Dubai seeks renewable power sources for the future

Florian Neuhof

Solar technology has not yet reached a stage where it can be scaled-up without difficulties, and most projects do not exceed a few hundred megawatts. Above, a plant in Seville, Spain. Marcelo del Pozo / Reuters

Dubai’s meteoric rise to an international trading and tourism hub is attributable in large part to the emirate’s ability to spot an opportunity and act on it.

So it is not surprising that the rise of renewable energy has not gone unnoticed. Quick to search out a profit, Dubai is also no slouch when it comes to finding savings. Alternative energies, not so long ago considered the preserve of palm tree-hugging environmentalists, now feature high in the thinking of Dubai’s Supreme Council of Energy (SCE).

Following Abu Dhabi’s lead in setting a renewable energy target, the SCE on January 9 announced its own clean energy plans. By 2030, a 48 square kilometre solar park is scheduled to produce 1,000 megawatts of electricity, and 5 per cent of all electricity consumed in Dubai will come from clean sources. This vision is set to become reality at a cost of Dh120 billion (US$32.67bn), the SCE projects.

Dubai’s rapid growth, coupled with a lack of energy conservation measures, has led to rocketing demand for electricity. Demand was 9.6 per cent higher in July 2010 compared with the same period a year earlier.

The Dubai Electricity and Water Authority (Dewa) has drafted in the private sector in its efforts to keep power generation abreast with supply. The contract for Dubai’s first independent power project, a 1,600MW power plant at Hassyan, is likely to be awarded to a private operator by the end of next month.

But innovation in the ownership model of the power infrastructure does nothing to curb the costs of the fuel needed run the plants.

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Dubai’s power plants, concentrated in the Jebel Ali industrial zone, use natural gas to produce electricity from their turbines. Whereas the gas needs in the region were once easily covered by associated gas produced as a side product to crude, spiralling demand for electricity has turned a surplus to a shortage in most GCC countries, forcing them to look to alternative supplies.

The UAE is a recipient of gas from Qatar, the world’s largest exporter of liquefied natural gas (LNG), via the Dolphin gas pipeline, a joint venture between Mubadala Development, Total and Occidental. Mubadala is a strategic investment company owned by the Abu Dhabi Government.

The gas is bought at $1.5 per million British thermal units (mmBtu), a fraction of the usual going rate for gas in the international markets. Yet it is not sufficient to satisfy the growing needs of either Abu Dhabi or Dubai. While the former is increasing its supply by tapping sour gas reserves in the emirate, which requires an expensive de-sulphurisation process, Dubai’s paucity in hydrocarbons does not allow for a domestic solution.

The emirate has instead resorted to importing LNG, and has moored a floating LNG terminal off its coast to this end. This exposes it to the international market, where LNG can be sold for as much as $16 mmBtu.

Such prices are prohibitively expensive for a utility that is experiencing strong growth in demand, and which sells its electricity and water at subsidised rates.

Fortunately, rising electricity use and a scramble for natural gas were not the only issues to hit the regional utility sector, as another country’s renewable energy target started changing the price equation.

China, the worlds biggest exporter of manufactured goods, is experiencing its own runaway demand for power and is seeking to mitigate the consequences by working towards an 11.4 per cent share for alternative energy in the generation mix by 2015.

The resulting growth of the manufacturing base in China has resulted in prices for solar panels, called photovoltaic (PV) panels, plummeting, with prices halving in the past year.

A study by PricewaterhouseCoopers (PwC) released this month shows that if LNG is above $13 per mmBtu, PV projects are commercially viable without the need for subsidies. This breakeven price will fall further as solar power costs continue to drop.

Dubai could benefit from this development, said PwC.

“Key target markets include countries that are reliant on imported oil for power [such as Jordan, Morocco], that burn large amounts of domestic oil for power [such as Saudi Arabia, Kuwait] or that import LNG (Dubai and Kuwait),” the report said.

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