As Dubai focusses on solar energy, funding remains crucial

BY DANIEL BRAWN

The Dubai Integrated Energy Strategy 2030, together with the Dubai Clean Energy Strategy 2050, aim to reduce Dubai’s carbon footprint, reduce oil dependency and achieve energy security.

When Dubai has developed the necessary know-how, it can be exported world-wide and position Dubai as a centre for clean energy, as governments internationally push ahead with their own clean energy projects.

Dubai intends that 7 per cent of its energy should be from clean sources by 2020, 25 per cent by 2030 and 75 per cent by 2050.

The International Renewable Energy Agency suggests that if current plans are fulfilled worldwide, renewable energy production could save trillions of litres of water, save hundreds of millions of barrels of oil, create hundreds of thousands of jobs and reduce the carbon footprint by 8 per cent by 2030.

In this context, the Dubai Electricity and Water Authority has launched the tender process for phase three of the Sheikh Mohamed Bin Rashid Al Maktoum Solar Park, with a view to awarding the contract in June 2016.

Expressions of interest were received from 95 companies at the pre-qualification stage and bids were received from international heavy-weights including Engie-Marubeni, SunEdison, ACWA Power, EDF-Nebras, FRV-Masdar, and Al-Fanar-Building Energy, as well as new-comers M+W Stumpf Energy, Tetratech and Acciona-Swicorp. Chinese solar panel manufacturer JinkoSolar formed a consortium with German utility giant RWE AG to make a bid.

The first phase of 13MWs went into operation in October 2013. Phase two, for a 200MW facility consisting of 2.3 million PV panels, was won by a consortium comprising Saudi Arabia’s ACWA Power and Spain’s TSK Electronica y Electricidad S.A, who offered a tariff of just 5.84 US cents per kilowatt-hour.

Phase two used the independent power producer (IPP) model, with a power purchase agreement (PPA) signed in March 2015 to run for a period of 25 years.

A project company, Shuaa Energy 1 PSC, was formed to construct phase two via a lump-sum EPC contract with TSK, while operation and maintenance services will be provided by a subsidiary of ACWA. DEWA holds 51 per cent, while ACWA and TSK hold the rest. Funding was structured through long term financing by a group of regional banks, and phase two is expected to commence operation in 2017.

Separately, work is progressing on a 400 KV substation to connect phase two to DEWA’s electricity grid. There is scope for that substation to be expanded, and a second substation of similar capacity will be added later.

Phase three will add a further 800MW capacity and should be operational by 2020. DEWA set more stringent qualification criteria than for phase two, with a target tariff of below 5 US cents per kilowatt-hour. DEWA intends to take a 60 per cent share in the project company.

When completed in 2030, the solar park is expected to have a total capacity of 3,000MW.

Separately, Dubai hopes to see solar panels on every roof-top by 2030, and there are proposals for a new free zone, The Dubai Green Zone, to attract research and development in clean energy.

It is not all plain sailing, however. As a result of a recent fall in oil prices, sovereign spending has declined and borrowing has increased by some regional governments to cover their budget deficits.

Thus liquidity is reduced and sources of funding are drying up. Standard & Poor estimates that the gap may be as big as $270bn throughout the region.

The use of public private partnerships will increase, but it remains to be seen what innovative funding methods can be devised for infrastructure projects. Opportunities abound for smart operators, but it is a competitive market and funding is crucial.

Daniel Brawn is a senior associate at Galadari Advocates & Legal Consultants01