Solar energy in the UAE: is orange the new black?

Middle East

This article was produced by Nabarro LLP, which joined CMS on 1 May 2017.

Summary and implications

The United Arab Emirates (UAE) presents a sunny disposition as investors seek to maximise on solar energy projects.

The UAE has long depended on fossil fuels to generate power. However, with 80 to 90 per cent clear skies all year round, the UAE is well placed to increase the role of solar power in meeting its electricity demand.

Solar power generation

The sun's energy can be converted into electricity using specific technology, such as:

  • concentrated solar power (CSP) – mirrors and lenses concentrate and intensify the sun's energy to heat air, water or other fluids to produce steam, which drives thermal power plants and heat engines to generate electricity; and
  • photovoltaic (PV) panels – sunlight penetrates semiconductors inside PV panels, exciting silica electrons to create electrical current for use or transmission.

Solar power in the UAE

In recent years, solar power has started to attract the levels of investment one might expect in the sun-drenched UAE. The country's first solar plant was commissioned in Abu Dhabi in 2013. This relatively slow uptake of solar power may be attributable to:

  • the high cost of solar technology, which has in recent years decreased, due to technological advances and lower production costs;
  • dust and sand carried in the air in the UAE, which can adversely affect the efficiency of solar technology – cost-effective cleaning methods have since been developed to tackle this issue; and
  • the ready availability of government-subsidised gas in the UAE, which remains the primary source of energy.

New light in Dubai

Dubai recently announced its Clean Energy Strategy 2050, which consists of five pillars, the key points of which are:

  1. Infrastructure: Implement more renewable energy and allocate AED500m to research and development in clean energy. Establishment of the Dubai Green (Free) Zone to attract the set up of clean energy companies.
  2. Legislation: Introduce legislation for schemes like the Shams Dubai Initiative, which encourages the installation of rooftop solar PV panels connected directly to the electricity network. Consumers will receive payment for electricity generated and fed into the network (a "feed-in" tariff scheme). Following this, a mandatory requirement will also be introduced for solar panels to be installed on all rooftops by 2030. A net metering scheme will also be introduced, meaning consumers can earn credit against future bills for any energy fed into the network. Recently, as part of the Shams Dubai Initiative, 5,240 PV panels were installed at Jebel Ali Power Station Dubai. There are plans to install 90,000 PV panels across the Jebel Ali Free Zone.
  3. Funding: Allocate AED100bn to establish a Green Fund to support research and development in clean energy and provide finance, including low cost loans to investors, in clean energy projects.
  4. Building capabilities and skills: Build human resources capabilities through clean energy training programmes in co-operation with international organisations.
  5. Environment-friendly energy mix: Achieve an energy mix of 25% solar power, 7% nuclear power, 7% clean coal and 61% gas by 2030 and source 75% of Dubai's power from clean energy by 2050.

Procurement methodology

Most solar projects in the Middle East are procured through the IPP model, whereby a private entity is awarded a concession by the government and delivers a fully operational plant, which it operates for an agreed period of time (normally 10 to 25 years for solar projects) under a power purchase agreement. The government may invest by taking an equity stake in the project company. In the United Kingdom (UK), the Public–Private Partnership (PPP) model has been used for delivery and operation of solar power projects, whereby private-sector companies partner with the government and assume the financial, construction and operational risk in the project under the relevant PPP legislative framework.

Dubai's new Law No.22 of 2015 provides a legislative structure for PPP projects in the Emirate. However, under Article 4, electricity projects governed by Dubai Law No. 6 of 2011 (regulating the participation of the private sector in power generation) are excluded. This suggests that Dubai's PPP law does not apply to solar projects.

Legislative framework

The UAE may look at legislative developments elsewhere in the world that provide investor incentives for solar (and other renewables) projects.

  • Morocco's Law 13-09 of 2009 on renewable energy (amended by Law 58-15) provides for feed-in tariffs and net metering schemes for solar and wind-generated power. Renewable energy power producers (both public and private) are entitled to be connected to the electricity grid and specific areas of land will be allocated for solar and wind projects.
  • Jordan's Renewable Energy and Energy Efficiency Law No. 3. (2010) was the Middle East's first feed in tariff scheme, under which, privately generated power can be transmitted through the main grid. A direct proposals scheme has enabled developers to submit proposals for renewables projects directly to the government.
  • Egypt's recently passed Law 203/2015 seeks to boost private-sector interest with schemes including a feed-in tariff, guaranteed access to the main grid and permission for IPPs to sell power directly to consumers via the main grid.
  • In the European Union (EU), the Renewable Energy Directive (2009/28/EC) sets legislative targets to source 20% of the EU's energy from renewable energy sources. Member states have individual legally binding targets. To achieve its target of 15%, the UK has implemented legislation and schemes to provide:
    • feed-in tariffs (the UK FIT Scheme);
    • a renewable energy generation requirement for electricity suppliers (the Renewables Obligation); and
    • financial assistance for green projects (the UK Green Investment Bank).

Conclusion – sunny delight!

With recent technological advances, reduced production costs and the price of solar-generated power at a record low, solar projects are in vogue in the UAE. Dubai's recent plans to provide a legislative framework for incentives, such as feed-in tariffs and net metering, should pave the way for the wider UAE to exploit more fully the high levels of sunlight it receives and bolster the private sector's appetite for involvement in more groundbreaking solar projects.

Current UAE solar projects
Dubai: 8-10MW (PV) solar facility for the Museum of the Future – to power the museum project due to open in 2017.
Dubai: Phase 3 (800 MW) of the Mohammed Bin Rashid Al Maktoum (PV) solar park (independent power project (IPP)) – a record low bid of USD0.03 per kW hour was received by a consortium of MASDAR, Fotowatio Renewable Ventures and Gransolar Group.
Dubai: Mohammed Bin Rashid Al Maktoum (CSP) solar park (IPP) – set to be the world's largest CSP project generating 1000MW when complete.
Abu Dhabi: Sweihan 350MW PV solar project (IPP) – the Emirate's next major solar project following the successful commissioning of the 100MW Shams 1 (CSP) solar park in 2013.
Ras Al Khaimah: Solar-powered desalination plant – an AED719m build–own–operate (BOO) project, which will be the first private independent water project (IWP) in the world, whereby a private entity takes the role of developer and offtaker.
Sharjah: Bee'ah (PV) Solar project – to be procured under a build–operate–transfer (BOT) to power an existing waste to energy plant.

This article was produced for The Oath.