OPPORTUNITIES & CHALLENGES OF SETTING UP A RENEWABLE ENERGY COMPANY IN THE UAE
This article has been researched and written by the Business Development team at Creation Business Consultants. AI has not been used in generating this article.
OVERVIEW OF RENEWABLE ENERGY INDUSTRY IN THE UAE
The UAE considers the renewable energy industry a crucial part of the country’s energy strategy for the upcoming years. It has experienced significant growth and development, driven by the country’s ambitious clean energy targets, favourable market conditions, and strong government support. According to the UAE Federal Decree-Law No. 17 of 2022, which regulates the connection of distributed renewable energy production units to the electricity grid, renewable energy is defined as “energy produced from natural resources and renewed at a rate that exceeds its consumption.”
IMPORTANCE OF EXPLORING OPPORTUNITIES AND CHALLENGES IN SETTING UP RENEWABLE ENERGY
As the first country in the Middle East to do so, the UAE government adopted the Net Zero by 2050 Strategic Initiative, aligning with the goals of the Paris Agreement. This initiative aims to create new knowledge along with green industries, skills, and jobs. According to the Energy Strategy 2050, the UAE will target the following combination of renewable, nuclear, and clean energy sources: 44% clean energy, 38% gas, 12% clean goal, and 6% nuclear energy.
The UAE is currently the region’s fastest-growing market for renewables, and even traditional sectors like construction, transportation, and main industries are keen to engage in opportunities involving renewable energy solutions. As declared by the UAE government, the country plans to generate most of its electricity from renewable energy by 2050. Thus, major business opportunities will exist in the solar energy, waste-to-energy, wind energy, and water treatment sectors.
OPPORTUNITIES IN THE RENEWABLE ENERGY SECTOR IN THE UAE
UAE GOVERNMENT INITIATIVES AND POLICIES PROMOTING RENEWABLE ENERGY
The (UAE) government has implemented various initiatives and policies to promote renewable energy and sustainability within the country:
UAE Energy Strategy 2050: This strategy aims to triple the share of renewable energy by 2030 and increase individual and institutional energy consumption efficiency by 42-45% (compared to 2019).
Dubai Clean Energy Strategy 2050: Launched by the Dubai Supreme Council of Energy, this strategy aims to make Dubai a global hub for clean energy and the green economy by 2050. It targets 75% of Dubai’s total power output from clean energy sources by 2050 and aims to transform Dubai into a city with the world’s smallest carbon footprint by 2050.
Mohammed bin Rashid Al Maktoum Solar Park: One of the largest single-site solar parks in the world, it represents a key initiative in the UAE’s efforts to increase the share of solar energy in its energy mix. The park aims to have a total capacity of 5,000 megawatts (MW) by 2030, contributing significantly to Dubai’s clean energy goals.
Renewable Energy Auctions: The UAE has conducted several successful renewable energy auctions to attract private sector investment in renewable energy projects.
Net Metering and Feed-in Tariffs: The UAE has also implemented net metering and feed-in tariff (FIT) schemes for the adoption of rooftop solar panels and small-scale renewable energy systems. Under these schemes, consumers can offset their electricity bills by generating renewable energy and exporting excess electricity to the grid at a predetermined tariff rate.
INVESTMENT OPPORTUNITIES IN SOLAR, WIND, AND OTHER RENEWABLE ENERGY SOURCES
The UAE has attracted significant investments in renewable energy projects, both domestically and through international partnerships, in all its different sources:
Solar Energy
Utility-Scale Solar Projects: With the UAE experiencing countless sunny days throughout the year, the country is an ideal location for utility-scale solar projects.
Distributed Solar: There is also significant potential for distributed solar energy solutions, including rooftop solar installations on residential, commercial, and industrial buildings. Investors can capitalize on the growing demand for rooftop solar systems driven by favourable government policies, such as net metering and feed-in tariff schemes.
Wind Energy
Onshore Wind Farms: While wind energy resources in the UAE are relatively modest compared to solar, there are opportunities for investors to develop onshore wind farms, particularly in locations with favourable wind conditions such as coastal areas and highlands.
Offshore Wind: The UAE’s extensive coastline presents opportunities for offshore wind energy development. Investors can explore the potential for offshore wind farms to harness the strong and consistent winds in the Arabian Gulf and the Gulf of Oman.
Other Renewable Energy
Hydroelectricity: While traditional hydroelectric power generation is limited in the UAE due to its dry climate (apart from the Hatta Dam), there may be opportunities for investors to explore innovative hydroelectric technologies such as pumped hydro storage systems, which can help store excess energy generated from renewable sources.
Biomass and Waste-to-Energy: The UAE’s growing population and urbanization have led to increased generation of organic waste, presenting opportunities for biomass and waste-to-energy projects.
LEGAL AND REGULATORY FRAMEWORK FOR RENEWABLE ENERGY COMPANIES: AN OVERVIEW OF LICENSING AND PERMITTING REQUIREMENTS
Regarding the licensing and permitting requirements for new businesses in the renewable energy sector, the regulatory framework will vary depending on the chosen business activity (type of renewable energy), preferred jurisdiction (whether mainland or one of the numerous free zones), and the Emirate within the country.
REGULATORY BODIES OVERSEEING THE RENEWABLE ENERGY SECTOR IN THE UAE:
Ministry of Energy and Infrastructure (MOEI): responsible for formulating and implementing energy policies and strategies in the UAE, including those related to renewable energy.
Dubai Electricity and Water Authority (DEWA): the primary utility company responsible for generating, transmitting, and distributing electricity and water in Dubai.
Abu Dhabi Department of Energy (DoE): the regulatory authority responsible for overseeing the energy sector in Abu Dhabi, including electricity, water, and renewable energy.
Regulatory and Supervisory Bureau (RSB) for Electricity and Water: an independent regulatory body responsible for regulating the electricity and water sector in Dubai. It oversees various aspects of the energy market, including licensing, tariffs, and compliance with regulations, to ensure fair competition and consumer protection.
International Renewable Energy Agency (IRENA): not a regulatory body specific to the UAE, IRENA is headquartered in Abu Dhabi, and the UAE is a founding member. IRENA serves as an international platform for cooperation and collaboration on renewable energy, providing technical assistance, capacity building, and policy advice to member countries, including the UAE.
COMPLIANCE WITH ENVIRONMENTAL STANDARDS AND REGULATIONS:
Renewable energy companies in the United Arab Emirates are subject to compliance with environmental standards and regulations to ensure sustainable development and minimize negative environmental impacts:
Federal Environmental Laws and Regulations: The UAE has enacted federal environmental laws and regulations to protect its natural resources and environment. Following the above, renewable energy companies must comply with relevant federal environmental laws and regulations, such as Federal Law No. 24 of 1999 on the Protection and Development of the Environment and its implementing regulations.
Environmental Impact Assessment (EIA): Renewable energy projects in the UAE may be required to undergo an Environmental Impact Assessment to assess potential environmental impacts and mitigation measures.
Sustainable Development Goals (SDGs): The UAE is committed to achieving the United Nations Sustainable Development Goals (SDGs), including Goal no. 7 (Affordable and Clean Energy) and Goal no. 13 (Climate Action).
Regulatory Oversight: Regulatory authorities such as the Ministry of Energy and Infrastructure (MOEI), Abu Dhabi Department of Energy (DoE), and Dubai Electricity and Water Authority (DEWA) oversee compliance with environmental standards and regulations in the renewable energy sector.
Certification and Accreditation: Renewable energy companies may be required to obtain certifications or accreditations to demonstrate compliance with environmental standards and regulations. For example, renewable energy projects may need to be certified under international standards such as ISO 14001 (Environmental Management Systems) or obtain accreditation from relevant authorities.
BUSINESS SETUP PROCESS FOR RENEWABLE ENERGY COMPANIES
COMPANY REGISTRATION PROCEDURES AND REQUIREMENTS
The registration process and requirements for setting up a renewable energy company in the UAE differ depending on whether the company is established on the mainland (and in which Emirate) or within one of the numerous free zones that are across the country.
For mainland company setup, we recommend proceeding as follows:
Choose a Business Activity: Establish the specific activities your renewable energy company will provide, like solar energy generation, wind energy consulting, or renewable energy equipment manufacturing.
Choose a Legal Structure: Determine an appropriate legal structure for your business, like a limited liability company (LLC), sole proprietorship, or partnership.
Reserve a Trade Name: Your company’s trade name requires approval and should comply with the UAE’s naming conventions and regulations.
Obtain Initial Approvals: Initial consents from appropriate authorities in the renewable energy sector are required.
Submit Legal Documents: Prepare and submit all the legal documents that are required for the process.
Obtain Business License: When you get all the required approvals, proceed to obtain your business license from the government authority.
CHOOSING THE RIGHT BUSINESS STRUCTURE FOR A RENEWABLE ENERGY COMPANY
Discuss with a professional and experienced consultant who can provide you with an opinion on choosing the right business structure for a renewable energy company. Their advice may depend on various factors that include the nature of the business, ownership preferences, liability considerations, and regulatory requirements.
Limited Liability Company (LLC): This kind of setup is usually recommended for medium to large-sized renewable energy companies that have multiple owners or investors because it provides flexibility in management structure and in the distribution of profit.
Free Zone Company: 100 percent of foreign ownership is given when creating a renewable energy company in one of the free zones of the UAE. You may also get customs duty benefits in certain free zones. This kind of setup is ideal for companies that have work focusing on international operations, export-oriented businesses
Branch Office: Foreign renewable energy companies that want to establish a presence in the UAE without a different legal entity may go for a branch office. The branch office is established under the parent company’s name and is dependent on the same ownership structure and liabilities.
Joint Venture (JV): When two or more parties form a partnership to set up a new entity for a particular project or venture.
Sole Proprietorship: usually required by small-scale energy consulting, freelance services, or individual entrepreneurs that are just starting in the industry.
OBTAINING NECESSARY PERMITS AND APPROVALS FOR PROJECT DEVELOPMENT
Except for the initial license, permits, and approvals required for the company incorporation, the following approvals may be obligatory:
Environmental Impact Assessment (EIA): Renewable energy projects in the UAE may need an Environmental Impact Assessment to check potential environmental impacts and mitigation measures. The EIA process includes various factors such as air quality, water resources, biodiversity, noise pollution, and socio-economic impacts to make sure there is conformity with the environmental standards and regulations. The assessment is usually conducted by qualified environmental consultants and submitted to the relevant regulatory authority for approval and review.
Land Use and Zoning Approvals: approvals may be required by Renewable energy projects like photovoltaic power stations from the relevant authority.
Building Permits: Building up of renewable energy infrastructure, such as solar panels, wind turbines, requires a building permit from the regulatory body.
Grid Connection Approval: If a renewable energy project is seeking to use and connect to the electricity grid, it may require permission from the grid operator. This requires assessing the technical feasibility of grid connection, making sure there is compatibility with the existing infrastructure, and following the grid code requirements.
Power Purchase Agreement (PPA): Big and large-scale projects sometimes require a power purchase agreement with the utility to sell the electricity that is generated from the renewable source.
CASE STUDIES AND SUCCESS STORIES OF SUCCESSFUL RENEWABLE ENERGY PROJECTS IN THE UAE
BARAKAH NUCLEAR POWER PLANT
UAE’s first nuclear power plant, and also the first in the Arab world, is the Barakah Nuclear Power plant . The Barakah Nuclear Energy Plant is in the Al Dhafra of the Emirate of Abu Dhabi, and the Plant’s four APR1400 design nuclear reactors will supply up to 25% of the UAE’s electricity needs once fully operational. The above said means that once fully operational, this power plant will prevent up to 22 million tons of carbon emissions every year.
Checking on the global challenges like climate change, and environmental degradation etc needs collective action, innovation, and a commitment to sustainability. Making use of and adopting renewable energy sources such as solar, wind, hydro, and geothermal power can reduce reliance on fossil fuels and also reduce greenhouse gas emissions. Additionally, investing in clean energy infrastructure and technologies increases the transition to a low-carbon economy.
CONCLUSION
Recap of the key opportunities and challenges discussed:
OPPORTUNITIES:
Strategic Location: The UAE’s strategic location and the position it holds today in the global business hub give opportunities for renewable energy companies to look for international partnerships, investment, and market access.
Abundant Solar Resources: Because of the presence of a good amount of sunlight throughout the year in the region, it is good for solar power projects, including photovoltaic (PV) installations and concentrated solar power (CSP) plants.
Government Support: The UAE government shows a strong commitment to renewable energy development through a lot of its initiatives, such as the UAE Energy Strategy 2050 and the Dubai Clean Energy Strategy 2050.
Diversification Goals: The United Arab Emirates is looking to diversify its energy resources and reduce the usage of fossil fuels.
Infrastructure Investment: The UAE is investing a great amount in infrastructure development, which includes renewable energy projects, to support economic growth, urbanization, and sustainability goals.
CHALLENGES:
Intermittency and Variability: Solar and wind energy depend upon the weather conditions and can variable. So this may pose challenge for the grid integration, energy storage, etc, requiring innovative solutions
Water Scarcity: The projects that mostly rely on water or water-intensive techniques heavily may face challenges due to water scarcity issues in the UAE.
Policy and Regulatory Framework: New companies might face uncertainties in project development since the renewable energy policy and regulatory framework can be quite complex. The renewable energy policy and regulatory framework is quite complex, and new projects may encounter potential delays and regulatory uncertainties that can impact project development and investment decisions.
Financing and Investment: There is a high fee and a long payback period that is connected to financially renewable energy projects, especially when it comes to large-scale installations.
Competition and Market Dynamics: The market situation in the UAE when it comes to renewable energy is competitive, as both the local and international markets are trying to get it to their advantage.
FINAL THOUGHTS ON THE OUTLOOK OF THE RENEWABLE ENERGY SECTOR IN THE UAE
When it comes to promoting economic, environmental, and social growth in the Emirates, sustainable energy works as a key factor; it is also an important tool for environmental preservation. Continuous research and development, alongside economies of scale, will lead to reduced cost and improved performance, making renewable energy more attainable.
