Shams Dubai

Time will tell if Dubai's new rooftop scheme will achieve desired results, says Eversheds

Dubai, Shams Dubai, ANALYSIS

By Edward Ellaby, Jean-Pascal Boutin, Tim Armsby - Eversheds

Only time will tell whether Dubai’s new rooftop solar scheme will be enough to drive the level of uptake targeted by the emirate. By Edward Ellaby, Jean-Pascal Boutin, Tim Armsby - Eversheds

Dubai’s Electricity and Water Authority (DEWA) launched the first of its smart initiatives towards the end of 2014, a roof top solar scheme under the title of “Shams Dubai”. This initiative provides for both private and commercial electricity consumers to install solar generation equipment on their property and connect it to the grid.

The main drivers for the initiative are to encourage the use of renewable energy by consumers in the emirate through education and access, and to increase the share of electricity generated from renewable sources resulting in a diversification of the energy mix.

Dubai recently revised its already ambitious renewable energy targets to the impressive figure of 7% by 2020 and 15% by 2030. This will be achieved primarily through the use of solar power generation and is considered achievable in light of the significant drop in sector pricing over recent years.

While the Mohammed bin Rashid Al Maktoum Solar Park will account for over 1GW of generation under current and imminent tenders, the roof top initiative is a key element of an energy strategy that is being backed from the very top of the Dubai government.

In contrast to what many industry players anticipated, there is no feed-in tariff (FIT) or similar incentive, and the whole scheme operates on a net metering basis, whereby the consumer offsets imports from the grid with exports from the PV installation.

There are many different forms of net metering around the world (most notably in the US and, closer to home, in jurisdictions such as Jordan and Egypt) which will be influenced not only by the net metering regulations themselves but also the underlying regulatory regime, property laws and the different industry players in that jurisdiction.

Comparison with Feed-in Tariff
The alternative to net metering is the payment of a feed-in tariff for the generation and/or export of electricity from the PV installation. The key difference is that the FIT regime incurs a cost for the relevant electricity companies/government, though it does provide a long term and secure incentive for the installer of the PV system and/or customer.

Apart from odd exceptions, such as Spain which changed the scheme retrospectively, this system has worked well. The difficulty has been setting the tariff at the right level and ensuring that there are transparent mechanics in place for how and when the tariff is reduced should there be an oversupply of PV systems and/or the cost of PV systems falls. After a bumpy ride the UK has ended up with such a system which is working well for both the government and developers.

The key advantage for net metering is that there is no additional cost for the relevant electricity company/government, however it will only work if the cost of the PV system in terms of $kw is cheaper than the cost of grid imports. As this is a long term investment, the modelling needs to be based not only on today’s prices but also on projected prices until the investment is paid off.

The grid import prices will either be set by the free market or, as in the Middle East, by government. Where it is set by government, one must anticipate that prices will continue to rise in line with inflation, unless there are external influences, such as there being a lot more investment in large scale renewables or the discovery of natural resources which could result in lower electricity prices being imposed by government.

In the Middle East the impact of government subsidies in relation to particular classes of consumers should also be considered.

One additional consideration is for how long the exports can be banked for. The longer they can be banked for the
more viable the scheme. Most commonly the exports can be carried forward for up to 12 months. DEWA has confirmed that under the Shams Dubai scheme there is no time limit to the period during which excess generation can be banked.

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Ownership of the equipment
One of the key variances between different jurisdictions is whether the occupant of the building has to own the PV system. When the occupant has to be the owner of the PV system, such as in Jordan, this obviously makes a developer model a lot more difficult. In Dubai there is no such restriction.

Net metering/connection agreement
It is essential with these types of schemes that there is a transparent and fluid process and documentation for entering into the net metering agreement with the relevant electricity company and/or government body. Most commonly it involves an amendment to the grid connection agreement.

This has to cover not only the process for the initial customer but also if and when the customer changes, the agreement may be in the name of the customer as opposed to the generator or both.

An additional consideration in any jurisdiction is whether there is sufficient grid capacity. Even in relation to residential PV systems this may be an issue, for example where a whole street or complex install PV systems.
Accordingly, it is always advisable, before too much investment is made, to check with the relevant grid company and/or the government body whether there is sufficient grid capacity.

The underlying property law will be an important consideration for developers who wish to participate in net metering schemes. In certain countries, for example in the UK, the developer can lease the airspace of the relevant property. In the Middle East this is generally not possible.

Accordingly, to protect the developer’s rights and title to the PV system, the developer will seek some form of security to mitigate against the customer defaulting and/or selling their premises.

DEWA has been very keen to stress the ease with which consumers, contractors, consultants and manufacturers can participate in the scheme.

Clear and concise instructions are set out on DEWA’s superb website and once a contractor/consultant/manufacturer is approved by DEWA it is listed on the website so as to enable consumers to select pre-approved parties and equipment. The whole process is very streamlined, easily navigated and the timeframes are being measured in days and weeks rather than months.

It remains to be seen whether the current net metering mechanism gives sufficient commercial incentive to successfully drive Shams Dubai forward with the speed and level of uptake that is desired by DEWA and the Dubai government. The emirate has set some very ambitious renewables targets and this scheme is viewed as an essential part of the strategy to achieve those targets.

There are inevitably those in the market that are hopeful for a financial incentive of some sort being introduced to kick start the program. However, that looks unlikely given DEWA’s consistent stance on this point and bullish confidence that Shams Dubai will be a success on its current basis.

There is a tremendous amount of interest in this scheme as sector players work through the financials, margins, contractual structures and security arrangements needed to make this a profitable investment. We are told that the “numbers do stack up” but only time will tell as to whether DEWA will need to review its stance on incentives in order to get the traction it desires.


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