As part of the UAE’s “Energy Strategy 2050”, the nation aims to have renewable sources contribute to 44% of its total energy mix, while Dubai in particular, has taken it a step further and set a target of 75%.
With the focus shifting away from nuclear energy, solar energy projects may be ideal to meet the ever-growing consumer demand, given that the UAE receives approximately 10 hours of sunlight every day for an average of 350 days per calendar year.
We set out below key highlights of the renewable energy industry in the UAE, specifically focusing on the solar sector.
Size of projects
In January 2012, His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, launched the Mohammed bin Rashid Al Maktoum Solar Park (MBR Park), set to be the largest single-site solar park in the world, with a planned capacity 5,000MW by 2030.
The development of MBR Park has been structured to take place over several phases, with each phase involving some of the largest EPC (engineering, procurement and construction) contractors and the implementation of dynamic models, such as independent power producers (IPP) and public private partnerships (PPP). Once completed, MBR Park will be a one-of-a-kind solar park and will use both photovoltaic (PV) cells and concentrated solar power (CSP) technology to meet the energy demands of Dubai.
The UAE is one of the most ambitious countries in the MENA region with regards to developing renewable energy projects. With the eventual completion of MBR Park, the ongoing construction of the PV power plant in Sweihan, Abu Dhabi (Noor Project), and the existing Shams Dubai net metering policy including several other projects in the pipeline, the future of solar energy looks bright.
Once new projects are commissioned, the UAE will be the regional leader with an average solar energy output of 3,300 MW, i.e. producing 23.04% of the solar energy in the MENA region.
This has been made possible due to the involvement of the federal and emirate-level governments of the UAE. While there are no specific laws and/or regulations aimed at renewable energy, the government’s commitment to meet its renewable energy goals and openness to new investment and technology-transfer opportunities make the UAE one of the fastest growing countries in the region.
Breaking away from the oil and gas industry
With the drop in prices of crude oil and gas in 2015, we have seen a trend emerge in affected countries wherein they are diversifying their economies and thus decreasing their dependence on the oil and gas industry.
Such economic diversification, coupled with the continually decreasing cost of generating solar power, can make solar power projects a lucrative investment. Since phase 3 of MBR Park was awarded at a record low price of USD 2.99 cents per kW/h, we have seen PV solar power projects develop based on extremely low-cost models. An example of this is the Noor Project, where an Asian consortium submitted a bid for the generation of 1,177 MW at a weighted price of USD 2.42 cents, the caveat being that the price would be 1.6 times higher during the peak demand months of June to September.
We note that despite the absence of state incentives for the production of renewable energy, the contractors still offer extremely competitive prices.
While the main benefits of producing renewable energy do not usually have a trickle-down effect on consumers until much later, SHAMS Dubai - one of the first smart initiatives launched by DEWA - enables customers to directly reap the benefits of generating power from renewable energy sources and encourages more people in Dubai to contribute to the development of solar power. In fact, customers can install and connect their PV cells to the DEWA smart grid and any excess power generated by the PV cells is then transferred to the smart grid and offset against the customer’s future electricity bills.
With the construction of some of the largest solar power plants in the world under way in the UAE, it is evident that the region is positioning itself as a leader in the development, enhancement, and promotion of the renewable energy industry. This holistic approach adopted by the UAE and its leaders has seen the country develop into a hub for renewable energy, firmly committed to meeting its clean energy targets.
It will be interesting to monitor the developments in the renewable energy sector following the introduction of the new foreign direct investment law, which aims at lifting the ownership restrictions applicable to foreign investors across certain industries, hoping that the relevant implementing regulations will provide further opportunities for foreigners seeking to invest in the renewables industry in the UAE.
Roberto Flammia is a local partner and member of the Energy & Infrastructure Focus Team at BonelliErede’s Dubai office. Shiladitya Majumdar, associate at BonelliErede’s Dubai office.