Local investor Phanes Group is looking to build a portfolio of solar photovoltaic (PV) rooftop projects under the Shams Dubai net metering scheme offered by Dubai Water & Electricity Authority (Dewa).

But financial and risk models for distributed solar power differ from large projects.

“There are large scale projects where we are seeing competitive pricing as low financing costs result in very competitive power purchase agreements (PPAs),” said Martin Haupts, managing director of Phanes, speaking at the 6^thAnnual Green Economy Annual Conference in Dubai. “In the distributed sector the government has decided not to put any fiscal incentives in place, such as feed-in tariffs or contracts for difference.”

Dewa chose to apply net metering, which discounts energy fed onto the national grid from the consumer’s bill. This means investors and developers must find a profit in the difference between electricity prices set by utilities and the cheaper cost of solar generation. Owners of the solar installations can then share the projected reduction in electricity bills with their financers.

Dewa has previously stated that it will let the market determine uptake on the project.

There is also a greater level of risk for financers of installations.

“In the PPA at Mohammed bin Rashid al-Maktoum solar park, the contract partner is the government, which has a very good rating so can get a lower rate of financing,” said Haupts. “If it’s distributed power you have private sector risk. We are working on how to make this work from an investment product perspective.”

Being tied to the single owner of the metre at a business or residence involves a higher risk if this single party defaults.

Solutions could include on-bill financing where money is deducted directly by the utility company, being able to roll the financing over to a different user, packages of multiple rooftop installations or guarantees.

“Solar rooftop is hard to put in place from a financing perspective,” continues Haupt. “Lots of small and medium enterprises in Dubai don’t have huge balance sheets so they are not on our radar. If we had regulatory support, for example guarantees if an owner defaults or a floor price for selling electricity to the grid then we might see the solar tsunami they are hoping for.”

Several international developers are investigating participating in the scheme by offering packages to interested building owners and building portfolios.