A look at Oman's Sahim II and Shams Dubai

Oman and the United Arab Emirates (UAE) have both set out high targets for switching to renewable energy sources. Oman's National Energy Strategy aims to derive 30% of electricity from renewable sources by 2030, whilst the UAE's vision is to produce 75% of its energy from clean sources by 2050. 

In line with these targets, both countries have launched initiatives to install solar photovoltaic (PV) panels on residential properties as well as on public and private facilities. HH Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai has called for solar panels to be installed on every roof in Dubai by 2030, with the Dubai Clean Energy Strategy 2050 having interim targets of 7% of solar power by 2020, and 25% by 2030.

OMAN'S SAHIM SCHEME 

The Sahim Scheme was launched in May 2017 by the Oman Authority for Electricity Regulation (AER), now known as the Authority for Public Services Regulation (ASPR) and is structured in two phases:

Sahim I – phase I commenced in May 2017, and allows larger households and businesses to install small grid connected PV systems at their own cost, and claim an export tariff (known as the bulk supply tariff) for any exported electricity (essentially a feed-in-tariff).

Sahim II – phase II is targeted at solar PV developers who will be granted a contract to build, own and operate small grid connected PV systems on multiple properties across Oman. The scheme aims to cover 10-30% of residential premises in Oman, translating to around 250,000 rooftop installations or roughly 1GW of solar capacity by 2025-2030. The pilot batch of Sahim will target 3000-5000 houses in Muscat to reach 100,000 houses by 2023. 

ASPR intends to launch a competitive procurement for Sahim II and shall invite developers to submit proposals to build, own and operate PV systems at residential premises across Muscat, (sites to be designated by ASPR in the RFP). The costs of installing and operating PV systems will not be met by the individual property owners but instead will be met by a private developer. It is intended that the procurement will be launched either at the close of 2020 or Q1 2021, and will consist of a one stage RFP (no EOI) with the tender documents being published on the ASPR website.

ASPR have set out that:

• the initial RFP shall request proposals for around 2.5 - 3 MW capacity in total, over a number of different sites, with each individual site consisting of approximately 3 – 7 KW;
• the winner bidder shall enter into a Demand Management Framework Agreement (DMFA) with Muscat Electricity Distribution Co, which will cover multiple sites. The DMFA is essentially a long term performance-based contract which shall remunerate the developer for investment as well as a return on investment;
• the winning bidder shall also enter into a separate agreement with the property owners, the 'Customer Participation Agreement' which sets out the relationship between the developer and the property owner in relation to access rights and asset ownership (property owners will have no ownership rights over the PV systems but will benefit from lower bills over the life of such systems); 
• property owners will benefit through the free use of electricity generated by the solar PV installation on their property (from the 5th year onwards)
• property owners will be required to make a one-time contribution to ASPR to participate in Sahim II based on expected savings on their electricity bills

According to officials, interest in Sahim II has been strong, with a number of homeowners downloading the Sahim Mobile Application which allows them to calculate how many solar panels they could place on their property and how this would affect their energy bill. 

DUBAI'S SHAMS NET METERING SYSTEM 

The Dubai Electricity & Water Authority (DEWA) created the Shams Dubai solar program in early 2015. Shams allows DEWA customers to install solar panels on their property, and use the produced solar energy to reduce their monthly electricity bill. By October 2019, 1,354 PV installations in Dubai were already connected with a total capacity of 125megawatts (MW). The goal is to reach 5,000 megawatts by 2030. 

The system is based on "net metering", whereby any surplus electricity not used is immediately sold back to the grid at the same price, and the customer is only billed at the end of the month for the net amount used. If a customer produces more energy in a month than they have consumed, DEWA allows for rolling this over to next month, further reducing the electricity bill in the next month. The advantage of net metering is that customers stay connected to the DEWA grid, therefore combining the reliability of a grid connection with the lower cost of solar energy. 

Some commercial businesses such as hotels and manufacturers had displayed an interest in rooftop systems with capacities higher than 2 MW – and some had plans to pool resources to create ground-mounted PV systems of up to 50 MW. However, in May 2020 DEWA announced that “ground-mounted projects are no longer envisaged under Shams Dubai” and that “the maximum capacity to be installed in a [rooftop] plot is capped at 2,080 kW.”

DEWA warned there would be no exceptions to the new rules “for solar PV projects initiated by customers under Shams Dubai, and no other regulatory framework is envisaged to accept any application not complying” with the new regime.

Note that Shams Dubai operates under 'net metering' whereas the Omani Sahim operates under a 'feed-in tariff' scheme. Net metering and feed-in tariffs are both methods by which a utility company compensates a homeowner or other producer for the energy fed back into the grid, but the key difference is that 'net metering' provides customers with compensation equal to the rate they pay for electricity—commonly known as the “retail rate” of electricity. Feed-in-tariffs, unlike net metering rates, are not pinned directly to the value that consumers pay for energy. In other words, instead of getting a kilowatt-hour’s worth of credit for every kilowatt-hour the panels produce, the customer will get compensated at a rate that corresponds to the value of that energy at that time. This value can be either higher or lower than the retail cost.

OPPORTUNITIES AND BARRIERS TO GROWTH 

The Middle East Solar Industry Association (MESIA) describes the UAE as a regional “front runner” for PV with Oman starting to add more significant projects to the regional PV pipeline. Rooftop solar PV panels are common in a number of countries, but are only now gaining real popularity in the Middle East. Despite the sunny climes, there are still a number of barriers to switching to solar PV. 

Electricity tariffs are generally low, discouraging customers from switching to self-generated electricity. Further reform of utility prices is required, and schemes such as Oman's Sahim II or Shams Dubai are key to providing a monetary incentive to using solar PV by reducing overall electricity bills. 

Financing rooftop solar panels can be a challenge, and the fact that Sahim II has been significantly more popular indicates that individual customers are less willing to bear the high cost of installing the panels. Leasing models, which are starting to spring up in Dubai, could also help to mitigate the upfront costs. 

National regulations encouraging small solar systems and self-generation of energy still have some way to go, and it is also necessary to raise consumers’ awareness on the viability of rooftop PV panels. Both Sahim II and Dubai's Shams have launched mobile applications allowing potential customers to view the impact installing solar PV panels could have on the electricity bill. 

Both schemes will also have a positive impact on the Middle East's localisation plans, by creating opportunities for manufacturing and installing solar cells for small and medium enterprises. Oman has also been promoting renewable energy as a potential source of electricity in remote areas such as the Hajjar mountains in the North, a further incentive for customers to sign up to the scheme. 

The use of solar energy is increasing steadily, and there is significant demand for solar PV projects, in line with the region's targets set out for renewable energy. 

FURTHER INFORMATION

As one of three AG offices within the jurisdictions that together comprise the GCC our Dubai practice operates as a regional hub supporting clients with diverse business interests, both on the ground in the United Arab Emirates and across both the Gulf region and Africa.

Our experienced team, with its Arabic and English bilingual capability, combines the standards of a top international law firm with a keen awareness of, and sensitivity to, local law and practices.

For further information in relation to Shams Dubai, Oman's Sahim scheme or any other solar PV projects in the region and how we can support you, please contact Alexander Sarac or John Podgore below.