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SHAMS Dubai Analytical Elements for Solar Development Filippo Del Grosso, MBA [email protected]

SHAMS Dubai

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Page 1: SHAMS Dubai

SHAMS Dubai

Analytical Elements for Solar Development

Filippo Del Grosso, [email protected]

Page 2: SHAMS Dubai

Executive Summary

SHAMS Initiative is an ambitious and driven plan to deploy PV generation on awidespread scale within the Emirate of Dubai. SHAMS is to be considered a firststep out of three, aligned to a Sustainable Vision and clear environmental goals tobe achieved by 2030

SHAMS presents evident points of strengths as well as criticalities to be tackled. Inparticular, it is yet to be assessed: the upgrade of distribution grid, the scale ofreal estate projects involved in the initiative and the long term achievement ofadequate levels of non-subsidized tariff prices for electricity

A basic, preliminary modelling, allows for the determination of financial flowsaccording to the valorisation of energy as enabled by the Net Metering scheme inplace. Given the available, mature and reliable PV technology, two parametersgreatly affect the economic viability of residential PV: incidence of tariff pricesand dimension (scale) of PV system in terms of peak capacity

Notwithstanding the current decline in real estate prices in Dubai, whose outlookis negative in the short term, some empirical evidence, as analysed in two studiesrealized in the United States, suggests that installed PV system have a potentialpositive effect on housing prices. The SHAMS initiative, besides the obviousindustry and environmental benefits, can therefore be instrumental inaccelerating the recovery of the real estate sector, which represents a relevantshare of the economy of the Emirate

Page 3: SHAMS Dubai

SHAMS DubaiA first step into the Smart Initiative framework

Connecting solar energy to houses and buildings by encouraging households andbuilding owners to install photovoltaic solar panels to generate electricity. The PVsolar system will be connected to DEWA’s grid. Electricity produced will beconsumed within the premises and the surplus will be exported to the network,according to a Net Metering scheme

Make Dubai one of the Smartest City in the world

Achieve 7% of renewable generation by 2020 and 15% by 2030

Generate energy savings of 1.7 TWh by 2030

Generate water savings of 5.6 BIG by 2030

Reduce CO2 emissions by 1 M tons by 2030

Page 4: SHAMS Dubai

Strenghts and Criticalities - 1An excellent opportunity facing different challenges

Strenght Criticality

Policies

Infrastructure

Real Estate

Full commitment from theGovernment and HH theRuler of Dubai, according to2030 long term goals.Synergic and gradualapproach with the threeInitiatives, and gradual roll-out plan

Ambitious plan that requiresa thorough review of manyongoing patterns:• High energy consumption

per capita (~20,000 kWh/y)• Almost total reliance on

fossil fuels• Subsidization of fuels

Dubai power network iscurrently undergoingmodernization, with a total of1669 km of OHL, 3685 km ofunderground cables and29,200 substations)Total installed capacity is9,650 MW vs a peak demandof 7,233 MW

Overall residential andcommercial sector is apowerful driver for thedeployment of solar energy,New projects can be quicklyoptimized according toSHAMS requirements, with amark-up in pricing

It is still to be assessed thetechnology gaps andfeasibility of the SHAMS gridconcept, in particular:• Overall costs• System balance in peak

and off-peak hours• Storage

The real estate sector iscurrently facing a downwardstrend. Moreover, theeconomic feasibility of PVsystems is better optimizedfor bigger properties, withmore installed capacity andhigher consumption levels

Page 5: SHAMS Dubai

Strenghts and Criticalities - 2An excellent opportunity facing different challenges

Strenght Criticality

Electricity Tariff

PV Technology

Alternative Technologies

Electricity tariff allows for 4slab levels of consumption,plus a fuel component to beadjusted according tocommodity price. A potentialdecision to drop fuelsubsidies is likely to increaseprices

Given current price levels,the economic break-even ofthe average PV system ismuch delayed along theyears. The energy fed into thegrid via Net Metering is likelyto move the slab tarifftowards low prices

PV deployment in MEfeatures a series of points ofstrength:• High solar radiation• Mature technology and

steadily decreasing costs• Great receptivity• Building know-how due to

utility scale projects

A Net Metering scheme asenvisaged by SHAMS can besuccessfully applied only tothe PV technology, andavoids the extra costs ofbatteries

Operating expenses are likelyto be higher than average,because of corrosion andabsence of precipitation.The concentration ofconsumption in sunny hoursoverlaps with the capacitypeak of system, with lessbeneficial effects for the grid

In terms of break.evenachievement and overalllevelized costs of energy, thefollowing technologies maycompete with PV:• Solar thermal• Solar cooling• Hybrid diesel + PV

Page 6: SHAMS Dubai

16,500

17,000

17,500

18,000

18,500

19,000

19,500

20,000

20,500

-60

-40

-20

0

20

40

60

80

100

kWh / yk AED / y12.6 8.6%

Payback (yrs) IRR

16,500

17,000

17,500

18,000

18,500

19,000

19,500

20,000

20,500

-60

-40

-20

0

20

40

60

kWh / yk AED / y15.3 5.6%

Payback (yrs) IRR

16,500

17,000

17,500

18,000

18,500

19,000

19,500

20,000

20,500

-60

-50

-40

-30

-20

-10

0

10

20

kWh / yk AED / y23.2 1.0%

Payback (yrs) IRR

Financial Simulation - 1Tariff price remains the main hurdle for cost recovery

MAIN ASSUMPTIONS FOR FINANCIAL FLOWS

• 10 MW Peak Capacity• 25 years Forecast• 82.5% Performance Ratio• 0.5% Yearly Cumulative PV Degradation• No Tracker / No Batteries• 4.3% Yearly CPI (assumption October 2015)• Net Metering• Electricity valorized according to single tariff slabs

10 MW - Tariff Slab G 10 MW - Tariff Slab Y

10 MW - Tariff Slab O

Page 7: SHAMS Dubai

33,000

34,000

35,000

36,000

37,000

38,000

39,000

40,000

41,000

-100

-50

0

50

100

150

200

kWh / yk AED / y12.0 9.4%

Payback (yrs) IRR

33,000

34,000

35,000

36,000

37,000

38,000

39,000

40,000

41,000

-100

-50

0

50

100

150

200

250

300

kWh / yk AED / y8.9 12.7%

Payback (yrs) IRR

33,000

34,000

35,000

36,000

37,000

38,000

39,000

40,000

41,000

-100

-50

0

50

100

150

200

250

300

350

400

kWh / yk AED / y7.8 15.2%

Payback (yrs) IRR

Financial Simulation - 2Tariff price remains the main hurdle for cost recovery

MAIN ASSUMPTIONS FOR FINANCIAL FLOWS

• 20 MW Peak Capacity• OPEX kept same as 10 MW for simplicity

(increases in hourly maintenance rates are envisaged)

• All Other Assumptions kept flat• Positive Scale Effect compared to 10 MW

20 MW - Tariff Slab G 20 MW - Tariff Slab Y

20 MW - Tariff Slab O

Page 8: SHAMS Dubai

Real Estate in DubaiOutlook is negative, but PV systems may provide markup

Source: Jones Lang LaSalle, Dubai Real Estate Market Overview Q3 2015

Two recent studies, “The Impact of Photovoltaic Systems on Market Value and Marketability”(2013) and “Exploring California PV Home Premiums” (2013) assessed the effects of PV solarinstallations on residential prices in the United States, a mature solar market

The first study used three approaches to assess value (sales, cost and income), providing evidencethat a relevant share of properties with PV systems:

sold for higher had lower marketing times

The second study built a statistical regression model in order to explore sensitivities of PVhome premiums to the age and size of PV systems, with empirical evidence showing a highdegree of correlation among the variables