The United Arab Emirates (UAE) is a federation of the seven emirates of Abu Dhabi, Dubai, Sharjah, Ajman, Fujairah, Ras Al Khaimah and Umm al-Quwain. The city of Abu Dhabi in the emirate of Abu Dhabi is the federal capital. Abu Dhabi is the largest emirate by area (making up about 86 per cent of the country's area) and the richest in terms of oil resources. Dubai is the second-largest emirate by size (accounting for about 5 per cent of the country's total area) and the largest by population. Together, Dubai and Abu Dhabi account for about two-thirds of the country's population and form the core of its economy.
The UAE's economy has traditionally been dominated by the petroleum industry but successful efforts at economic diversification have reduced the share of the oil and gas sector in the country's GDP to 25 per cent. The UAE has an open economy with one of the highest per capita incomes in the world and a sizeable annual trade surplus. The currency is freely convertible and funds can be freely repatriated. The country's free zones – offering 100 per cent foreign ownership and zero taxes – are a major conduit for foreign investment in the country. The geographical location of the UAE, situated at the tip of the Arabian Peninsula, makes it a central trading post connecting the Far Eastern economies with the Middle East, Africa and Europe. With modern communication and thriving ports, the UAE has emerged as an important trading hub between the Indian sub-continent, Europe, Africa and the Middle East.
The powers of the federal and the emirate governments are enumerated in the State Constitution of 1971. Although the country's government is based on a federal structure, the individual emirates enjoy considerable economic and political autonomy and each emirate largely pursues its own economic policies. Even though Article 120 of the UAE Constitution gives the federal government exclusive legislative and executive jurisdiction over electricity services in the country, in practice the larger emirates of Dubai and Abu Dhabi, to some extent Sharjah, and more recently the northern emirate of Ras Al Khaimah, formulate and implement their own electricity policies. Hence, although there is a Federal Ministry of Energy (which formulates and implements the federal electricity policies), federal legislation on electricity is fairly limited.
Because of the significance of Abu Dhabi and Dubai within the Federation, this chapter focuses primarily on the electricity sector in these two emirates, in addition to the federal laws and policies on electricity.
The generation, transmission and distribution of electricity in the UAE is dominated by four water and power authorities. Three of these authorities are owned by the governments of the emirates of Dubai, Abu Dhabi, and Sharjah, whereas the authority that operates in the smaller northern emirates is federally controlled. These state-owned authorities serve as the exclusive purchasers and distributors of electricity in the respective emirates. While the private sector has been allowed to participate in the generation of electricity, transmission and distribution is performed exclusively by state-owned authorities.
Abu Dhabi and Dubai currently have the most active private sector participation in the energy sector. In line with extant regulations, private participants can own up to 40 per cent economic interest in electricity generation plants in Abu Dhabi and up to 49 per cent in Dubai. There has been speculation regarding the introduction of a privatisation policy by the federal government for the northern emirates; however, no formal announcement has been made so far.
Currently, only Dubai and Abu Dhabi have enacted laws creating specialised regulatory bodies for the electricity sector. These consist of the Dubai Supreme Council of Energy (DSCE), the Dubai Regulation and Supervision Bureau (the RSB Dubai) and the Regulation and Supervision Bureau of Abu Dhabi (the RSB). The Federal Ministry of Energy & Industry (Ministry of Energy) regulates the sector at the federal level and works in conjunction with the Federal Electricity and Water Authority (FEWA) to implement the federal government's electricity policy in the northern emirates.
Increasing population growth and urban development has been responsible for electricity demand in the UAE to grow at double-digit rates, and demand is expected to continue to grow at about 10 per cent annually for the next decade because of increasing population growth and industrial development. There is currently insufficient power generation capacity in the northern emirates of the UAE, and demand in these emirates is being met by construction of additional capacity as well as the supply of power from the larger emirates through the Emirates National Grid (ENG). Some industrial projects have not been able to secure sufficient power supply and have had to resort to captive power generation.
A number of major power projects, both in the field of conventional and renewable energy, are under development to meet the country's existing and future electricity needs.
i The regulators
The Ministry of Energy, the primary regulator at the federal level, was formed pursuant to Federal Decree No. 3 of 2004 by merging the Ministry of Petroleum and Mineral Resources with the Ministry of Electricity and Water. In 2008, the Ministry of Energy was restructured pursuant to Cabinet Resolution No. 11 of 2008 making it responsible for establishing policies for the water and electricity sectors in the UAE and ensuring that other authorities and companies in the state comply with its policies. A separate directorate for the electricity sector was established within the Ministry of Energy, called the 'Department of Electricity and Desalinated Water'.
In 2014, the federal government further restructured the Ministry of Energy to introduce three new departments:
- the Clean Energy and Climate Change Department;
- the Rationalisation and Energy Usage Efficiency Department; and
- the Regulation and Control Department.
The restructuring was intended to create a more specialised and robust central regulatory authority at the federal level. However, the Ministry of Energy has had little influence in directing policy and implementing projects in the larger emirates of Abu Dhabi and Dubai and remains focused on assisting the smaller emirates in meeting their growing electricity demand.
FEWA, which was established pursuant to Federal Law No. 31 of 1999 (amended by Federal Law No. 9 of 2008) (the FEWA Law), is the dominant player in the northern emirates and engages in all segments of the market, including generation, transmission and distribution. The Ministry of Energy has announced a strategic energy plan to develop the federal government's electricity services by attracting private investment in the sector.
Until recently, Abu Dhabi's electricity sector was regulated under Law No. 2 of 1998 Concerning the Regulation of Water and Electricity Sector, as amended by Law No. 19 of 2007 and Law No. 12 of 2009 (Abu Dhabi Electricity Law). The RSB has been responsible for implementing the legal framework and its authority includes the power to:
- issue licences to conduct regulated activities;
- monitor licensees and ensure compliance with terms of licences issued; and
- make regulations as it sees fit for the regular, efficient and safe supply of electricity in the emirate.
The Abu Dhabi Water and Electricity Authority (ADWEA) owns (either wholly or as majority shareholder) and controls, either directly or indirectly, the entities responsible for the generation, transmission and distribution of electricity in the emirate. Both RSB and ADWEA were established under the Abu Dhabi Electricity Law.
Pursuant to Federal Law No. 11 of 2018 (issued by the Ruler of Abu Dhabi in February 2018) (the DOE Law), ADWEA and RSB seem to have been replaced with a newly established Department of Energy (DOE). From publicly available information, it appears as though all the employees, assets and liabilities of ADWEA and RSB have been transferred to the DOE and that DOE is henceforth expected to be responsible for carrying out all the functions that were previously being carried out by ADWEA and RSB2. However, the DOE Law has not yet been gazetted and is not available in the public domain (including in its draft form), and therefore it is unclear how the transition between the roles of ADWEA, RSB and DOE is envisaged, and the implications thereof.
Dubai's legislation on the electricity sector was historically limited to Dubai Law No. 1 of 1992 (the DEWA Law), as amended by Decree No. 13 of 1999 and Decree No. 9 of 2011, establishing the Dubai Electricity and Water Authority (DEWA). Dubai has since enacted a number of laws to modernise and open the sector to private investment. Two new regulatory bodies have been created: the DSCE,3 established under Dubai Law No. 19 of 2009 (DSCE Law), as the apex regulator for the energy sector, and RSB Dubai, established pursuant to Dubai Executive Council's Resolution No. 2 of 2010, as the specialist regulatory authority for the electricity sector.
As the primary regulator of the energy sector, the DSCE regulates the exploration, production, storage, transmission and distribution of petroleum products (natural gas, liquid petroleum, petroleum gases, crude oil) and electricity. It ensures that the energy and electricity sources satisfy the current and future demands of the emirate of Dubai at affordable prices. The DSCE also proposes any and all initiatives related to the energy sector, which includes the privatisation of its electricity assets and implementing the provisions of Dubai's Law No. 6 of 2011 Regulating the Participation of the Private Sector in Electricity and Water Production in the Emirate of Dubai (the Dubai Electricity Privatisation Law).
RSB Dubai is authorised to regulate the electricity sector subject to the supervision of the DSCE. RSB Dubai is mainly responsible for regulating, licensing and supervising the electricity generating service providers, facilities and properties. It also determines and establishes standards and controls for electricity generation in the emirate and proposes legislation governing the electricity sector in Dubai.
As with the other emirates, the main player in the electricity market is DEWA, Dubai's state-owned integrated power generation, transmission and distribution authority.
Sharjah created its own electricity authority in 1995, known as SEWA (established pursuant to Sharjah Emiri Decree No. 1 of 1995, as amended by Emiri Decrees No. 2 of 2000, No. 46 of 2006 and No. 20 of 2008), which is authorised to 'own, manage, operate and maintain' power stations and electricity transmission lines. As with the other emirates, SEWA is responsible for the generation, transmission and distribution of electricity in Sharjah. SEWA is authorised to determine electricity prices and connection fees, which are subject to approval by the Ruler of Sharjah.
FEWA is responsible for the generation, transmission and distribution of electricity in the northern emirates of Ajman, Ras Al Khaimah, Fujairah and Umm al-Quwain.
Ras Al Khaimah
On 10 March 2013, the Ruler of Ras Al Khaimah issued an Emiri Decree No. 4 of 2013 on the Establishment of the Ras Al Khaimah Electricity and Water Authority (RAKEWA) (the RAKEWA Law). This authority is tasked with the regulation, management, operation and maintenance of power stations, water desalination plants, electricity distribution and transport networks in the emirate. The new authority is also responsible for controlling prices of electricity and water in the emirate. Most importantly, the authority is responsible for fulfilling the electricity needs of the emirate, planning for the generation, transport and distribution of electricity in the emirate and managing the government's investments in the sector.
RAKEWA is to be managed by a board appointed by the Ruler of Ras Al Khaimah, to be headed by a chairman. The board is authorised to issue regulations relating to the electricity sector, which shall be binding on all entities involved in the electricity and water sectors in the emirate.
Despite the establishment of RAKEWA, FEWA continues to own, manage and operate the electricity resources situated in the emirate and is the de facto authority on ground. The RAKEWA Law does not contain any provisions for the transfer of assets from FEWA to RAKEWA and it is presently unclear whether RAKEWA will replace FEWA in Ras Al Khaimah or if the two authorities will operate jointly in the emirate.
ii Regulated activities
All activities connected to the generation, transmission and distribution of electricity in the UAE are regulated and require specific licences from the relevant regulatory authorities.
Under the Abu Dhabi Electricity Law, regulated activities include electricity generation, transmission, distribution and supply to premises. Any person or entity intending to carry out these activities is required to be licensed by the RSB Dubai.
Under the Dubai Electricity Privatisation Law, regulated activities include 'any activity related to generating electricity . . . for the purpose of supplying to the Transmission System with produced electricity' (the transmission system is owned and operated by DEWA). All activities relating to electricity generation, transmission, distribution and supply of electricity are considered regulated activities in Dubai and require a licence from RSB Dubai.
iii Ownership and market access restrictions
As indicated earlier, Abu Dhabi has allowed private sector participation of up to 40 per cent in its power generation sector. In furtherance of its legislative policies in this regard, in 2015 Dubai awarded 49 per cent of the ownership of phase 1 of Hassyan, a 2,400MW clean coal power plant, to a consortium led by Harbin Electric International and ACWA Power (Hassyan Clean Coal Project). At the federal level, while FEWA has since recently been inviting bids from private entities, private sector participation has yet to gather speed in the northern emirates. UTICO (a private sector utility company engaged in electricity generation, transmission and distribution) in Ras Al Khaimah and Emirates Sembcorp Water & Power Co – ESC (a joint venture between ADWEA and a private sector entity, operating a hybrid desalination and power plant by the name of Fujairah F1 Independent Water and Power Plant) in Fujairah are a few examples of private sector partnerships in the northern emirates.
Under Federal Law No. 2 of 2015 on Commercial Companies (the Companies Law),4 foreigners are permitted to own up to a maximum of 49 per cent of a UAE company (other than in the free zones) and the majority 51 per cent is required to be owned by UAE nationals. The power sector is no exception to this requirement and even if 100 per cent private ownership were to be allowed in the power sector, a privately owned power generation, transmission or distribution company would need to be majority locally owned.
Although this restriction is a deterrent to foreign investment, it is not an insurmountable hurdle as informal arrangements exist to enable the foreigner investors to transfer 100 per cent beneficial interest in local companies to themselves. It is common for foreign investors to enter into side agreements with the local majority-owning partners by virtue of which the foreign shareholders assume management powers and at the same time transfer to themselves the economic interest in the shares held by the local. The local shareholder is usually paid a fixed fee as part of this arrangement for acting as a local sponsor. The authorities in the UAE have so far tolerated this practice, and as long as there is no dispute between the parties, the arrangement works to the benefit of all shareholders. The enforceability of these side agreements is questionable and untested in the local courts. Although the local partner could, in theory, take over the business by revoking the side agreements, the arrangement works well in the vast majority of cases and offers a practical way forward for foreign investors wishing to do business in the UAE.
Although the UAE free zones allow for 100 per cent foreign ownership, the free zone companies are not allowed to conduct business outside the free zones and within onshore UAE. To date, there are no power generation, transmission or distribution companies in any of the free zones in the UAE. Electricity rates are subsidised throughout the UAE and it is therefore not viable for private producers to construct power plants within the free zones. Furthermore, the state-owned authorities in the emirates of Dubai and Abu Dhabi have sufficient capacity to meet present and anticipated future needs, and this has therefore not necessitated private investment in the sector in the free zones.
The UAE's electricity laws themselves do not impose any specific ownership restriction on foreign investors in the UAE, nor do they necessarily require government participation in the sector. As a matter of policy, in Abu Dhabi, although two or more foreign joint venture partners are permitted to own up to 40 per cent of a project company, the RSB ensures that a foreign entity does not own more than 25 per cent of the market by capacity.
Most power companies in the UAE (with some exceptions such as UTICO) are either wholly or majority owned by the federal or respective emirates' governments, and the sector is dominated by the state-owned water and electricity authorities. Of these, the DEWA and ADWEA, being the largest two, account for about 95.4 per cent of the UAE's gross generated electricity. As of the figures available for 2016, ADWEA accounts for approximately 62.1 per cent of the UAE's gross generated electricity (at 80,527 GWh), DEWA for 33.3 per cent (at 43,092 GWh), Sharjah Electricity and Water Authority (SEWA) for 4.4 per cent (at 5,684 GWh) and FEWA for about 0.2 per cent (at 293 GWh).
ADWEA was established pursuant to the Abu Dhabi Electricity Law, and is responsible for all matters relating to formulation, development and implementation of policies for the electricity sector in Abu Dhabi,5 including privatisation. As mentioned previously, pursuant to the DOE Law, ADWEA and RSB seem to have been replaced by the DOE but the shift of roles and authority between these three entities is still not clear.
ADWEA wholly owns the Abu Dhabi Water and Electricity Company (ADWEC), the single buyer of water and electricity in Abu Dhabi, and Abu Dhabi Transmission and Dispatch Company (TRANSCO), the main transmission company in the emirate. To date, a number of independent water and power producers (IWPPs) have been established as joint-venture arrangements between ADWEA and various international power companies as BOO (build, operate, own) projects, which include:
- Arabian Power Company;
- Emirates CMS Power Company;
- Emirates SembCorp Water and Power Company;
- Fujairah Asia Power Company;
- Gulf Total Tractebel Power Company;
- Ruwais Power Company;6
- Shuweihat Asia Power Company PJSC;7
- Shuweihat CMS International Power Company;
- Taweelah Asia Power Company; and
- Mirfa International Power & Water Company.
The ownership of the IWPPs is split 60:40 between ADWEA (or its subsidiaries) and the foreign investor. The project companies are usually structured as joint stock companies incorporated in Abu Dhabi. The most common ownership structure is one in which ADWEA incorporates an intermediate holding company to own a 60 per cent stake, which is in turn held 10 per cent by ADWEA and 90 per cent by the Abu Dhabi National Energy Company PJSC (also known as TAQA).8 A few project companies have other ownership structures.
Earlier this year, ADWEA invited private sector entities to submit expressions of interest to participate in a US$1.2 billion water desalination plant in Abu Dhabi, with operations anticipated to commence in October 2021.9 The project is proposed to be held 60 per cent by ADWEA (which may now be the DOE) and 40 per cent by a private sector developer.
DEWA was established as an independent public authority owned by the government of Dubai, responsible for the development and provision of utilities in the emirate. DEWA is managed by a board of directors whose members are appointed by Emiri decree.
DEWA is an integrated supplier owning and operating in all segments of the electricity market in Dubai. DEWA owns and operates 12 plants in the emirate whose individual capacities vary between 400MW to 2,200MW, with a total installed capacity of 10,000MW. Although the Dubai government wants to promote private investment in its electricity generation sector, to date, all of the power generation capacity of Dubai, except for captive power produced by certain entities (e.g., Dubai Aluminium Company Ltd), is owned by DEWA.
In 2011 Dubai passed the Dubai Electricity Privatisation Law, which is broadly modelled on the Abu Dhabi Electricity Law. The Dubai Electricity Privatisation Law authorises DEWA to establish project companies, by itself or in collaboration with third parties, for the generation of electricity. In 2015, Dubai Law No. 22 of 2015 on Regulating Partnership between Public and Private Sectors in Dubai (the Dubai PPP Law) was enacted, which governs the regulatory framework of public–private partnerships in Dubai. The Dubai PPP Law aims to encourage private sector participation in the development of projects. It sets out, inter alia, the terms of partnerships between the public and private sector and conditions for approval of prospective projects.
To date, several independent power projects (IPPs) have been launched in Dubai. The first IPP is Al Hassyan 1 IPP, a 1,500MW gas-fired power plant, for which bids were solicited in December 2011. The project has, however, been deferred indefinitely.
In 2015, a consortium of ACWA Power and TSK Electronica y Electricidad SA won the bid to set up a 200MW photovoltaic plant (Shuaa Solar PV Project) in the second phase of the Mohammed bin Rashid Al Maktoum Solar Park10 (Solar Park) on the IPP model. The project has been operational since April 2017.
Subsequently, the Hassyan Clean Coal Project was launched by DEWA and the consortium of ACWA Power and Harbin Electric was awarded the project.11 In 2016, the major engineering procurement and construction contract for the Hassyan Clean Energy Project was awarded to Harbin Electric International and General Electric. The project is proposed to be operational by 2023.
Another development in 2016 was the selection of the consortium led by the Abu Dhabi Future Energy Company (Masdar), including the Spanish companies FRV (Fotowatio Renewable Ventures) and Gransolar Group for construction of the 800MW third phase of the Solar Park on the IPP model. The first phase of the project (200MW) is expected to be operational in the first half of 2018, followed by the second phase (300 MW) in 2019, and the third phase (300MW) in the first half of 2020.
As the fourth phase of the Solar Park, DEWA released an expression of interest in October 2016 to build the largest concentrated solar power project in the world of 700MW (CSP), based on the IPP model. The project has been awarded to ACWA Power and Shanghai Electric and is proposed to be commissioned in stages, starting from Q4 of 2020.
In addition to the above, Mohd Abdulla Haji Yousuf Khoory & Co LLC (trading as Union Paper Mills) was granted an electricity generation licence in November, 2016 in relation to a 3MW biomass boilers' facility at Al Quoz, Dubai.
In March 2017, Al Ghurair Resources Oils & Proteins LLC was granted a licence by RSB Dubai to generate electricity from an up to 8MW coal plant in Jebel Ali.
FEWA is authorised under the FEWA Law to establish private power generation plants in the northern emirates. A number of projects are presently under development in these emirates but these are primarily owned in the public sector.
FEWA acts as the single point of sale for all power generated in the northern emirates. Electricity transmission and distribution networks within the northern emirates are also primarily owned and operated by FEWA. However, recently, TRANSCO has expanded its operations to assist FEWA in planning, developing and operating its water and electricity transmission assets in the northern emirates. In addition to FEWA, certain private power companies such as UTICO are involved in the generation, transmission and distribution of power in the emirate of Ras Al Khaimah.
In September 2017, FEWA invited expressions of interest from potential developers for the development of a 1.8GW coal-fired power plant in Umm al-Quwain or Ras Al Khaimah on the PPP model. The project has not yet been awarded to any bidder.
iv Transfers of control and assignments
Any transfer of control or assignment of an interest in an IWPP requires the consent of the relevant regulator.
Under the Abu Dhabi Electricity Law, a licence may not be transferred unless it specifically permits its transfer. Prior consent of RSB is required for any transfer (including the creation of security over assets of the licence holder), and the consent may be subject to such conditions as the RSB may consider appropriate.
Under the Dubai Electricity Privatisation Law, licensed entities are not permitted to transfer or assign their licences without the prior approval of RSB Dubai. In addition, licensed entities may not dispose-off, sell, lease or otherwise transfer, including granting of a security interest over, their 'main assets' without prior approval from RSB Dubai. Main assets are those movable and immovable assets necessary to conduct the regulated activities and operate the electricity generation facilities.
In addition, the Companies Law contains a statutory pre-emptive right in favour of existing shareholders in the case of limited liability companies and joint stock companies.
III TRANSMISSION/TRANSPORTATION AND DISTRIBUTION SERVICES
i Vertical integration and unbundling
The electricity transmission and distribution networks in the UAE are firmly owned and controlled by the state-owned water and power authorities, each of which enjoys a monopoly in its particular area of operation. These authorities are vertically integrated and operate in all three segments of the market.
ADWEA's wholly owned subsidiary TRANSCO operates Abu Dhabi's transmission networks. TRANSCO supplies electricity from the generation companies to the two distribution companies of Abu Dhabi, each of which is also wholly owned by ADWEA. These are:
- Abu Dhabi Distribution Company (ADDC), which operates in the city of Abu Dhabi and the western region of the emirate; and
- Al Ain Distribution Company (AADC), which operates in Al Ain city and the surrounding areas.
In response to the power shortages faced in the northern emirates, TRANSCO has become involved in the planning, development and operation of electricity transmission networks in the northern region. TRANSCO's involvement, given its resources and experience, coupled with ADEWA's supply of its excess power, has largely alleviated the power problems faced by these emirates in the past.
DEWA is the sole purchaser of electricity in Dubai and presently owns all the generation, transmission and distribution capacity of the emirate.12 DEWA's transmission and distribution network is constantly being expanded as new real estate and industrial projects are set up across Dubai.
Over the past few years, DEWA has further enhanced the electricity transmission networks of the emirate. This includes construction of substations at Jebel Ali (December 2012), the International Media Production zone (February 2013), the Dubai Marina (May 2013), Seih Al Dahl (February 2014) and Dubai Academic City (2016). As of 2016, DEWA had 21 400kV substations, 222 132kV substations, 111 33kV substations and 31,961 11kV and 6.6kV substations. In February 2017, DEWA announced its plans to build 97 new 132/11kV substations over the next three years to be located at the Solar Park, and other locations to support the expansion of other power plants in Jebel Ali and Al Aweer. This was followed by an announcement by DEWA in April 2017 of its plans to build three new 400kV substations over the next three years. DEWA is also currently building three new 132/11kV substations with 45 kilometres of high voltage (132kV) cables for the World Expo 2020. The substations are named Sustainability, Mobility and Opportunity after the three subthemes of the Expo. The first of these substations (named Mobility) was commissioned in January 2018.
SEWA is the sole purchaser of electricity in Sharjah and presently owns all the generation, transmission and distribution capacity of the emirate.
Because of the increased demands in electricity and energy, SEWA has recently embarked on improving and expanding its electricity transmission and distribution network on a large scale. SEWA has commissioned and inaugurated the Al Khan power transmission and distribution station (worth 105 million dirhams) in 2016, to ensure the reliability of power supply throughout areas such as Al Khan, Al Nahda and Al Taawun in Sharjah and has announced its plans of building three 132kv and five 33kv distribution stations in 2017.
FEWA performs many of the same functions in the northern emirates with respect to electricity distribution and transmission as TRANSCO in Abu Dhabi and DEWA in Dubai.
The northern emirates have been suffering insufficient power and electricity generation. For this reason and because of increased demand for electricity, FEWA has announced a number of new projects to expand and improve its electricity network. The notable projects13 are as follows:
- in May 2013, FEWA signed two contracts with the Saudi National Contracting Company Limited to commission a 33/11kV transmission station and upgrade a number of 33/11kV and 132/33/11kV stations in the western region (Ajman and Umm Al Quwain), the central and eastern region (Fujairah and Dibba) and the northern region (Ras Al Khaimah);
- in 2016, FEWA inaugurated Al Hamra substation in Umm al-Quwain and plans future expansion of the same. In the same year, FEWA signed a memorandum of understanding with Siemens for the construction of a 2.2GW plant in the northern emirates to enhance electricity generation and distribution and another memorandum of understanding with Mitsubishi Electric for the installation of a number of 132/33/11KV substations in the northern emirates; and
- in October 2017, FEWA invited bids from the private sector for the construction of a 132/33/11kV substation and cable works to be positioned in the Northern Emirates.
Emirates National Grid
The ENG project was launched in 2001 under a Cabinet Resolution No. 79/4 of 2001 'On the National Project of Linking the Power Grids' to connect and enable sharing of power between the UAE's seven emirates. The ENG project was launched by the Ministry of Energy with the purpose of enhancing integration between the various electricity and water authorities in the UAE, each of which contributed proportionately to the capital investment required to build the ENG. The ENG is owned by the following authorities in the proportions stated below:
- ADWEA: 40 per cent;
- DEWA: 30 per cent;
- FEWA: 20 per cent; and
- SEWA: 10 per cent.
Dubai and Abu Dhabi's power grids were connected by the ENG in the middle of 2006, whereas SEWA's connection to ENG was completed in May 2007. Connection to the remaining northern emirates transmission networks was completed in April 2008.
On account of its larger production capacity and extensive distribution network, ADWEA has increasingly been assisting the other emirates in meeting their power demand. ADWEA exported about 13,664GWh of electricity to other emirates via the ENG in 2012, up from 12,228GWh in 2011. Renewable energy sources such as solar and nuclear power will increasingly contribute to the ENG. Currently, the solar power is transmitted to the ENG from Shams 1 solar power plant and plans are under way for nuclear energy and further solar power to be transmitted from the Barakah nuclear energy power plant and photovoltaic panels respectively.
The Gulf Cooperation Council (GCC) Grid
The UAE is also connected to the rest of the GCC through the GCC Grid, through which it can trade electricity with the remaining GCC countries. About 56MW (peak time) of electricity was exported by Abu Dhabi to the GCC Grid in 2011 whereas 7MW (peak time) was imported in 2012. Ideas have been put forward to expand power grids to Egypt and European networks (through Turkey) and trade energy beyond the GCC region.
ii Transmission/transportation and distribution access
The Abu Dhabi Electricity Law requires ADWEC to purchase all power produced within the emirate. Although the Abu Dhabi Electricity Law contemplates private ownership in all segments of the electricity supply chain, so far private ownership has been limited to generation only.
The Dubai Electricity Privatisation Law prohibits a licensed entity from selling electricity to any entity other than DEWA.
ADWEC, being the single buyer of electricity in the emirate of Abu Dhabi, purchases electricity from the power producers under long-term power and water purchase agreements (PWPAs) and sells it to the distribution companies via annual bulk supply tariff (BST) agreements. The distribution companies pay ADWEC the BST for the electricity purchased and receive revenue from their customers and a subsidy from the government. TRANSCO is paid a transmission use of system (TUoS) charge by the distribution companies.
The components making up the electricity tariff in Abu Dhabi are the following:
- BST, which is the charge paid by the distribution companies to ADWEC for its generation costs (in turn paid by ADWEC to power producers).
- TUoS, which is the charge paid by the distribution companies to TRANSCO for use of its transmission network.
- Distribution use of system, which is the fee that the distribution companies charge for use of their distribution network.
- Sales cost, or the cost incurred by the distribution companies for serving customers for meter reading and billing.
- Government subsidy, consisting of direct payments from the government to the distribution companies. The quantum of the subsidy allows the government to determine the electricity tariffs for different classes of consumers. The higher the subsidy, the lower the tariff charged.
The electricity tariff is determined by adding components (a) to (d) and subtracting (e).
The rates charged by the state-owned power companies (ADWEC, TRANSCO, ADDC and AADC) are subject to government control, exercised via the RSB. The RSB sets their revenue target on the basis of which the control prices are determined. The remainder of the revenue is paid as a subsidy by the government to the distribution companies. All transactions between the power sector companies and any related tariffs are required to take place on the basis of their economic costs. This helps the government keep subsidies to a minimum.
The BST is calculated for each calendar year on the basis of parameters prescribed by the RSB. The calculation of BST requires the estimation of the costs for procuring and dispatching electricity generation to meet the forecasted demand. Starting 2012, the structure of the BST comprises three components (expressed in fils per kWh) charged on an hourly basis for electricity purchased at different times of the day, for 'Fridays' and 'non-Fridays' and in different months of the calendar year. These three components are:
- a system marginal price charge estimated to indicate the short-term marginal costs (excluding backup fuel (BUF) costs) of providing units at different times of the day;
- a BUF levy charge estimated to reflect the additional costs associated with the burning of backup fuel rather than primary fuel; and
- a high-peak period charge assessed to cover the costs associated with the estimated capacity payments and charged only in the peak demand occurring months of June to September, inclusive.
The TUoS charge paid to TRANSCO covers the investment, operation and maintenance costs of the infrastructure of the transmission systems, excluding assets that are dedicated entirely to a particular customer. These include substations, overhead lines, cables and associated equipment. TUoS charges also cover the costs of the economic scheduling and dispatching of electricity generation.
The rates payable to the power generation companies are determined on the basis of the PWPAs entered by them with ADWEC. These PWPAs are further discussed below.
Contracts for power generation are awarded based on a competitive bidding process after the government invites tenders to meet the emirate's power generation requirements. The bidding process is managed by ADWEA starting from pre-qualification of bidders and issuance of request for proposals through to selection of the successful bidder.
Electricity rates paid by consumers in Abu Dhabi are subsidised. In fact, UAE nationals benefit from even greater subsidies than those given to expatriate workers. The rates payable in Abu Dhabi were substantially revised in 2015 with the introduction of a slab tariff scheme and an increase of 40–60 per cent in the applicable rates. The rates as published by the RSB on its website for 2018 are divided according to consumer categories as follows:
- UAE nationals (flats): 6.7 fils per kWh until 30kWh/day, 7.5 fils post 30kWh/day;
- UAE nationals (villas): 6.7 fils per kWh until 400kWh/day, 7.5 fils post 400kWh/day;
- non-UAE nationals (flats): 26.8 fils per kWh until 20kWh/day, 30.5 fils post 20kWh/day;
- non-UAE nationals (villas): 26.8 fils per kWh until 200kWh/day, 30.5 fils post 200kWh/day;
- industrial establishments (below 1MW): 28.6 fils per kWh;
- industrial establishments (above 1MW): 27.0 fils per kWh at off peak hours, 36.6 fils per kWh at peak hours;
- commercial establishments: 20 fils per kWh;
- governmental offices: 29.4 fils per kWh; and
- farms and ranches: 4.5 fils per kWh.
With effect from 1 January 2018, VAT at the rate of 5 per cent has been implemented in the UAE pursuant to Federal Law No. 8 of 2017 (the VAT Law). Under the VAT Law, the 5 per cent VAT is payable by consumers on their electricity and water consumption. However, VAT is not applicable in respect of the municipality fee levied by the power companies in the respective emirates.
The DEWA Law empowers the board of directors of DEWA to control electricity prices charged by DEWA, subject to the Ruler's approval; however, since the promulgation of the DSCE Law, the electricity prices have been determined by the DSCE and DEWA now sets its prices in accordance with the DSCE's directives. The DSCE Law empowers the DSCE to impose a 'definite tariff based on cost when necessary'. The DSCE is also authorised to approve fees and tariffs on the services offered to the public by 'energy service providers' (meaning the power generation, transmission and distribution companies).
In 2011, Dubai passed Executive Council Decision No. 16 of 2011 on the Approval of the Electricity and Water Tariff in the emirate of Dubai (the Dubai Tariff Decision), which sets out the electricity and water tariffs for Dubai. The Dubai Tariff Decision provides for a slab tariff scheme and authorises DEWA to add the 'fuel price difference' to the electricity tariffs charged to consumers. The consumers are divided into (1) industrial (2) residential; and (3) commercial. UAE nationals are subject to tariff rates equal to roughly one-third of the rate applied to other residential consumers.
DEWA has since 2011 increased electricity rates and pursuant to the Dubai Tariff Decision, introduced a variable fuel surcharge in its electricity tariff. The electricity tariff in Dubai now comprises the electricity consumption charges, the fuel surcharge and meter charge. The fuel surcharge component requires consumers to pay for any fuel cost increases using 2010 fuel prices as the benchmark, thereby passing on the risk of international fuel price fluctuations to the consumer. This has enabled the company to increase revenues, reduce demand growth and earn higher profits. The present fuel surcharge rate applicable in the emirate of Dubai is 6.5 fils/kWh. Since the introduction of the VAT Law, 5 per cent VAT is payable on the consumption of electricity and water in Dubai. As mentioned previously, VAT is not applicable in respect of the housing fee, sewerage fee and irrigation fee that DEWA collects on behalf of the Dubai Municipality. Knowledge fee and innovation fee are also exempted from VAT.14
IV ENERGY MARKETS
i Development of energy markets
The electricity market for private power producers in the UAE is comprised of the state-owned water and power authorities each of which acts as the single point of sale in their respective areas of operation.
Contracts for power generation are awarded on the basis of a competitive bidding process, administered by ADWEA in Abu Dhabi, DEWA in Dubai, SEWA in Sharjah and FEWA in the northern emirates.
ii Energy market rules and regulation
Under the Abu Dhabi Electricity Law, ADWEC is required to contract with power producers for the purchase of all production capacity from licensed operators in the emirate. ADWEA is authorised to allow 'by-pass sales' from power producers directly to eligible consumers provided that:
- the first independent commercial power generation project in the emirates shall have commenced commercial operations;
- the majority of the shares in the company are privately owned; and
- the RSB issues a report stating that the energy market in the country is stable enough for it to be in the public interest that the sale of electricity by producers to eligible consumers be permitted.
To date, no 'by-pass sales' of electricity have been allowed by ADWEA in Abu Dhabi and all existing producers in the emirate are required to sell their production exclusively to ADWEC.
Similarly, power producers in Dubai are obligated by law to sell their entire production capacity to DEWA.
All power generation companies in the northern emirates and Sharjah are required to sell their power production to FEWA or SEWA respectively.
iii Contracts for sale of energy
ADWEC pays the generation companies the tariff agreed under the PWPAs. The PWPA serves both as a grant of concession and offtake agreement.15
The PWPAs usually have a term of about 20 to 25 years from the commencement of commercial operations. Payments to IWPPs by ADWEC under PWPAs comprise three main components:
- capacity (or availability) payments covering the fixed costs of the plant (return on capital, depreciation and fixed operating and maintenance costs);
- operation and maintenance costs, paid when plant is available for production irrespective of whether and how much the plant produces; and
- output (or energy) payments for variable operation and maintenance costs, payable only for the electricity actually produced by the plant and dispatched.
The primary fuel used in the power generation sector in the UAE is natural gas, accounting for 90 per cent of all production. As is often the case in such models, fuel costs are pass-through, and ADWEC is required to procure and supply fuel to the electricity producers under the Abu Dhabi Electricity Law. ADWEC acquires the natural gas from two sources, the Abu Dhabi National Oil Company and Dolphin Energy Limited (purchased from Qatar via a pipeline connecting both states) for onward supply to the power producers.
Power plants are required to stock diesel oil and crude oil as backup fuel. According to the standard PWPAs, generation companies have to stock up enough backup fuel for their plants to run at full capacity for seven days.
PWPA payment rates under some of the agreements are subject to annual indexation against US and UAE inflation or the US$/dirham exchange rate.
ADWEC is required by the standard PWPAs to pay certain other supplemental payments to the IWPPs, such as start-up, shut-down costs and backup fuel costs. Some PWPAs may also have provisions for payment by the relevant party of liquidated damages for delay in performance and of interest on late payments.
To date, DEWA has only signed three power purchase agreements:
- the first with a consortium led by ACWA Power and TSK, for the Shuaa Solar PV Project;
- the second with a consortium led by Harbin Electric International and ACWA Power for the construction of phase 1 of the Hassyan Clean Coal Project; and
- the third with Masdar, for the 800MW third phase of the Solar Park.
V RENEWABLE ENERGY AND CONSERVATION
i Development of renewable energy
High energy use, encouraged by subsidised energy prices and the construction of energy intensive industries such as aluminium smelting has resulted in the UAE having one of the highest per capita carbon footprints in the world. The development of renewable energy is therefore crucial in reducing the country's carbon footprint and diversification of its economy away from fossil fuels. The UAE has announced that it aims to produce at least 7 per cent of electricity from renewable sources by 2020.
A number of showcase projects have been launched in Abu Dhabi and Dubai to kick-start the development of renewable energy in the country.
Abu Dhabi established Masdar16 to spearhead the emirate's renewable energy initiative. Masdar City, a project of Masdar on the outskirts of Abu Dhabi city, is proposed to be run entirely on renewable energy as a zero carbon emissions city. Masdar City has also won the rights to host the headquarters of the International Renewable Energy Agency.
Masdar currently produces 17,500MWh of electricity annually, at its solar photovoltaic power plant located at the Masdar City for supply of clean power to the project. It has also launched a carbon capture and storage project in the UAE.
Most significant is Masdar's 100MW solar power plant17 at Madinat Zayed, which was inaugurated on 17 March 2013. Known as Shams 1, it is one the largest parabolic trough power stations in the world. This project is expected to be followed by the Shams 2 and Shams 3 solar power projects. Among other sustainable projects launched by Masdar in the UAE are Masdar City's 10MW solar PV array in Abu Dhabi, Masdar City's 1MW rooftop installations, a 100MW photovoltaic plant in Al Ain, a 30MW onshore wind farm on Sir Bani Yas Island, a grid-connected solar photovoltaic panel on Murawah Island, the Um Al Zomul solar photovoltaic plant, and a 543kWp photovoltaic plant that delivers energy to Rashid Abdulla Omran Hospital. With the success of its pilot project involving the installation of solar photovoltaic cells on 11 school and government buildings across the emirate, Masdar proposes to further expand the installation of solar panels to reduce dependence on hydrocarbon fuels.
Masdar is also actively expanding its international investments in clean renewable energy; some of its projects include the Seychelles wind power project (6MW), the Mauritania solar power project (15MW), Spain's Gemasolar (20MW), Valle 1 and 2 solar power projects (100MW), United Kingdom's Dudgeon offshore wind farm (402MW), Jordan's Tafila Wind Farm (117MW), Baynouna solar power project (200MW), Egypt's Siwa solar photovoltaic plant (10MW), Samoan wind farm on the island of Upolu (1,500MW), Serbia's Tesla wind farm (158MW), Tonga's Vava'u island solar power project (512KW), Scotland wind farm (30MW) and the Noor 1 and Noor 2 solar photovoltaic plants (250MW) in Morocco. Masdar is also a 20 per cent stakeholder in the London Array wind farm in the United Kingdom, which produces 650MW of electricity. In partnership with the International Renewable Energy Agency, the Abu Dhabi government also granted US$57 million in loans to Argentina, Cuba, Iran, St Vincent and the Grenadines and Mauritania to finance renewable energy projects. Masdar is also involved with the UAE-Pacific Partnership Fund in developing renewable energy projects in the Pacific Islands. Currently, four new solar projects are under way in the countries of Kiribati, Fiji, Tuvalu and Vanuatu. An agreement was signed between Masdar and New Zealand to develop a solar photovoltaic power plant (1MW) in the Solomon Islands.
E.ON Masdar Integrated Carbon, a joint venture between E.ON and Masdar, develops and invests in carbon abatement projects in industry, power and oil and gas across Africa, Asia and the Middle East under the UN's clean development programme.
A 100MW waste-to-energy facility is currently under development in Abu Dhabi (near the Mussafah Sea Port) by TAQA, in co-ordination with the Centre of Waste Management (Tadweer). The plant was scheduled to be up and running by 2017 but there is no update on its current status.18
The DSCE developed the Dubai Integrated Energy Strategy 2030 and Dubai Clean Energy Strategy 205019 to enable Dubai to become a global centre for clean energy and green economy. In line with these strategies, Dubai aims to diversify its energy sources so that by 2030 it can fulfil 25 per cent of its energy demand from solar energy, 7 per cent from nuclear energy, 7 per cent from clean coal and 61 per cent from natural gas. By 2050, Dubai aims to fulfil 75 per cent of its energy demands from renewable energy sources.
As part of these strategies, in January 2012, Sheikh Mohammad Bin Rashid Al Maktoum, the Ruler of Dubai, launched the Solar Park. The Solar Park is expected to have a total installed capacity of 5,000MW by 2030. The project is being implemented by the DSCE in Dubai and managed and operated by DEWA. The first phase 13MW solar photovoltaic plant and substation was completed in 2013, followed by the second-phase Shuaa Solar PV Project in April 2017. The 800MW third phase was awarded by DEWA in June 2016 to a Masdar-led consortium and is expected to be operational in three phases commencing this year. DEWA also awarded the CSP project, as the fourth phase of the Solar Park to ACWA Power and Shanghai Electric, in September 2017.
In July 2013, Dubai launched a waste-to-energy conversion project through a landfill gas recovery plant at the waste collection site in Al-Qusais. To date, this is the first landfill in the region to run its entire operation with electricity generated from landfill gas. In due course, the plant is expected to increase capacity from its current 1MW to 20MW by 2020. Plans to implement a similar project in the Jebel Ali landfill are also proposed by the government.
In 2013, DEWA and DSCE established Etihad Energy Service Company (Etihad ESCO), which will serve, notably, to retrofit existing buildings and lower the water and energy consumption of such buildings.
DEWA has launched the Shams Dubai Initiative, which aims to encourage energy efficiency by equipping residential and commercial buildings with solar panels and connecting the panels to DEWA's electricity grid. In 2014, in line with this initiative, the emirate of Dubai issued Executive Council Resolution No. 46 of 2014 Concerning the Connection of Generators of Electricity from Solar Energy to the Power Distribution System in the emirate of Dubai (Resolution 46) to encourage the generation of electricity using solar panels. Resolution 46 enables DEWA consumers to supply power to DEWA's grid by connecting their solar panels and the power supplied to DEWA can then be adjusted against the consumer's electricity bill.
In 2015, Dubai established the Dubai Green Fund (Fund), worth US$27 billion, which provides easy loans to investors in the clean energy sector. DEWA will provide the seed capital for the Fund, with additional investment from the private sector, international banks and large investment companies.
In 2016, DEWA inaugurated one of the largest single rooftop arrays in the Middle East and North Africa region, a 1.5MW direct current photovoltaic generation project at the Jebel Ali Power Station, and successfully connected it to DEWA's grid.
Currently DEWA is working to develop an Innovation Centre, equipped with the latest renewable and clean energy technologies to raise awareness on sustainability, while enhancing national capabilities and increasing competitiveness. The Innovation Centre will be equipped with the latest clean and renewable energy technologies, and will serve as a museum and exhibition for solar energy. The centre will also feature two solar testing facilities, the first will specialise in testing PV solar panels, while the second will focus on CSP. The centre is currently testing 30 photovoltaic panel types from global specialist manufacturers.
Dubai has also established the Dubai Carbon Centre of Excellence, responsible for encouraging and developing strategies towards reducing the emirate's dependence on carbon fuels and reducing carbon emissions.
In January 2018, DEWA signed a memorandum of agreement with the GCC Interconnection Authority and the Belgian Dredging, Environmental & Marine Engineering Group towards building a 400MW pumped hydro storage power station in the Arabian Gulf, with a storage capacity of approximately 2,500MWh.
The Dubai Municipality also announced the world's largest waste-to-energy project in the emirate's Al Warsan area, in early 2018. The plant is designed to treat 1.82 million tonnes of solid waste annually, with a total capacity to generate 185MW of electricity. Construction of the plant is proposed to begin mid-2018 and be completed in time for Expo 2020.
Like Dubai, Sharjah launched SEWA 2020 Vision in 2016 to enhance power efficiency in sustainable development. SEWA intends to reduce power and water use by at least 30 per cent over the next five years (i.e., by 2020). To achieve this vision, SEWA has launched various projects, which include: setting up the first electric-vehicle charging station, completing a solar-powered road lighting project in Al Saja'a and Al Barashi, and replacing the current electrical infrastructure with modern facilities such as a smart metering system and networks to save energy.
Bee'ah and Masdar have formed a joint venture under the name of Emirates Waste to Energy Company (EWEC) to develop waste to energy plants across the Middle East. The first project being undertaken by EWEC is in Sharjah to establish a facility with the capacity to treat more than 300,000 tonnes of municipal solid waste a year, and with a power generation capacity of 30MW. EWEC and SEWA entered into a power purchase agreement in May 2017 for this project.
In 2014, UTICO, a privately owned utility company, called for the construction of a new 40MW solar plant in Ras Al Khaimah. UTICO has also collaborated with Shanghai Electric to set up a clean-coal power plant project (270MW) in Ras Al Khaimah. Both projects have been deferred indefinitely.
Recently, FEWA installed 11,000 smart electricity and water metres in Ajman. Additionally, in 2016, FEWA announced a 1.3 billion-dirham funding budget to improve the electricity network in the northern emirates. FEWA is expected to expand 17 power stations and construct 25 power distribution stations in Umm Al-Quwain, Ras Al Khaimah and Fujairah.
In 2017, the Ministry of Climate Change and Environment signed a memorandum of understanding with Masdar and Bee'ah for developing a waste-to-energy conversion facility to serve Ras Al Khaimah and Fujairah.
UAE renewable energy prospects
Although the UAE's recent steps towards developing more renewable energy projects in the country are commendable, the projects launched so far will fulfil only a small part of the country's total energy requirements. Despite the announcement to produce 25 per cent of the country's total energy requirements from renewable sources by 2030, the UAE has not set itself a mandatory renewable energy target. The UAE's electricity demand is expected to grow at close to 10 per cent for the next decade, which will require a substantial increase in conventional gas and diesel-powered plants. Furthermore, most conventional power plants in the UAE also host water desalination plants, making the development of such additional capacity crucial in fulfilling the country's growing water requirements. The country's primary focus is therefore expected to continue to remain in developing conventional power and water desalination plants.
To encourage private investment in renewable energy, the government needs to enact formal legislation to regulate the development of renewable energy. A subsidy for renewable energy sources combined with a feed-in tariff that guarantees that electricity generated from renewable sources will be purchased for a minimum price can be introduced as a further incentive.
Nonetheless, recent initiatives in the field of renewable energy have made the UAE one of the most dynamic and exciting markets for renewable energy in the region.
The UAE is signatory to the Treaty on Non-Proliferation of Nuclear Weapons 1968 (signed in 1996), the Comprehensive Nuclear Test Ban Treaty 1996 (signed in 2000), and the Convention on the Physical Protection of Nuclear Material (signed in 2003), the International Convention for the Suppression of the Acts of Nuclear Terrorism 2005 (signed in 2008). The UAE has also signed the International Atomic Energy Agency (IAEA) Comprehensive Safeguards Agreement, IAEA Amendment to the Convention on the Physical Protection of Nuclear Protection of Nuclear Material and Nuclear Facilities and IAEA Additional Protocol to Safeguards Agreement.
The UAE aims to produce a significant part (approximately 9 per cent) of its electricity from nuclear technology. The UAE released a nuclear policy in 2008 and has since then promulgated a regulatory framework for development of nuclear energy in the country. In addition to collaborating with the IAEA and the World Association of Nuclear Operators, the UAE has signed cooperation agreements with France (2008), Korea (2009), the United States (2009), the United Kingdom (2010), Australia (2012), Canada (2012), Russia (2012), Argentina (2013) and Japan (2013) for the development of peaceful use of nuclear energy.
The Federal Authority for Nuclear Regulation (FANR), the federal nuclear energy regulator headquartered in Abu Dhabi, was established in 2009 under Federal Law No. 6 of 2009 Concerning the Peaceful Use of Nuclear Energy. The FANR is tasked with the responsibility of setting up the procedures and measures to be followed for the development of nuclear technology in the UAE. The FANR has issued regulations governing, inter alia, licensing, site location, design, construction, commissioning and operation, as well as standards for safety, transportation and storage facilities, radioactive waste management and physical protection of nuclear materials. The UAE has also created the International Advisory Board (IAB), an independent body consisting of independent international experts on nuclear energy who will offer guidance to the country's nuclear programme on compliance with international safety, security and proliferation standards. The IAB is presently chaired by Hans Blix, the former IAEA Director General.
The UAE has been making rapid strides in establishing its first nuclear power station, the Barakah Nuclear Energy Plant (Barakah), in Abu Dhabi. The Emirates Nuclear Energy Corporation (ENEC), an Abu Dhabi government-owned company established by Federal Law No. 21 of 2009, is constructing Barakah, which will have a total capacity of 5,600MW. The project consists of the construction and installation of four 1,400MW reactors. As of September 2017, the project is 84.92 per cent complete and is proposed to be operational by 2020. Once the four reactors are online, the facility will deliver up to a quarter of the UAE's electricity needs.
In 2016, ENEC signed a deal with TRANSCO to transmit nuclear power generated from Barakah through TRANSCO's power lines to the ENG.
ii Energy efficiency and conservation
The UAE has one of the highest rates of electricity consumption per capita. This high usage is encouraged by the electricity and water subsidies given by the government to its citizens and in certain emirates to foreign expatriates. Dubai has progressively reduced and removed most of its electricity subsidies and Abu Dhabi is contemplating similar measures. Efficiency in energy usage is now being recognised as one of the key issues in trying to meet the country's growing energy needs in a sustainable manner.
In 2010, Abu Dhabi imposed a mandatory rating system for construction of energy-efficient buildings in the emirate under the Estidama initiative. Starting from September 2010, all new development communities, private buildings and villas in the emirate are required to meet the minimum of one-pearl rating. All government led projects have been mandated to meet a two-pearl rating (the highest being a five-pearl rating). Masdar City, an eco-city project within Abu Dhabi, plans to expand its community and target a four-pearl Estidama rating to set an example as the leading energy efficient community.
The Dubai government has also enacted the 'Green Buildings Regulations' to encourage sustainable building practices. These regulations are enforced by the Dubai Municipality and apply to all new buildings constructed (including changes or additions to existing buildings) in the emirate. To this end, RSB Dubai has licensed nine energy service companies to retrofit more than 30,000 buildings in the emirate of Dubai to make them more energy efficient. Recently, the Emirates Green Building Council issued the technical guidelines for retrofitting existing buildings.
In 2016, Dubai and Sharjah launched projects to replace current infrastructure with energy efficient facilities. Both emirates are currently replacing street lights with LED lights. In Dubai, existing buildings are currently being retrofitted by Etihad ESCO while Sharjah is replacing and renovating its cables and meters.
To attract foreign private investment in the sector, Dubai has created a free zone dedicated to the development of green technologies and energy conservation, and known as the Energy and Environment Park (EnPark). EnPark is also Dubai's first master-planned community built on sustainable principles. In 2015, EnPark combined with another free zone, Dubiotech, to create Dubai Science Park.
Through recent investment in its transmission system, DEWA succeeded in reducing the percentage of line losses in its electrical network to 3.26 per cent in 2016 from 6.28 per cent in 2001 and has simultaneously increased the efficiency of its energy generation by 22 per cent between 2006 and 2014. As part of its demand growth management strategy, DEWA has introduced a slab tariff that has been successful in reducing demand growth to 3 per cent despite a 5 per cent growth in end users in 2011. FEWA also has a slab tariff in place for the northern emirates whereas ADWEA is proposing to launch a similar tariff structure in the near future.
iii Technological developments
Masdar has established the Masdar Institute of Science and Technology (MIST), a state-of-the-art research centre and university, in partnership with Massachusetts Institute of Technology. MIST is a graduate-level university that aims to provide solutions to issues of sustainability, focusing on advanced energy and sustainable technologies, through research.
Although it is a brand new institute, according to its website, over 30 research projects are currently under way, covering solar beam down, innovation ecosystems, smart grids and aviation biofuels. In addition, according to its website, a number of patents are already pending registration.
MIST is likely to play a leading role in development of advanced technologies in the UAE in the coming years.
In 2015, Masdar launched Masdar Solar Hub, a solar testing and research and development hub for photovoltaic and solar thermal technology. In the same year, DEWA Innovation Centre, which consists of a laboratory for research and development in clean energy, was inaugurated.
Once completed, the Solar Park is expected to include, inter alia, the following: a centre for innovation equipped with the latest renewable energy technologies, a research and development centre to conduct tests in relation to social and industrial needs for renewable energy; two test technologies for photovoltaic panels and concentrated solar power; a solar testing facility; and a training centre and special conference centre for the exchange of information.
As of 2018, DEWA has signed a memorandum of understanding with Siemens to kick-off a pilot project for the regions first solar-driven hydrogen electrolysis facility at DEWA's outdoor testing facilities at the Solar Park in Dubai.
VI THE YEAR IN REVIEW
The UAE has seen double-digit increase in the demand for electricity in recent years and is expected to continue seeing rapid growth in the coming years.
To meet this growing demand, Abu Dhabi and Dubai have allowed private power companies to participate in its energy sector for a number of years. Following the enactment of the Dubai Electricity Privatisation Law in 2011, Dubai awarded the construction and partial ownership of a number of projects on the IPP model, including the Hassyan Clean Coal Project and the ACWA-TSK solar power plant. FEWA has followed Abu Dhabi and Dubai's example and permitted private sector participation in its electricity network with the participation of UTICO in the electricity network of Ras Al Khaimah and its future plans commencing 2017. However, it seems as though transmission and distribution networks will continue to be owned mainly by the state-owned monopolies and the status there is unlikely to change in the foreseeable future.
The UAE is recognising the need for the efficient use of energy and electricity and is currently revamping its existing infrastructure. In addition to the construction and expansion of power stations, the UAE is involved in other projects such as replacing street lights with LED lights, renovating cables and meters, and retrofitting existing buildings. Consideration has also been given to connecting renewable energy sources to the electric grid. These projects are in line with Dubai Law No. 6 of 2015 on Protection of the Electricity Grid and Public Water Systems in the Emirate, which is intended to protect the electricity and water transmission and generation infrastructure in Dubai.
High subsidies and heavy reliance on fossil fuels for generation have resulted in the UAE having one of the highest per capita carbon footprints in the world. There is growing recognition that the energy demand cannot be met only through investment on the supply side, and that demand-side management programmes and energy conservation measures are equally important in matching demand with supply. Reduction in subsidies over time (and increases in electricity tariffs) coupled with the introduction of slab tariffs in Dubai and the northern emirates have helped curb demand growth in these areas and relieved pressure on the sector. Because of the effectiveness of the slab tariff introduced by DEWA, Abu Dhabi is also proposing to introduce a slab tariff in the near future.
Green building regulations and a mandatory rating scheme have been introduced in Dubai and Abu Dhabi respectively to encourage energy conservation. In accordance with these regulations, the Emirates Green Building Council in Dubai has further issued the Technical Guidelines for Retrofitting Existing Buildings.
The country has set itself the goal of ensuring 25 per cent of its energy requirements in 2030 (and 75 per cent in 2050) are met from renewable sources. To meet these targets, a number of projects have been launched.
Dubai has recently inaugurated a solar energy park that will, on completion in 2030, have the capacity to produce 5,000MW of electricity. This park is also expected to have testing facilities with the latest renewable energy technologies and special conferences to develop the solar energy sector.
Abu Dhabi has launched the zero carbon emissions and zero waste Masdar City project to be powered exclusively by renewable energy sources and to attain a four-pearl Estidama rating to set an example as the leading energy efficient community in the UAE. Masdar, the owner of the project, continues to develop various other renewable projects within the UAE and internationally.
Dubai has established a Dubai Green Fund and established Etihad ESCO, which is expected to contribute towards the development of the renewable energy sector and an energy efficient community.
A specialist regulatory body for the nuclear energy sector has been created. New regulations governing various segments of the nuclear chain are being developed and issued. Construction work on the Barakah nuclear power plant is currently under way in the emirate of Abu Dhabi, and commissioning is expected in 2020. An agreement was also signed in 2016 to transmit nuclear power to the ENG.
Although efforts at diversification are commendable, the sector looks set to continue to be dominated by the existing players. With growing demand for electricity across the UAE, the authorities are continuing to invest significantly in hydrocarbon-based power generation facilities, which are increasingly being supplemented by development of alternative and renewable energy.
VII CONCLUSIONS AND OUTLOOK
As seen above, in addition to the drive towards privatisation, notable developments towards energy diversification and introduction of renewable sources have taken place. These developments, however, currently remain restricted to the government sector despite the various initiatives that were launched to permit private sector participation.
The state-owned monopolies in the various emirates are likely to continue to dominate the sector in the foreseeable future. The requirement under the Companies Law to maintain majority ownership in local hands means that foreign private investors will have to work with the local water and power authorities as junior partners or, when full private ownership is permitted within the sector, with local partners as the majority shareholders.
Although Abu Dhabi and Dubai have seen foreign investment in the electricity sector for a number of years, the other emirates are increasingly beginning to recognise the benefits of encouraging private sector participation. This change in attitudes is driven principally by the increased demand in electricity on account of population and economic growth, as well as the current low oil prices, which have reduced the availability of government funds compared with previous years.
The energy sector in the UAE is likely to continue seeing rapid changes and as the economy continues to grow, demand is likely to create opportunities for private investment in the sector. Although, the GCC Grid has not taken any significant steps in the last few years, the completion of the GCC Grid and its proposed expansion to Egypt and European countries (through Turkey) will create further opportunities for private sector investment in the sector by enabling cross-border trading of power. Furthermore, in line with diversifying energy sources and preserving energy, the UAE is expected to continue its projects such as retrofitting buildings, establishing solar parks and energy efficient communities, which will require the investment and research capabilities of the private sector. Despite the encouragement for private investment in alternative energy sources and energy efficiency measures, investment in the sector looks likely to continue to be led by the state-owned water and power authorities.
1 Masood Afridi is a partner and Adite Aloke is an associate at Afridi & Angell.
3 Member organisations of the DSCE are DEWA, Dubai Aluminium Company Ltd, Emirates National Oil Company, Dubai Supply Authority, Dubai Petroleum Establishment, Dubai Nuclear Energy Committee, Dubai Municipality, Department of Petroleum Affairs and the Road and Transport Authority.
4 Federal Law No. 2 of 2015 on Commercial Companies abrogated Federal Law No. 8 of 1984 (as amended).
5 ADPC has the following subsidiaries: Abu Dhabi Water and Electricity Company; Abu Dhabi Transmission and Dispatch Company; Al Mirfa Power Company; Abu Dhabi Distribution Company; and Al Ain Distribution Company.
6 The Shuweihat S2 IWPP, owned by Ruwais Power Company was commissioned in October 2011, adding a further 1,507MW to Abu Dhabi's power generation capacity and 100 million imperial gallons of potable water each day.
7 In February 2011, a PPA for the Shuweihat 3 power plant was signed between ADWEC and Shuweihat Asia Power Investment BV, a company 60 per cent-owned by ADEWA and 40 per cent by Sumitomo Corporation of Japan and Korea Electric Company (each holding 20.4 per cent and 19.6 per cent respectively). This plant has been operational since September 2014 and generates 1,600MW.
8 Jeffery Delmon and Victoria Rigby Delmon, International Project Finance and PPPs: A Legal Guide to Key Growth Markets 2012, Chapter 16, p. 26 (2012). TAQA, in which ADWEA owns a 74.05 per cent ownership stake, was established under Abu Dhabi Decree No. 16 of 2005 and serves as ADWEA's investment arm in the emirate and abroad. Other Abu Dhabi government entities own a further 1.16 per cent of TAQA with the total government shareholding being 75.21 per cent. The remaining 24.79 per cent of TAQA is owned privately.
9 The project will be built in the Al Taweelah Power Complex, 45 kilometres north of Abu Dhabi, and produce 200 million gallons of water per day using reverse osmosis technology.
10 The special purpose vehicle set up to establish the project is Company Shuaa Energy 1, in which DEWA is a 51 per cent stakeholder and the remaining 49 per cent is held by the consortium of ACWA and TSK.
11 The special purpose vehicle set up to establish the project is Hassyan Energy Phase 1 PSC, in which DEWA is a 51 per cent stakeholder and the remaining 49 per cent is held by the consortium of ACWA and Harbin.
12 As of 2016, DEWA operates a network of overhead lines (1,125 kilometres of 400kV, 413 kilometres of 132kV and 113 kilometres of 33kV lines) and underground cables (23 kilometres of 400kV, 1800 of 132 kV, 2,052 kilometres of 33kV and 29,384 kilometres of 6.6 and 11kV lines) that are, in turn, connected to a distribution system of lower voltage substations and distribution lines.
13 Other plans include: building four new power stations, expanding the current electricity network, building 25 new power plants, expanding 17 power plants and completing 23 power stations within 2016. It is expected that at least five power plants will be built in Umm al-Quwain, 10 in Ras Al Khaimah and five in Fujairah.
15 Jeffery Delmon and Victoria Rigby Delmon, International Project Finance and PPPs: A Legal Guide to Key Growth Markets 2012, p. 26 (2012).
16 Masdar is a wholly owned subsidiary of Mubadala Development Company, one of the Abu Dhabi government's main investment arms.
17 The project company, Shams Power Company, is 80 per cent owned by Masdar and 20 per cent by Total SA.
19 The Dubai Clean Energy Strategy 2050 was announced by the Dubai Supreme Council of Energy as part of its participation in the World Future Energy Summit held in Abu Dhabi in January 2017. The Dubai Clean Energy Strategy 2050 intends that 7 per cent of Dubai's total power output will come from clean energy by 2020, 25 per cent by 2030 and 75 per cent by 2050.