The companies, which include leading German energy giants RWE and E.ON, electro-engineering group Siemens, and major insurer Munich Re, signed an agreement in Munich on Monday.

"Today we have taken a step forward (towards the project's realization)," said Nikolaus von Bomhard, head of Munich Re, which hosted the signing.

The firms grouped under The Desertec Industrial Initiative (DII) plan to build solar power generators in North Africa and the Middle East. The massive project will see investments of up to 400 billion euros over a period of 40 years.

"Of course it is still a long way off, but the enormous interest in the scheme shows we are on the right path," a spokesman for Munich Re said.

A study suggests that with the use of thermal power plants and high voltage direct current transmission lines, Desertec's pioneering foray into the desert could meet 15 percent of Europe's electricity needs by the year 2050.

Gerhard Knies, Chairman of the Desertec supervisory board said the desert is an obvious source of clean power.

"Within six hours deserts receive more energy from the sun than humankind consumes within a year," he said adding that the "time appears right for a truly comprehensive maneuver to combat climate change."

Firms hope project will help combat climate change

Other companies involved in the venture are the Spanish firm Abengoa Solar and the Algerian conglomerate Cevital as well as several German banks and engineering companies.

Under the agreement, a Desertec study office to be established by October will have three years to detail investment plans to create the network of solar farms. Representatives of the Arab League and the Egyptian energy ministry were also present at the signing of the protocol.

Munich Re board member Torsten Jeworrek said the European companies involved had pledged to work "as equals in a sincere and fair" manner with the producer countries.

"If we're successful, we'll make a huge contribution to the fight against climate change," Jeworrek said.

Environmental organization Greenpeace has welcomed the initiative and urged the German government to support it by channelling research funds earmarked for nuclear energy to the solar energy project.

Critics slam huge costs

But critics of the Desertec project have warned that the political situation in many of the producer countries in North Africa is unstable.

The European Association for Renewable Energy, Eurosolar, has said the Desertec initiative is completely unviable.

Herman Scheer, head of Eurosolar and Social Democratic lawmaker in the German parliament said it was not necessary to go to North Africa to collect the sun's rays. "We could invest the 400 billion euros here" Scheer said, referring to the recession-hit eurozone.

He also said he preferred a network of decentralized operators that produced renewable energy from many sources rather than having one key project in the hands of major corporations.

"Nothing will ever come of it (the project)," Scheer said.

He added that the astronomical costs of the gigantic project had been played down while the technical possibilities promised by it had been exaggerated.

sp/afp/reuters/dpa

Editor: Neil King