Renewable Energy Review: United Arab Emirates

Here is the firm’s assessment of the United Arab Emirates (UAE).

Energy Market Overview

Being one of the few federal state structures in the region, the UAE enjoys a healthy competitive tension among its seven emirates. This has certainly left its mark on the power sector, with both Dubai and Abu Dhabi, for example, pursuing a slightly different approach to market structuring and regulation. 

The Abu Dhabi Water and Electricity Authority (ADWEA) and Dubai Electricity and Water Authority (DEWA) oversee the power sectors in Abu Dhabi and Dubai respectively. Both have experience of attracting private investments in conventional power generation through the use of long-term PPAs. ADWEA has developed four IPPs via joint venture arrangements with international companies, while DEWA has embarked on a program consisting of six IPPs, the first of which was the recently closed US$1.3b (€1.01b) Hassyan 1 IPP.

In an approach that is fundamentally different from many other MENA countries, the UAE tends to shape its markets not just through independent regulation, but also through the creation of privately structured, government-backed entities such as TAQA and MASDAR. These are able to channel government funds into infrastructure projects through effective partnering with the private sector at a global level, to deliver market-making projects and transactions.

Both local and international banks seem to have an appetite to fund renewable energy projects in the UAE. Giants such as BNP Paribas, Société Générale and the National Bank of Abu Dhabi have recently financed the Shams 1 solar project.

The UAE, however, currently lacks a comprehensive policy agenda and a renewable energy-specific incentive scheme. The UAE is reported to be contemplating the introduction of green tariffs that give companies generating energy from renewable resources the right to feed electricity into public grids, and obtain fixed rates for each kWh produced. If implemented, this policy will undoubtedly improve the UAE’s overall attractiveness to cleantech investors.

Renewable Energy Potential

Realizing the risks of being largely exposed to fuel prices, the Government has effectively sought diversification of its energy mix away from gas and toward clean energy such as renewables and nuclear. The UAE enjoys reasonable renewable energy resources, with an average vertical solar irradiance of 2120kWh/m2/year and an average monthly wind speed of 4.2–5.3 m/s in coastal areas. The UAE is also recognized for its commitment to the global carbon agenda and has planned to reduce its CO2 emissions by 30% by 2030.

With the above drivers in mind, the announcement of the country’s aims to attract AED367b (€77.45b) of investment in alternative and sustainable energy projects by 2020 was no surprise. Both Abu Dhabi and Dubai are targeting the generation of 7% and 5% respectively of total power demand from renewable sources by 2030. 

Project and Market Activity

Unlike many of the GCC countries, the UAE presents strong evidence of its commitment to delivering the renewable energy and carbon reduction targets. The creation of Masdar, the UAE’s multi billion dollar investment company signals the Emirate’s strong determination to lead in the clean-technology market.Masdar is to commence commercial operations of its flagship 100-MW Shams 1 CSP plant in Abu Dhabi by the end of 2012. The company is also waiting for approval from the executive council of Abu Dhabi for the construction of the 100-MW Noor 1 PV plant.

In another strong reaffirmation of the Emirate commitment not only to energy mix diversification, but to the wider carbon and sustainable living agenda, Abu Dhabi launched its Masdar Sustainable City initiative, which will house 50,000 people and will be completely reliant on renewable sources for its power needs, paving the way for carbon-free cities in the region. Dubai has also launched the Mohammed bin Rashid Al Maktoum Solar Park, with a view to establishing 10MW of installed capacity by 2013, and eventually 1 GW by 2030. Bids for the first 10 MW unit are to be issued in 2012, with the first unit scheduled to become operational in 2013.

Wind has not been left out of the mix either. Sir Baniyas Island wind project, with a capacity to produce 30 MW, is expected to be completed in 2013. Plans for a 100 MW wind farm near the Saudi border are also being considered by Masdar.

Outlook

The UAE’s track record of delivering against plans and growing evidence of a project pipeline is gradually contributing to an increased trust by the international community in the Emirate’s renewables program. However, the program still remains highly dependent on government investments in large utility-scale projects, which presents a clear sustainability risk. 

Unless the Government translates its ambitions into well-designed market-driven policies and incentive mechanisms that encourage private uptake of renewable generation capacity, this risk could remain a barrier to more long-term growth.