By Heba Hashem in Dubai

With the Middle East region likely to be one of the hardest hit by climate change, there is growing concern at the Gulf countries' reluctance to more rapidly adopt renewable energy projects and systems.

However, the fact that the United Arab Emirates is not producing enough natural gas to meet its burgeoning electricity demand, which grew 7% from 2008-09, suggests the case for CSP will soon gain ground.

With vast amounts of continuous sunshine, CSP could cater to 50% of the UAE's energy demand by 2050, according to a recent study by the German Aerospace Center.

"The technical potential of CSP (in the UAE) goes beyond the growing demand,” confirms Cederic Philibert, senior analyst at the International Energy Agency.

He adds that there is an excellent match between the availability of solar radiation and the peak demand for electricity, which is largely driven by air-conditioning loads.

Solar-generated power will not only give the Middle East the option to sell its gas and oil at increasing prices to the world market instead of burning it to generate electricity, it will also create huge employment opportunities, according to a recent report by AT Kearney.

The UAE is already exercising the former option, says Justin Dargin, Harvard University scholar and research fellow at the Dubai Initiative (a collaborative venture with the Dubai School of Government). “The UAE prefers to use renewable energy for domestic electricity generation while it saves its oil and natural gas for either export or the petrochemical sector," he explains.

Abu Dhabi’s Future Energy Company, which owns Masdar, the name behind the world's first zero-carbon, zero-waste US $22 billion city located about 17 km outside Abu Dhabi's downtown, is currently constructing a 100 MW CSP Plant in Madinat Zayed, western Abu Dhabi.

The Shams 1 Plant will supply the national electricity grid using parabolic trough technology over an area of 2.5 Sq km – which is later to be extended to 6.5. Sq km.

With project completion scheduled for the second quarter of 2011, it will have an operational capacity of 100MW, which, its developers say, will be boosted to 2000MW in the future.

Price competition

The existing electricity tariff structure in the UAE is a significant impediment to developing large-scale solar energy projects.

Currently, power is subsidized by both the natural gas feedstock supplied to the utilities, with electricity then subsidized to the UAE end user.

"A switch to renewable energy power production, such as solar, would increase the burden on the government treasury as long as the tariff rates are kept low. The primary problem is the restructuring of the electricity tariff structure - this would go a long way to allowing the government-run utilities to diversify into solar power without an official government mandate," says Dargin.

Another key problem problem is that the UAE lacks an overarching energy plan. Energy development is fragmented given that different emirates independently determine their energy strategy.

However, the UAE anti-crisis stimulus plan and infrastructure development strategy could potentially drive solar energy development.

To this end, up to US$1 billion for infrastructure development will be made available via a joint venture between Abu Dhabi Investment Company (ADIC) and UBS Global Asset Management. While CSP is not yet an integral part of these plans, if included, it could finance  the necessary infrastructure for the UAE to make a sustained push into CSP, without having to rely on the external credit market.

In any case, when it comes to liquidity the UAE is far from hamstrung. "Abu Dhabi invested at least US$15 billion to fund its alternative-energy ventures. They have been investing oil profits into renewable energy development,” says Dargin.

Dargin foresees a trend for more Public Private Partnerships, and for greater regional bank involvement. “Banks such as the First Energy Bank are sitting on a massive amount of liquidity, and renewable energy projects would prove to be a good outlet for infrastructure development". 

In addition to globally prevailing challenges, such as high component costs, the UAE faces other potential issues.  Varying laws between jurisdictions in the region could pose problems for developers.

"In some jurisdictions, the use of either synthetic oil as heat transfer fluid, and molten salts as storage medium and/or heat transfer fluid, can be made more difficult by stringent legislation regarding hazardous materials," notes Philibert.

Whether or not these issues materialise remains to be seen. As Dargin notes: "These projects have just begun; there are substantial technical obstacles as no one has quite tried it on this scale before.”

To respond to this article, please write to:

Heba Hashem: enquiry@hebahashem.com

Or write to the editor:

Rikki Stancich: rstancich@gmail.com