON opened its first solar power farm in France that uses photovoltaic technology.

Over the past year, the company had repeatedly stated its interest in thermal solar power investment and said an announcement was imminent.

Mastiaux Wednesday said that the delay was related to uncertainty over subsidies for thermal solar power plants in Spain.

The Spanish government recently set feed-in tariffs for the power plants like those planned by E.ON and Abengoa at EUR0.27 per kilowatt hour over a 25-year period.

Generation costs of thermal solar power plants range between EUR0.15 and EUR0.23 per kilowatt hour, Mastiaux said.

E.ON has an installed renewable power generation capacity of around 3 gigawatts and plans to increase this to around 10 gigawatts by 2015. For this, the company plans to invest around EUR8 billion between 2007 and 2011.

The joint venture with E.ON is Abengoa's first cooperation with another company on developing solar projects, which are a strategic business for the Spanish company.

"The cooperation with E.ON will allow us to maintain our pace of growth in thermosolar energy in coming years," Santiago Seage, Chief Executive of Abengoa Solar said at a press conference in Madrid Wednesday.

Abengoa is one of the main thermosolar power companies in the world. It currently has seven plants under construction in Spain with a joint capacity to generate 350 megawatts in electricity. Abengoa said it will start building the world's biggest thermosolar plant in the U.S. next year, with a capacity of 280 MW.