Final approval is still pending for the long-awaited restructuring of Abu Dhabis energy sector that will integrate the emirates domestic supply chain in anticipation of the start of nuclear electricity production in the UAE.
It will empower the Energy Authority of Abu Dhabi, created in March 2014, to supervise the power sector and promote energy efficiency. The initiative echoes the federal Energy Ministrys plans to develop an energy efficiency programme encompassing all of the UAEs emirates.
Authoritative sources say the new structure will leave the Supreme Petroleum Council of Abu Dhabi, chaired by UAE president and Abu Dhabi ruler Sheikh Khalifa bin Zayed al-Nahyan, as the supreme decision-making body for the oil and gas sector. The council is driving plans for Abu Dhabis sustainable oil production capacity to be raised to 3.5 million barrels a day (b/d) by the end of the decade.
The need for an integrated national energy policy has intensified following the launch of the UAEs nuclear power programme. Production is due to start in 2017 at the first 1,400MW unit of Emirates Nuclear Energy Corporations plant at Barakah on the coast west of Abu Dhabi city. Its capacity will grow to 5,600MW by 2020.
Barakah is a turning point for both the regional electricity industry and nuclear power globally. But its effects will be felt most strongly in the UAE, which is balanced between the certainties of the hydrocarbon era and the challenges of a future where imports, renewables and nuclear power could account for the majority of the feedstock used to make electricity.
Power generation, transmission and distribution is divided in the UAE by the demands of seven effectively sovereign states. The prices consumers pay vary from emirate to emirate and some pay nothing.
One of the worlds most richly endowed oil and gas states has the Middle Easts most ambitious solar power plans. Despite being a major oil exporter, the UAE is also becoming increasingly dependent upon gas imports and may soon be using Australian coal.
UAE Energy Minister Suhail al-Mazrouie says he plans to finalise a draft federal energy strategy document this year. The most pressing challenge is containing the UAEs explosive electricity consumption growth, which is averaging about 9 per cent a year.
Installed generation capacity owned by UAE power firms totals about 28,000MW. Plans for a further 10,000MW have been announced. On present trends, the federation could need 100,000MW of power capacity in less than two decades.
Al-Mazrouies first problem is that there are no authoritative figures for the population of the UAE. It is estimated to be about 9.3 million and increasing in parts of the country by at least 5 per cent a year with the arrival of migrant workers.
The second problem is subsidies. Al-Mazrouie says the UAEs are among the highest in the world, mainly due to the difference between the market price of oil and gas and the price at which it is supplied to local consumers, including electricity generators.
The third problem relates to the way the UAE is governed. Analysts say it will be impossible to develop an effective national demand management programme without a coherent electricity price structure encompassing all the emirates.
Electricity conservation is being promoted by individual emirates rather than the federal government. In November 2014, Abu Dhabi announced increases in electricity prices for non-nationals and big price rises for nationals that are heavy power consumers. Higher prices have also been introduced for commercial and industrial users.
Other Abu Dhabi demand management initiatives include the installation of modern meters to allow property owners and tenants to monitor and control electricity and water consumption. New buildings must comply with green building standards based on the Urban Planning Council Estidama rating methodology.
Supply-side challenges look more manageable despite the fact the UAE does not have a national electricity generation, transmission and distribution system. It has four power entities, all government owned. Abu Dhabi Water & Electricity Authority (Adwea) supervises a system with capacity of more than 15,000MW, including the Fujairah F1 power and water plant that also supplies customers in the northern emirates.
Dubai Electricity & Water Authority (Dewa), with about 10,000MW, is the exclusive supplier in Dubai. Sharjah Electricity & Water Authority (Sewa) has capacity of 2,600MW. The fourth entity, Federal Electricity & Water Authority (Fewa), operates five power stations with a total capacity of 924MW that serve Sharjah, Ajman, Umm al-Quwain and Ras al-Khaimah.
The coordination challenge has been made more complex by the near 50 per cent fall in oil prices since the summer of 2014 and the piecemeal nature of energy diversification programmes being developed by Abu Dhabi and Dubai in particular.
They are connected. Lower oil prices have delivered an automatic fall in energy subsidies by narrowing the gap between the market price of oil and gas and what consumers are paying. But lower market prices also reduce the attractiveness of investing in alternatives such as nuclear and solar.
Dubai is probably in the best position to deal with both. It is a net energy importer and relies on imported gas, so lower prices cut costs. Dewa also charges the most for the electricity it provides. Its customers have been educated for years about the real cost of energy and water.
The renewables option is also more attractive. Dewa in March announced plans for 800MW of solar capacity to be built in the third phase of the Mohammed bin Rashid
al-Maktoum solar park, where 10MW of solar power units are already operating and the 200MW second phase project is under way. In February, Dewa announced it planned to raise the proposed capacity of the park to 2,600MW by 2030. Dubais trailblazing is also reflected in plans to build a 1,200MW coal-burning independent power plant.
Fewa, meanwhile, says it will invest AED500m ($136m) in 100MW of solar plants across the northern emirates.
These developments are outstripping Abu Dhabi, where Masdar, the state-owned clean energy firm, completed an initial 10MW solar unit in 2010 and the 100MW Shams-1 concentrated solar plant in 2013. It plans to build 350MW of additional solar power capacity in the form of two photovoltaic units by 2020.
Irena, the international renewable energy agency, which has its Middle East office in Abu Dhabi, is pressing for the UAE to do more. Its Renewable Energy Roadmap report released in April said the UAE could save $1.9bn annually by 2030 if it lifted its renewable energy capacity to 10 per cent of its total energy mix and 25 per cent of its energy capacity, which is forecast to hit at least 40,000MW by the end of this decade.
The central governments UAE Vision 2021 sets a target for the federation to produce 24 per cent of its electricity needs in the form of clean energy, comprising renewables and nuclear power. This will require a comprehensive reordering of the UAEs domestic energy sector and it will have to happen soon.
Dubai is setting the pace. It has created the Dubai Supreme Council of Energy, chaired by Sheikh Ahmed bin Saeed al-Maktoum. The council is developing a comprehensive approach to demand management that encompasses all the emirates principal consumers, including the aviation sector, which is forecast to account for 40 per cent of Dubais GDP by 2030.
It also has a single power generator in the form of Dewa, which is driving all electricity investment initiatives. The Regulatory and Supervisory Bureau for Electricity & Water in Dubai is the single regulator.
In contrast, Abu Dhabi, the UAEs biggest producer and consumer of energy, has a fragmented electricity sector comprising the Adwea group, which produces power and is responsible for Abu Dhabis transmission and distribution network; various independent water and power projects (IWPPs), all part owned by Adwea; Masdar; Emirates Aluminium, with a 2,100MW captive power plant that is to be expanded by 235MW; and Emirates Steel, which also has a captive plant. Abu Dhabi National Oil Company is the principal feedstock supplier.
Abu Dhabi Executive Council member Nasser al-Suwaidi was named as chairman of the new Energy Authority last spring. This was seen at the time as indicating that the Supreme Petroleum Council could be abolished and the new authority would have responsibility for all energy production and energy conversion. This idea now seems to have been dismissed.
There are also important changes taking place within the Adwea group. Responsibility for managing the procurement of future IWPPs has been transferred to the Abu Dhabi Water & Electricity Company (Adwec), an Adwea subsidiary.
Sources say Adwea will in effect become a holding group for Abu Dhabis investments in its domestic electricity sector, although the appointment of a new Adwea board earlier this year suggests the authority will still have policymaking clout. No change is expected in the role of Abu Dhabis Regulation & Supervision Bureau.
The unpredictable ferment in global and domestic energy markets is challenging for UAE policymakers. In April, Al-Mazrouie said the UAE is considering expanding the capacity of the 3 million-tonne-a-year (t/y) liquefied natural gas (LNG) terminal in Dubai to accept growing gas imports, a development being encouraged by lower gas prices.
This will supplement plans to build a 9 million-t/y LNG terminal in Fujairah. The UAE has also longstanding plans to upgrade a compression facility to increase the capacity of the 2 billion-cubic-feet-a-day (cf/d) Dolphin gas pipeline from Qatar.
Meanwhile, commissioning has started at the $10bn Shah gas project, which will produce 500 million cf/d of gas. Work is proceeding on the $10bn ultra-sour Bab gas project, which is forecast to produce 520 million cf/d by 2020.
This is the context framing the start of nuclear power in 2017. The Barakah plant will deliver power to the Emirates National Grid, which connects all seven emirates. Nuclear power cannot be switched off, so the plant will provide the baseload for the national grid. This will create challenges for the grid as well as the operations of the UAEs existing power stations. Some may have to be upgraded or even closed down.
UAE policymakers are also planning to develop more desalination capacity using reverse osmosis technology, which uses less energy than conventional thermal units. This will allow the production of desalinated water to be decoupled from electric power generation. At present, most of the UAEs desalinated water is co-produced with electricity.
The complexity of developing a coherent approach to power production and consumption in one of the worlds most dynamic economies explains why it has taken so long for the Energy Authority to start its mission.
It is also the reason why the restructuring is likely to fall short of a definitive solution to the UAEs energy challenges, namely unsustainable demand growth, unacceptable waste of natural resources and income distribution effects that involve some of the federations wealthiest paying almost nothing for their electricity and water.