In line with the UAE’s strong commitment to comply with the 2016 Paris Agreement and the United Nations Sustainable Development Goals, the UAE is progressing towards implementing its Energy Plan 2050. The aim is to reduce carbon emissions by 70% and rely on 50% renewable energy by 2050.
Solar power is a particular focus area in the Energy Plan 2050. It is currently the primary type of renewable energy deployed in the UAE. To achieve its goals, the UAE has introduced several laws to regulate the generation, transmission, and distribution of renewable energy. It will also need investments of $190 billion along the way.
Current status in the UAE
Although the power to regulate the energy sector vests at federal level in the UAE, in practice, Dubai, Abu Dhabi and, to some extent, Sharjah and Ras Al Khaimah formulate and implement their own electricity policies. Dubai and Abu Dhabi are the most significant in terms of the development of renewables.
In Abu Dhabi, the DOE and EWEC are responsible for supervising and organising the energy sector, plus issuing licences to entities to produce and distribute electricity in Abu Dhabi.
In Dubai, DEWA (Dubai Electricity and Water Authority) has launched several initiatives, including the Shams 1 solar-thermal plant (100MW) and the Mohammed Bin Rashid Al Maktoum Solar Park. Together, they represent a total investment of AED 1.2 billion.
Current regulatory environment
Currently, all activities connected to generating, transmitting, and distributing electricity in the UAE remain regulated by authorities. Transmission and distribution of electricity, including renewables, remain state-owned and controlled. Although laws contemplate private ownership in Abu Dhabi, so far, private ownership is limited to generation only.
Market access
Since January 2021, amendments to the Federal Companies Law allow foreigners to own 100% of a UAE company. Implementation, however, is in the hands of each emirate and might take some time to take effect. It might be a while before foreigners can take advantage of the amendments.
Free zones allow for 100% foreign ownership, but free zone companies can only operate within free zone areas.
Who may buy or sell electricity from renewable energy sources?
Currently, power producers must sell directly to authorities. The DOE is authorised to allow bypass-sales from producers directly to eligible consumers. To date, however, no bypass-sales have been allowed in Abu Dhabi.
In Dubai, all electricity must be sold to DEWA. Similarly, in the rest of UAE, all power producers must sell directly to authorities.
What about the transmission and distribution of renewables?
An often-overlooked aspect of decarbonisation is the transmission and distribution network essential to transport renewable energy to demand centres.
Currently, all networks within the UAE are firmly owned and controlled by state-owned entities. In Dubai, DEWA is the sole purchaser of electricity and owns the emirate’s generation, transmission, and distribution capacity.
Are there any incentives to promote investment in distribution facilities?
The newly established Dubai Green Fund provides financing for renewable energy projects. The fund is accessible to both local and foreign investors, offering tax exemption and visa facilitation benefits.
Currently, there are no incentives to promote the purchase of renewable energy in the private sector since it is not permitted.
Shams Dubai
Although the UAE encourages investment in renewable energy, rooftop solar investments are limited. It is limited to small-scale solar PV electricity generators connected to distribution networks. It may not exceed an aggregate capacity of 5MW in a single premises.
In Dubai, to encourage residential and commercial buildings to use solar panels, the emirate passed Resolution 46, known as Shams Dubai, which allows solar energy generators to connect to Dubai’s power distribution system.
Building owners can generate electricity and export excess to the distribution system. The net-metering credit is a direct exchange of values. DEWA, however, can cap the amount that may be exported.
There are other limitations:
- Any electricity generated must be consumed by the building owner at the premises where it was “produced”. Not at any other premises the producer may own.
- The maximum capacity to be installed at a plot is capped at 2,080kW.
- Only registered contractors can do the installation to ensure proper installation and feed into the grid.
- In addition, installers are only allowed to use components from DEWA’s eligible-equipment list. The utility also approves design plans and inspects facilities before they can connect to the grid.
Challenges to reaching NetZero targets
- Complex approval processes to obtain long-term licenses, permits and approval to authorise new renewable energy projects remain obstacles to renewable energy developments. This is partly due to multiple agencies that oversee the implementation of renewable energy projects in the UAE.
- Access to the national grid – many renewable sites are in remote locations away from the main national grid.
Challenges to foreign investors include the following:
- Notwithstanding relaxation in foreign ownership, government procurements will typically include some form of UAE ownership requirements in practice. Often through government or government-owned entities.
- Employment limitations, such as foreign workers must have valid work visas or permits.
Moving towards NetZero
We have seen significant regulatory reforms in many countries to open up the renewable energy sector. The Biden administration has committed to leading the way against climate change.
France is seeking to double its solar capacity, and Italy is seeking to reach a 32% reliance on renewable energy by 2030. Japan implemented a feed-in premium to encourage renewable energy development.
The UK has implemented a competitive tender process for the development of offshore transmission.
To achieve its ambitious targets, the UAE federal government will have to encourage private sector participation and foreign investment of funds and skills.
To raise energy efficiency and conservation awareness, Dubai has progressively reduced most of its subsidies, and Abu Dhabi is considering the same. This could act as a ‘reverse’ incentive to lower excessive local consumption of electricity. The rest of GCC might have to do the same.
An investment-friendly environment is essential to attract foreign and private investment. Whilst the amendments to the Companies Act could boost foreign investment, more proactive measures might be needed. The 200 MW Mohammed Bin Rashid Al Maktoum Solar Park is a positive sign for private-sector participation.
So far, DEWA has received many applications for installations under the net-metering programme, which allows connection to the network and compensation for surplus production fed into the grid.
Although the current focus is on solar energy, there are also opportunities in the green hydrogen, wind, and waste-to-energy sectors towards reaching NetZero goals.
