Masdar: One step back, two forward for solar in UAE?

| Jan. 25, 2011

By: Heba Hashem

In recent weeks, the solar power industry was taken aback when Abu Dhabi’s Masdar postponed its plans for a solar panel factory. This was followed by delaying a $2.2bn hydrogen power JV project with BP. At the same time, Masdar’s $165mn plant in Germany is selling at competitive prices to customers in Europe and India.

But the plans to halt its local operations are likely to affect the Middle East market - especially the neighbouring GCC nations that look up to the UAE as prototype for renewable energy advancement. How will the new decisions affect the region and what implications do they have for investors?

Progressions and setbacks

Masdar had initially planned to begin constructing the solar panel plant in 2009. Delay began when it underwent a significant review in January 2010 that led it to postpone the completion date. A year later, the construction of the plant in Taweelah, between Abu Dhabi and Dubai, was entirely ceased.

“You need scale and you need a regional market for that to make sense. The price of solar panels is dropping all over the world as the market becomes oversupplied,”Frank Wouters, the director of Masdar Power, was noted saying.

Shortly after, the state-owned firm announced it will build a 100MW photovoltaic plant to take advantage of lower PV costs compared to concentrated solar power.

“Our power unit, which is working on renewable projects, is working on a PV plant, Noor 1,” Ashfin Afshari, manager of energy management at Masdar City, told reporters.

“Originally, we had planned on using only CSP, but the cost of PV had come down significantly and continues to come down. It will even be cheaper next year,”he said.

The project will be the second of its kind in Abu Dhabi, and may be offered as an Independent Power Project, or IPP.

“We will soon invite the expression of interests for the project that will be launched on build, own and operate basis,” said Mohammed Al Zaabi, General Manager of Shams Power Company PJSC, a subsidiary of Masdar.

“The site for the project is yet to be decided,” he said adding that a feasibility study was underway. Masdar owns 60 per cent in the company, while French energy giant Total and Abengoa of Spain share the rest equally.

Once the feasibility is done, Masdar will go out to the market to invite bids for the engineering, procurement and construction of the project along with the operation, management and maintenance.

On the other hand, Masdar’s landmark project, the Shams-1 is “on budget and on schedule.” About 10 global and national banks and financial institutions have shown great interest in financing the $600 million project, the world’s largest concentrated solar power plant.

Shifting focus

Masdar is now increasing efficiency measures, such as insulation in walls, before resorting to expensive renewable energy.

“There’s more focus now over financial viability and making sure the technological choices we make are optimal from both the energy and financial points of view. We are now more focused on making our buildings more efficient rather than putting PVs everywhere,” Afshari said while announcing plans for the PV power plant.

On the other hand, Japan is negotiating with Masdar to conduct a feasibility study for air cooling systems using solar thermal technology, to be followed by demonstration tests. These experiments may happen as early as this spring, and may see Japan investing as much as $36.7m in the three-year project.

Foreign operations

In 2009, Masdar PV built a $160m thin-film plant in Ichterhausen, central Germany, aiming to undersell a number of thin-film amorphous silicon competitors by making the largest such panels in the world, measuring 5.7 square metres.

This month, Wouters said that Masdar is selling at competitive prices, adding that it had customers in Canada, Germany, Spain and India. “We have worked extremely hard to increase efficiency”.

Masdar PV has recently partnered with Beck Energy GmbH to build a 6 MWp solar farm. Masdar PV will supply 65,000 solar modules to the solar farm in Luckenwalde, Germany, in partnership with Beck Energy GmbH. The ground-mounted solar plant is expected to produce nearly 6.1 GWh annually.

Effects of Masdar’s turnaround

The UAE has positioned itself as a prime model amongst the GCC when it comes to adopting renewable energy. It has already established the Masdar Institute of Science and Technology, and recently awarded Arabian Construction Company (ACC) a $240m contract to expand the campus by 82,000 m2.

Switzerland’s Swiss Village Association, which represents more than 20 companies, is planning a major presence at Masdar City. Even after the delayed completion date of the entire project, which has been pushed to 2025, the Swiss organisation reiterated their interest.

Wolfgang Bruelhard, the Swiss Ambassador to the UAE said that the delays had not affected the Swiss government’s commitment to the project and such changes were all a “natural part of the planning process”.

Nevertheless, Masdar’s reversal of plans is bound to shake the regional market.“The glut in the current market will cause Masdar and other Gulf and Emirati producers take a second look at plans to construct a vertically integrated solar industry predicated on manufacturing the basic technology,” said Justin Dargin, Harvard University scholar and research fellow at the Dubai Initiative.

“We must recall that an important part of the UAE's renewable energy plan was to build a domestic industrial base to assist in the spread of technology transfer and job creation,” Dargin adds.

“The main problem facing the development of the renewable industry in my opinion is the legislation and regulatory issues,” states Khalil Atieh, Vice President of UAE-based Jain & Partners International Engineering Consultants.

Abu Dhabi's Executive Affairs Authority has said it is working on energy laws and a financing mechanism in attempt to achieve the emirate's goal of sourcing 7 per cent of its energy from renewables by 2020.

UAE moving away from heavy subsidization model

Dargin concludes that the UAE, through Masdar, will still work on developing advanced renewable technology, both for domestic and regional utilization, and also for potential export to industrialized countries.

However, the UAE is “attempting to move away overall from the top heavy subsidization model that has the potential to support inefficient industries”.

Meanwhile, Masdar is going ahead with new projects, including the construction of a pilot project to test geothermal energy, drilling two 2.5 kilometers-deep holes into the ground to convert warm ground water into chilled water that can be used for district cooling. It is also going ahead with a 20-30MW wind farm on Yas Island for which it is now evaluating construction bids.

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For more information on this publication: Belfer Communications Office
For Academic Citation: Hashem, Heba. "Masdar: One step back, two forward for solar in UAE?" Thin Film Today, January 25, 2011.

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