Abu Dhabi prepares to build solar plant

Abu Dhabi government-owned Masdar, the renewable energy initiative, Wednesday appointed Total SA of France and Abengoa Solar of Spain as partners on a $600 million solar-power project in the Gulf emirate the worlds largest concentrated solar power, or CSP, plant.

Shams 1 solar-power station will have an approximate capacity of 100 megawatts and will be developed on a build-own-operate basis in a joint venture. Masdar owns 60% of the project, and Total and Abengoa each hold a 20% share, the companies said in a joint news release.

"We expect construction to start in a few weeks," Mohamed Al Zaabi , the project’s manager, said in a presentation in Abu Dhabi. Commercial operations are due to start in the third quarter of 2012, Mr. Al Zaabi said.

The CSP plant will extend over a one-square-mile area, situated at Madinat Zayed about 75 miles southwestof Abu Dhabi, the capital of the United Arab Emirates. It will have enough capacity to supply 20,000 households.

The project is the first of three CSP plants that will feed green power into the Abu Dhabi grid, Mr. Al Zaabi said. The plant will help meet rising power demand in Abu Dhabiemirate, which is expected to reach up to 20 gigawatts in 2020, from a current eight gigawatts, he added.

Abu Dhabi launched Masdar in April 2006 to establish the sheikdom as a hub for renewable energy and green technologies at a time of rising concerns over global warming, fueled by increased consumption of hydrocarbons. The emirate, the largest of seven that make up the U.A.E. and producer of almost all of the country’s crude oil, has a plan to generate 7% of its power capacity from renewables by 2020.

"We believe it’s the first step in the region, but it will be a cornerstone going forward," said Abengoa Chief Executive Santiago Seage. "We think that the Mena [Middle East-North Africa] region in general can be a very important part of our generation portfolio, a high percentage."

Nick Carter, director general of Abu Dhabi’s regulation and supervision bureau, said the project was "a massive leap forward for the sector."

"This is the first time in the emirate we can supply a significant amount of capacity without relying on fossil fuels," Mr. Carter said.

Shams 1 will be the first utility-scale, commercial solar-power project in the U.A.E., and the first CSP plant to be registered under the United Nations’ Clean Development Mechanism and is eligible for carbon credits, according to Wednesday’s statement. It will displace about 175,000 tons of carbon dioxide a year, the equivalent of taking 15,000 cars off Abu Dhabi’s roads.

The plant has been held back as the global financial crisis hit projects in Abu Dhabi, with contracts for the project originally due to be awarded about a year ago.

Total and Abengoa will invest in the project alongside Masdar according to their respective equity shares, with the plan to borrow via project financing, Masdar Chief Executive Officer Sultan Al Jaber said.

"We always try to leverage on project financing to raise funding," he said, adding that specific borrowing plans haven’t been outlined yet.

"We are going to start construction in July with our own financing resources, and we will be leveraging in the future," Mr. Seage said, adding that he believes Shams 1 "will be highly attractive" to banks.

The solar plant is being built under the independent water and power producer model Abu Dhabi already uses for power generation and water desalination.

Under the model, the project company will sell power to state utility Abu Dhabi Water and Electricity Co., or Adwec, under a power purchase agreement.

Abu Dhabi’s government will pay a "green tariff" to compensate Adwec for the difference between average domestic power generation cost and generation cost for the CSP project, the Mr. Carter said.

Although the cost of generating electricity from solar plants has come down in recent years, it remains still more expensive than conventionally generated electricity.

"It’s a way for the government to compensate the cost of renewable energy," Mr. Carter said, adding that the cost gap is expected to narrow over the next 10 to 15 years.

Masdar, which is also building a $22 billion carbon-neutral city on the outskirts of Abu Dhabi, has had to review its project plans as the global financial crisis hit the oil-rich emirate.

Mr. Al Jaber said Wednesday that the company wasn’t scaling back its plans—though it has become "more capable" and "smarter about doing business"—and plans for Masdar City remained intact.