01 Nov 2022
Introduction
In the UAE, demand for both water and power is rising year over year. Population increase, industrialization, and urbanization are to blame for this. In response, the UAE's Energy Strategy 2050 aims to add nuclear power to its energy mix as well as have sustainable energy fulfil approximately 50% of demand. The UAE is also aiming to increase desalination using green energy while decreasing water use. The GCC and the UAE have taken the lead in the energy transition and are said to have the largest portfolio of renewable energy sources. In this article, we look at some legal issues pertaining to renewable energy M&A in the United Arab Emirates.
The Governing Bodies
The Dubai Power and Water Authority (DEWA), the Dubai Supreme Council of Energy (DSCE), and the Dubai Regulation and Supervision Bureau are the primary organizations in charge of regulating the electricity industry in Dubai (RSB Dubai). The major regulator of Dubai's energy market is the DSCE, which also oversees the production, transmission, storage, and distribution of electricity and petroleum products. However, the DSCE also puts forth any and all energy-related projects, including privatizing its electrical holdings, with the DSCE's oversight, RSB Dubai is permitted to regulate the power industry. The primary duties of RSB Dubai include licensing, regulating, and inspecting the facilities, buildings, and service providers that generate electricity.
The regulations governing electricity in the UAE do not impose any particular ownership restrictions on foreign investors there, nor do they compel government involvement in the industry. The Companies Law, Federal Law Number (32) of 2021 on Commercial Companies, permits 100% foreign ownership in a number of industries. The Companies Law and the benefit of 100% foreign ownership are currently not applicable to the energy and electricity sector. Although 100% foreign ownership is permitted in the UAE free zones, the free zone enterprises are not permitted to conduct business offshore or in the onshore UAE. No electricity generating, transmission or distribution businesses exist in any of the UAE's free zones as of yet.
Furthermore, Abu Dhabi Law Number (11) 2018 on Establishing a Department of Energy created the Department of Energy (DOE). The UAE Water and Electricity Company (EWEC), established in accordance with Abu Dhabi Law on the Establishment of UAE Water and Electricity Company Public Joint Stock Company, is under the DOE's primary control. The DOE is also in charge of organizing, organizing, and controlling the energy sector in Abu Dhabi. In Abu Dhabi, the EWEC is the only source of both water and energy. It must implement measures to diversify Abu Dhabi's sources for producing electricity and water, it also has the authority to hire and authorize companies in Abu Dhabi that are in charge of producing and distributing water and electricity.
Energy Efficiency and Conservation
Under the Estidama project, Abu Dhabi has a mandated rating system for the development of energy-efficient buildings throughout the emirate. The minimum rating for new development communities, private structures, and villas in the emirate is one pearl. It is a requirement for all government-led initiatives to receive a two-pearl grade (the highest being a five-pearl rating). Additionally, to promote sustainable construction methods, Dubai's Green Buildings Regulations must be followed for all newly built structures (as well as any alterations or additions to existing structures). Similarly to this, Dubai's existing buildings that are being retrofitted must follow the technical requirements set forth by the Emirates Green Building Council.
The UAE is currently presenting investment prospects in the field of renewable energy and portraying itself as an innovator. In the short to medium term, it is projected that more renewable technologies, like landfill gas and wind, would be installed, which will diversify the UAE's clean energy mix. Along with this, the UAE has achieved notable progress in the direction of energy sustainability and efficiency, and it aspires to increase the amount of clean energy it contributes to the overall energy mix and lower its carbon footprint. In order to do this, the UAE and the Emirates have established a number of legislation and ordinances. Furthermore, the UAE government views climate change as a major problem and has expanded its efforts through global engagement and domestic policies.
Disputes in the Energy Sector
Disputes related to energy shall be resolved through arbitration under the Federal Law Number (6) of 2018. There are many well-known arbitration lawyers in UAE who can help to solve disputes. However, if the parties do not agree otherwise and the applicable law does not conflict with UAE public order and morality, the UAE law of arbitration will be applied to or, any arbitration conducted within the UAE and any international commercial arbitration conducted outside of the UAE but subject to UAE arbitration law based on the parties' agreement.
Digital DEWA
As soon as DEWA established Digital DEWA as its digital arm, it became the first utility in the world to deploy autonomous systems to produce renewable energy, store data, expand the use of artificial intelligence, and offer digital services. Using cutting-edge energy storage technologies, Digital DEWA aims to run a network of renewable energy sources. The pillar has a number of sub-initiatives;
- The biggest solar power facility in the area with continuous thermal storage;
- The first of its kind in the area, a hydroelectric power plant in Hatta uses stored hydroelectric energy to produce electricity;
- experimenting with various batteries and hydrogen energy sources as forms of energy storage.
Through MORO, a digital platform that was introduced in 2018 to offer hosting and data storage services as well as management of digital services in the cloud, Digital DEWA will increase the scope of its digital services.
Ownership and Market Access Restrictions
DEWA is permitted to establish project firms in Dubai, either alone or jointly with other parties. The regulatory basis for these agreements is outlined in Dubai Law Number (22) 2015 on the Organization of Public-Private Partnership in the Emirate of Dubai, which is intended to promote PPP structures. In Dubai, there are certain projects that are already underway, DEWA controls 51% of the PPP entity, and private organizations own the remaining 49%.
The regulations governing electricity in the UAE do not impose any particular ownership restrictions on foreign investors there, nor do they compel government involvement in the industry. The Companies Law, Federal Law No. 32 of 2021 on Commercial Companies, permits 100% foreign ownership in a number of industries. The Companies Law and the benefit of 100% foreign ownership are currently not applicable to the energy and electricity sector. Although 100% foreign ownership is permitted in the UAE free zones, the free zone enterprises are not permitted to conduct business offshore or in the onshore UAE. No electricity generating, transmission or distribution businesses exist in any of the UAE's free zones as of yet.
Market Development
The National Integrated Energy Model has been introduced by the Ministry of Energy in collaboration with Khalifa University and the International Renewable Energy Agency. According to the government's vision for a new era of energy sustainability, the model helps formulate the future function of energy in the United Arab Emirates and offers a road map for the sector's next 50 years. Additionally, it offers a framework that unites stakeholders and defines the UAE's efforts to maximize benefits in this industry by creating plans and foundations for the work necessary throughout the National Energy Strategy 2050's subsequent phase. In addition to a national index for smart constructions and building information modelling, the guide will suggest creating construction indices and working towards a uniform smart-building index.
Additionally, Masdar was founded by Abu Dhabi to lead the emirate's renewable energy effort. It is planned for Masdar City, a project on the outskirts of Abu Dhabi, to run fully on renewable energy and produce no carbon emissions. The International Renewable Energy Agency's headquarters will be located in Masdar City. At its solar photovoltaic power plant in Masdar City, Masdar presently generates 17,500MWh of electricity yearly for the project's clean power supply. A carbon capture and storage project has also been started in the UAE.
Subsequently, the Barakah Nuclear Energy Plant (Barakah), which will be the UAE's first nuclear power plant, is progressing quickly. Barakah is being built by the Emirates Nuclear Energy Corporation, a business owned by the government of Abu Dhabi and with a 5,600MW capacity overall. Four 1,400MW reactors are being built and installed as part of the project. The facility will supply up to a quarter of the UAE's electricity demand once the four reactors are operational.
How Projects are Financed?
The size of a project will obviously determine how it is financed, lenders typically finance smaller projects on a corporate or full recourse basis. That stated, larger projects typically call for particular kinds of project finance. When a Special Purpose Vehicle serves as the borrower, this entails raising money on a limited recourse basis in order to specifically construct a substantial and capital-intensive project (SPV), the financing arrangements determine the terms of repayment. Additionally, loan market association standard finance contracts are typically the foundation of loan agreements for large-scale projects. Rather than the sponsors or investors assets, security is primarily over the project's assets. Along with this, water and/or power purchase agreements, also known as "Off-take Agreements," are typically used to pay for water and power infrastructure developments on an as-available basis. In such enterprises, foreign investors typically own 40% of the project's equity.
Conclusion
The UAE is prepared for and appears to be on schedule to carry out its 2017-launched Energy Strategy 2050. The nation is well-equipped to meet the world's rising demand for energy and to develop innovative and efficient methods for producing and using it. Hence, the UAE's energy plan continues to place a high priority on energy efficiency. The UAE is working with and investing in other nations in addition to concentrating on the domestic energy sector. Other nations Masdar has been implementing renewable energy technologies in include Jordan, Afghanistan, and Mauritania. The UAE also introduced the Etihad 7 program in an effort to make clean, renewable energy sources accessible to everyone. By 2035, Etihad 7 aims to finance and provide clean electricity to about 100 million people in Africa.