The floodgates for private investment in Dubai’s renewable energy sector will open this year as the Dubai Electricity and Water Authority (Dewa) looks to private companies to pick up a tab worth billions as budgets tighten amid low oil prices.
Dewa announced yesterday it would tender renewable energy projects worth more than Dh27 billion based on an independent power producer (IPP) model. While the utility would increase this year's budget to Dh23.6bn, up slightly by more than 3 per cent from last year, Dewa said that using an IPP system would "leverage public-private partnerships and build new capacity in renewable energy".
Saeed Al Tayer, the managing director and chief executive of Dewa, said this year’s budget would “meet all the requirements of Dewa’s projects”, with 60 per cent going towards operational spending such as maintenance.
About 37 per cent of the budget would go towards capital expenditure and projects.
“The 2016 budget includes a number of key projects including Dh2.9bn in generation, Dh3.4bn in power transmission, Dh1.2bn in power distribution and Dh1.04bn in water and civil [works] in addition to other amounts totalling Dh95 million,” Mr Al Tayer said.
While the budget follows a similar breakdown as last year, it is only a minimal increase given that more projects than ever are planned.
The shift to private financing comes as less capital is available as a result of low oil prices that have persisted for more than a year.
The price of Brent crude, the global benchmark, has dropped by about 65 per cent since the market rout began in June 2014.
Although oil sales only make up 4 per cent of Dubai’s revenue, the emirate depends on the sector for indirect capital.
Dubai established a new public-private partnership (PPP) law that came into effect on November 19 to offset lower revenue, although it excluded the power and water sector as it has separate legislation.
Dewa will need further support from the private sector to meet the ambitious renewable energy targets set forth by the Dubai Supreme Council.
At the end of November, Dubai said that not only would it have 7 per cent of its energy mix derive from renewable energy sources, but also by 2030 that amount would total 25 per cent and 75 per cent by 2050.
At the beginning of last year, Dewa launched the five-prong Smart Initiative, with the first instalment, Shams Dubai, looking to equip residential and commercial buildings with solar panels.
“By setting up the conditions for growth through these key legislative, funding, infrastructure and skills development mechanisms, Dewa is looking to the market to respond,” said Ridah Sabouni, the Middle East North Africa managing director of the US consultancy Energetics. “It will take at least a couple of years to get things going, but eventually you will see a robust market develop here.”
Before Shams Dubai, there lacked incentive for solar companies to invest a great deal in the emirate.
“With Shams Dubai coming into place now, you could see more solar PV companies come to town or expand their already existing – and perhaps small – operations,” Mr Sabouni said.
lgraves@thenational.ae
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