Coal comes cheap but production does not

Solar is not the only alternative to expensive natural gas, as Dubai looks to the private sector to build a "clean coal" power plant.

The Dubai Electricity and Water Authority (Dewa) is close to awarding the contract for the Hassyan power plant, the first in the emirate to operate as a public-private partnership, and is already looking into a second independent power project (IPP) to be run on coal.

"We have no experience in coal, so I think it will be an IPP," says Saeed Mohammad Al Tayer, Dewa's chief executive.

Mr Al Tayer expects the results of a study on the "clean coal" project by the end of the first quarter. His focus on coal is driven by a soaring demand for electricity and a short supply of natural gas.

"The advantage of clean coal is price, the unit costs are very competitive," Mr Al Tayer says.

"We have a strategy how to mitigate risk. You will have other sources, so you will not rely on gas only."

"Clean coal" power plants filter their pollutants, and emissions are commonly stored underground in carbon capture and storage facilities.

Earlier reports suggested that the plant could generate up to 3,000 megawatts, but Mr Al Tayer denied a decision on the size of the project had already been taken.

Fluctuating prices of a commodity procured from outside the region could complicate a coal-fired IPP, experts say.

"If they leave it to the IPP to procure the coal, then there is always the variability of the cost. So I think the Government will assure the supply of coal at a certain cost to the power producer," says Abhay Bhargava, an energy expert at the consultancy Frost & Sullivan.

Coal-fired plants are a mainstay of utilities around the world. Both China and the US rely on the fossil fuel as their main source of power.

In the Middle East, an abundance of oil and gas has so far marginalised the feedstock, and Oman is the only other GCC country also considering a coal-fired plant.

"Coal is cheaper as a fuel, but the costs of a coal-fired power plant are three to four times higher than a plant running on gas," says a source at a major power plant operator.