Masdar moves forward

Shams I reaffirms Abu Dhabi's renewables drive.

Masdar City is still under construction, the first buildings are scheduled to open in Q3 2010.
Masdar City is still under construction, the first buildings are scheduled to open in Q3 2010.

As doubts started to surface about Abu Dhabi’s commitment to its renewables drive, a record-breaking solar project and the region’s first feed-in tariff policy are a bold reaffirmation of the Emirate’s ambitions.

On June 9, Masdar, the state-owned organisation promoting renewables and cleantech, announced that it had awarded the contract for the construction and running of the region's largest concentrated solar power plant.

Coming in the wake of job cuts at Masdar City and speculation about the future of the carbon neutral city being constructed in Abu Dhabi, this was good news indeed.

The 100MW Shams I independent power plant (IPP) comes at a cost US$600 million, and will be operational by the third quarter of 2012.

The plant will be majority-owned by Masdar, who will hold a 60 percent stake in the project, with Abengoa and Total holding a 20 percent stake each.

The plant will consist of 768 parabolic trough collectors, to be supplied by Abengoa, stretching over an area of 2.5 square kilometres.

It will displace approximately 175,000 tonnes of CO2 per year, equivalent to planting 1.5 million trees or removing 15,000 cars from Abu Dhabi’s roads, Masdar proudly points out.

Shams I will be located 120 kilometres from Abu Dhabi in Madinat Zayed, an area set aside for future solar projects. Construction is to begin within three months of the announcement.

Confidence booster
Masdar is the cornerstone of Abu Dhabi’s renewable energy drive. Delays to both Masdar City and Shams I due to the global financial downturn and illiquid credit markets, as well as reports about the organisation slashing about twenty percent of Masdar City’s workforce, led some to believe that the renewables flagship was running out of steam.

At the Shams I press conference, Dr. Sultan Al Jaber, Masdar’s CEO, was keen to dispel such doubts.

“Shams I is one of the many projects we are hoping to develop in the coming years to meet this target,” said Al Jaber, who then went on to outline the benefits of this benchmark energy project.

“Shams I will allow Masdar to transfer to Abu Dhabi the know-how and expertise we have gained from our involvement in developing world-class renewable energy projects abroad, thus not only opening the door for renewable energy projects in the UAE but also for technology transfer. [...] Shams I will help us lower the costs of future projects.”

Green tariff
One of the most significant aspects of Shams I is the introduction of a ‘green tariff’, by which the government compensates ADWEC, the Abu Dhabi Water and Electricity Company, for the shortfall in revenue stemming from subsidised electricity rates and high production cost.

This is the first government initiative to promote the use of renewable energy through subsidies, and is similar to the feed-in tariffs applied in countries around the world.

Feed-in tariffs usually imply that electricity companies pay providers of renewable energy a higher rate for their energy, the cost of which is then passed down to the end user. In the Middle East, where electricity is generally sold below production costs, such a model was not to be expected.

“The government has to subsidise,” says Abhay Bhargava, industry manager at Frost and Sullivan, a business consultancy.

“The electricity companies in the region have to get gas at a subsidised rate if they want to sell electricity at the prices that they do. Its just a continuation of the power generation policies in the region of subsidising the power generator.”

The adoption of the tariffs is important to attract private investors to future renewable energy projects in Abu Dhabi, says Bhargava , who believes that the emirate is setting an example that its neighbours are likely to follow.

“Abu Dhabi is giving an indicator that it can be done by other countries in the region.”

Key decision makers in Abu Dhabi expect the production costs of renewable energy to come down, perhaps even to the extent that a green tariff will become redundant.

“The cost per unit will come down – and might reach a point where we won’t need a green pricing mechanism,” said Nick Carter, director general of the Abu Dhabi Regulation & Supervision Bureau, at the press conference. Carter refused to reveal the financial details of the tariff, but said the model will be applied to other renewable projects.

On target?
Demand for energy in the Emirate is estimated to stand at a whopping 20GW by 2020, says Hilal Al Zaabi, project manager for Shams I. Carter points out that power demand increased by 11 percent in 2009.

Including exports to the rest of the UAE, demand for power originating from Abu Dhabi’s power plants increased by 16 percent.

Such figures drive home the need for further development of renewable sources of energy, should the seven percent target be met. Some observers, however, point out that adjustments on the generation side will not be sufficient. Efforts will need to be made curb consumption, too.

“It doesn’t make sense to put in 100MW of renewable power, and then, because consumption is increasing at a breakneck pace, go ahead and put in another 200-300MW of conventional power. That just skews the equation again,” says Bhargava.

Masdar City – The Vision remains the same
Masdar City, carbon neutral project located about 17 kilometres from downtown Abu Dhabi, hopes to become a free zone brimming with companies, researchers, and academics from across the globe, an international hub for companies and organisations focused on renewable energy and clean technologies.

The city will host the Masdar Institute of Science and Technology, which is collaborating with the Massachusetts Institute of Technology (MIT) to develop advanced energy solutions, sustainable technologies and policy.
Construction began in 2008, and the first buildings are scheduled to open in the third quarter of 2010.

Faced with delays resulting from the economic and financial turmoil of the recession, the project has been placed under review. Speaking at the launch of the Shams I projects, Masdar CEO Dr. Sultan Al Jaber fended off suggestions that a revised master plan will abandon the original size and ambitions of the project.

“Masdar City is an important component of Masdar. While the review is very much required, the vision remains the same, and we won’t scale back or scale down. But we are much smarter than when we started. There have been lessons learned and we want to capitalise on them.” Asked specifically whether the development will remain carbon neutral, he repeated that “the vision remains the same.”

Talking to Bloomberg at a conference at the end of June, Richard Reynolds, Masdar’s head of supply-chain management, said that the revised master plan would be announced in the following two to three weeks.

One of the issues being considered in the review is “how to make Masdar economically viable,” Reynolds told the newswire. The commencement of the Shams I is likely to give the project some added momentum.

“Masdar City has to be looked at as the launch vehicle for clean tech companies wanting to establish a presence in the region,” says Abhay Bhargava, industry manager at Frost & Sullivan.

“I think Masdar City should get a boost by Masdar itself being active in such a large renewables project in the region.”

Total involvement
The involvement of Total in renewable energy projects in the region is more proof of the company’s changed strategy.

“Total has recently increased its involvement in solar technologies, making it one of its favoured future energy bets, as well as working with Masdar as a way of enhancing its relations with Abu Dhabi, where it has significant oil and gas interests,” writes Sam Ciszuk, analyst at IHS Global Insight, in a research note.

“Its good to see Total in the picture, participating in a renewables project in the region, especially if you look at BP who have been withdrawing from renewable energy over the last year of so, both in region and globally,” adds Frost & Sullivan’s Abhay Bhargava.


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