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 procedures and requirements for setting up a renewable energy company in the UAE vary depending on whether the company is established on the mainland (and in which Emirate) or within one of the numerous free zones across the country.
For mainland company setup, we recommend proceeding as follows:
Choose a Business Activity: Determine the specific activities your renewable energy company will provide and/or engage in, such as solar energy generation, wind energy consulting, or renewable energy equipment manufacturing.
Choose a Legal Structure: Select a suitable legal structure for your business, such as a limited liability company (LLC), sole proprietorship, or partnership.
Reserve a Trade Name: Obtain approval for your company’s trade name which should comply with the UAE’s naming conventions and regulations.
Obtain Initial Approvals: Obtain initial approvals from relevant authorities in the renewable energy sector.
Submit Legal Documents: Prepare and submit all the necessary legal documents.
Obtain Business License: Once all requirements are met and approvals are obtained, you can proceed to obtain your business license from the governmental authority.
CHOOSING THE RIGHT BUSINESS STRUCTURE FOR A RENEWABLE ENERGY COMPANY
Choosing the right business structure for a renewable energy company in the UAE is extremely important and should be discussed with an experienced consultant who will provide professional opinion and design the best solution for the client. Structuring advice will depend on various factors, including the nature of the business, ownership preferences, liability considerations, and regulatory requirements.
Limited Liability Company (LLC): It is usually suitable for medium to large-sized renewable energy companies with multiple owners or investors as it provides flexibility in management structure and profit distribution.
Free Zone Company: Establishing a renewable energy company in a free zone offers 100% foreign ownership, allowing full control over the business and it may also provide customs duty benefits (in case of designated freezones). This type would be ideal for companies focused on international operations, export-oriented businesses, or those seeking greater autonomy and flexibility.
Branch Office: Foreign renewable energy companies looking to establish a presence in the UAE without incorporating a separate legal entity may opt for a branch office. The branch office operates under the parent company’s name and is subject to the same ownership structure and liabilities.
Joint Venture (JV): A joint venture involves collaboration between two or more parties to establish a new entity for a specific renewable energy project or venture.
Sole Proprietorship: It is recommended for small-scale renewable energy consulting, freelance services, or individual entrepreneurs starting out in the industry.
OBTAINING NECESSARY PERMITS AND APPROVALS FOR PROJECT DEVELOPMENT
Apart from 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 require an Environmental Impact Assessment to assess potential environmental impacts and mitigation measures. The EIA process evaluates factors such as air quality, water resources, biodiversity, noise pollution, and socio-economic impacts to ensure compliance with environmental standards and regulations. The assessment is typically conducted by qualified environmental consultants and submitted to the relevant regulatory authority for review and approval.
Land Use and Zoning Approvals: Renewable energy projects such as photovoltaic power stations may require approvals related to land use and zoning from the relevant municipal or local authorities.
Building Permits: Construction of renewable energy infrastructure, such as solar panels, wind turbines, or energy storage facilities, may require building permits from the local municipality or regulatory authority.
Grid Connection Approval: Renewable energy projects seeking to connect to the electricity grid require approval from the relevant utility or grid operator. This involves assessing the technical feasibility of grid connection, ensuring compatibility with existing infrastructure, and complying with grid code requirements.
Power Purchase Agreement (PPA): Large-scale renewable energy projects may require a Power Purchase Agreement with the utility or off-taker to sell electricity generated from renewable sources.
CASE STUDIES AND SUCCESS STORIES OF SUCCESSFUL RENEWABLE ENERGY PROJECTS IN THE UAE
BARAKAH NUCLEAR POWER PLANT
The Barakah nuclear power plant is the United Arab Emirates’ first nuclear power station, the first nuclear power station in the Arabian Peninsula and the first commercial nuclear power station in the Arab World. 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.
Addressing global challenges like climate change, resource depletion, and environmental degradation requires collective action, innovation, and a commitment to sustainability. Embracing renewable energy sources such as solar, wind, hydro, and geothermal power can reduce reliance on fossil fuels and mitigate greenhouse gas emissions. In addition, investing in clean energy infrastructure and technologies accelerates 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 its position as a global business hub present opportunity for renewable energy companies to seek international partnerships, investment, and market access.
Abundant Solar Resources: The sunlight throughout the year presents significant opportunities for solar power projects, including photovoltaic (PV) installations and concentrated solar power (CSP) plants.
Government Support: The UAE government has demonstrated a strong commitment to renewable energy development through initiatives such as the UAE Energy Strategy 2050 and the Dubai Clean Energy Strategy 2050.
Diversification Goals: The UAE is actively seeking to diversify its energy mix and reduce reliance on fossil fuels through renewable energy projects.
Infrastructure Investment: The UAE is investing heavily in infrastructure development, including renewable energy projects, to support economic growth, urbanization, and sustainability goals.
CHALLENGES:
Intermittency and Variability: Solar and wind energy generation can be intermittent and variable, depending on weather conditions. This poses challenges for grid integration, energy storage, and reliability, requiring innovative solutions to address intermittency issues.
Water Scarcity: The UAE faces challenges related to water scarcity, which can affect the operation and maintenance of renewable energy projects, particularly those that rely on water-intensive technologies.
Policy and Regulatory Framework: 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: Financing renewable energy projects, especially large-scale installations, can be challenging due to the high upfront costs and long payback periods associated with renewable energy technologies.
Competition and Market Dynamics: The renewable energy market in the UAE is competitive, with both local and international companies vying for a foothold.
FINAL THOUGHTS ON THE OUTLOOK OF THE RENEWABLE ENERGY SECTOR IN THE UAE
Sustainable energy has become a key factor in promoting economic, environmental, and social growth within the UAE and it is also the most important tool for sustainable development and environmental preservation. The outlook of the renewable energy sector in the UAE may look promising, with significant opportunities for growth and development as demonstrated by the continued strong government commitment to this cause. Rapid advancements in renewable energy technologies, such as solar photovoltaics, wind power, and energy storage, will further enhance the competitiveness and viability of renewable energy solutions in the UAE. Continued research and development efforts, coupled with economies of scale, will lead to cost reductions and performance improvements, making renewable energy more accessible and cost-effective. For assistance with getting your UAE renewable energy company registered contact us on Email:[email protected] | UAE: +971 4 878 6240 | Saudi Arabia: +966 54 511 2494
