Middle East: Charting the permitting gauntlet
With Middle Eastern countries’ commitment to and progress on renewable energy development at varying levels, the region presents a daunting patchwork of evolving environmental policies and processes for project developers to navigate.
By Heba Hashem in Dubai
To date, only a handful of countries in the Middle East have established government agencies to oversee environmental activities, evaluate new project plans and to provide much-needed support mechanisms for renewable energy development.
Among the leaders are the UAE, Egypt and Jordan, each with varying levels of legal and policy infrastructure to facilitate renewable energy development. Oman, despite boasting enormous potential for renewable energy, has yet to roll out a comprehensive policy framework.
The UAE holds considerable allure for developers, given its tax-free status. The caveat however, is that any new company (LLC) established in the region must be 51 per cent owned - at all times - by one or more UAE nationals.
Another issue for consideration is that of permitting. Renewable energy projects in the UAE do not follow the same approval process as other utilities, given that each Emirate has its own set of requirements.
Generally, the key bodies involved in UAE's permitting process include the municipality (of a given emirate), road and transport authorities, water and electricity department, environmental societies, and the master developer - the company that purchases land for sub-division and resale to third-party developers.
The permitting process for all types of projects in the UAE not only varies from location to location, such as Dubai to Abu Dhabi; it also varies between master developments. This is because each master development commands its own permitting process, in addition to municipal requirements.
The master developer usually designs and builds infrastructure (roads, electricity and water mains) as well as creating regulations/requirements for the buildings that are to be built by the third party-developers.
When it comes to evaluating and approving applications for permits related to new industrial and commercial projects in Abu Dhabi, the EAD (Environment Agency Abu Dhabi) is responsible for via application assessment and environmental impact assessments.
In general, a "No Objection Certificate" (NOC) is one of the main requirements prior to any commencement of site activities in the UAE. For a new project, the permission and NOC procedure normally takes between 3 months to a year, depending on the type of project. Masdar City, however, is subject to its own regulations and requirements.
Khalil Atieh, Vice President of Jain & Partners International Engineering Consultants explains: "In the case that a utility project is executed in the middle of the city, the approval process may take more than a year."
However, Michael Pidgeon, Sustainability Consultant at Scott Wilson, argues: "As far as I know, there are no installed utility-scale renewable systems in operation in the UAE, and the permitting process is unlikely to be clearly defined.”
Samuel Keehn, Environmental and Sustainability Manager at Energy Management Services, clarifies: "There is only one utility-sized renewable energy project in the UAE – Masdar’s 10 MW installation."
Keehn adds that while fast tracks exist for permitting in the UAE, they differ from the fast track methods in Europe and the US. This is largely because the UAE is comprised of numerous different authorities, which have approval processes at different stages of maturity. Given the rapid nature of development, these processes are continually evolving.
The cost of the approval fees also depends on the scheme and can range from a few thousand US dollars to the hundreds of thousands of US dollars. "In some cases authorities may ask the developer to pay long-term fees from the revenues of the project", explains Atieh.
This has less to do with transparency than it has with an evolving regulatory system. “While some authorities have clear lists for the fees to be paid by the developer for a particular project, others may have different estimations depending on the scheme, size and type of the projects. I think for renewable energy projects fees for permitting licenses are not yet determined by authorities. However, this may differ from one emirate to another within UAE or from one country to another within the GCC", says Atieh.
Oman, one of the few countries in the Middle East region with strong potential for both solar and wind energy, especially in the northern mountainous areas of Salalah, currently has a total renewable energy installation of 235kw.
However, developers continue to face a number of significant barriers, according to a recent report. These include access to fundamental technology; associated cost structures; the structure of the power market where their outputs are sold; cost competitiveness; intermittency and legal framework.
The outlook, however, is not all bleak. Oman’s Authority for Electricity Regulation, which is responsible for regulating the electricity sector in Oman, has commissioned COWI/SCO to identify sources of renewable energy in Oman and to undertake initial technical and economic assessments of the potential use of renewable sources of energy for electricity production.
Jordan presents a more promising scenario. In its latest strategy, Jordan’s share of renewable energy resources will be increased from 1% to 10% by 2020. To achieve this, Jordan’s government has established a new energy fund to support infrastructure development required for new renewable energy facilities.
Jordanian Minister of Environment, Khalid Irani, says Jordan’s new energy law is designed to remove regulatory and legislative barriers in order to facilitate the installation of renewable energy at a commercially feasible level. However, Irani admits that the technological barriers are significant and will demand huge investments and know-how in order to upload renewable energy to the existing national electricity grid.
Blueprint for success?
Among the Middle East countries, Egypt is well advanced when it comes to government support mechanisms and permitting procedures.
The Ministry of State of Environmental Affairs in Egypt establishes and oversees the mandatory Environmental Impact Assessment (EIA) of projects, as well as the standards and conditions to which applicants for construction projects must adhere prior to construction commencing. The EIA must be performed for new establishments or projects, and for expansions or renovations of existing establishments - including power-generating facilities - according to Egypt's Law for the Environment.
The renewable energy sector currently receives support via two separate funds. The first is the Egyptian Pollution Abatement Project fund, which aims to improve the industry's performance by helping businesses comply with environmental regulations.
The second fund, which aims to stimulate environmental investment in Egypt by providing financial assistance to projects benefiting the environment, is the Environmental Protection Fund, established within the Egyptian Environmental Affairs Agency (EEAA).
Three further support programs are offered by the Environmental Protection Fund for eligible companies: the Grants program, which is limited to governmental agencies, NGOs, universities and research centres on condition that the projects are not research projects. A fund contribution to 50% of project costs is offered in the Grants program, with a maximum contribution up to USD 63,000 per project. Grants need not be refunded.
The second is the soft loan program, which offers a lower interest rate than the market and accepts applications from small or medium sized organizations. A soft loan accounts for 60 to 90 percent of total project cost, and ranges from a minimum of USD 10,000 to a maximum of USD 700,000 per project.
The third is the Interest Rate Subsidy program, which accepts applications from small or medium sized organizations, offering between 50-60% of the projects value, for projects that cost a minimum of USD 18,000 and a maximum of USD 1.8 million.
The evaluation process for this takes approximately 2 months before the project is formally presented to the Fund Management Committee. For soft loans and interest rate subsidies, an initial financial assessment is completed by the Fund, with the final financial assessment completed by the participating bank.
When it comes to establishing regulatory and permitting regimes, Egypt provides a good benchmark for other countries in the Middle East region. However, at this stage, a primary consideration for many countries involves a review and overhaul of highly subsidised electricity prices coupled with the introduction of incentives for new renewable energy projects.
A further consideration for the region is increased cooperation in infrastructure development and knowledge sharing. As Robin M Mills, a Dubai-based energy economist and author of The Myth of the Oil Crisis concludes, "The Gulf countries need to co-operate on renewable energy. The sharing of technology and experience avoids re-inventing the wheel... In the short-term, solar power’s promise should not be exaggerated. It does not fit easily into the current Gulf model of centralised, subsidised electricity. Eventually, though, sunshine can not only power industries and buildings, but also turn the desert green".
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