Nuclear drives UAE's I-REC market

The UAE has recently emerged as a leading player in the International Renewable Energy Certificates market. In just a few years, the country transitioned from a minor issuer of solar certificates to a global supply market leader alongside Brazil and China.

This rapid transformation has been driven primarily by a unique rise in certificate issuing nuclear generation. Additionally, the demand for I-RECs in the UAE has also grown rapidly, fueled by a maturing market with a clearer framework, overarching government initiatives to decarbonize the economy and more widespread adoption of corporate sustainability goals.

These factors, combined with a bullish outlook for the country's renewables and growing commercial and industrial demand, paint a promising picture for this popular procurement mechanism.

The UAE adopted the I-REC system at the end of 2016. In the following year, the Dubai Carbon Centre of Excellence issued the first certificates in the country representing generation coming from the 13-MW first phase of the Mohammed bin Rashid Al Maktoum Solar Park.

Since then, the market has evolved into two separate systems, one in Dubai and another larger market in Abu Dhabi.

The Clean Energy Certificate system is the implementation of the I-REC Standard in Abu Dhabi. Launched in August 2021, the certificate system is managed by Emirates Water and Electricity Company, acting as the single registrant under the supervision of Abu Dhabi's Department of Energy, which in turn is responsible for issuing the CECs.

EWEC owns the issued CECs and is responsible for organizing quarterly auctions during which a pay-as-bid mechanism with a reserve price per technology is used to assign them. The auction winners are then allowed to redeem the certificate attributes at a later date. After the auction, successful bidders also have the option of selling certificates to other participants, but otherwise all transactions are made through the auction system. Importantly, certificates issued in Abu Dhabi can typically only be redeemed within the emirate.

Meanwhile, Dubai has a smaller market managed by the issuer, the World Green Economy Organization, and the state-owned vertically integrated utility for the emirate, the Dubai Electricity and Water Authority. The utility is responsible for I-REC transactions through a similar system, where it owns the certificates issued by the WGEO and sells them through auctions.

Abu Dhabi's Barakah nuclear plant dominates supply; solar plays growing role

The UAE has undertaken several renewable energy initiatives driven by its commitment to the Net-Zero by 2050 initiative, alongside its Energy Strategy 2050, which aims to increase the share of clean energy -- renewables and nuclear -- in the total generation mix to 50% by 2050.

These goals, in combination with generous government support and a well-established competitive auction procurement system, have created a favorable environment for the development and adoption of renewables at record-low prices. About 5 GW of solar capacity are currently operational, representing about 10% of installed capacity.

The supply of I-RECs in the UAE comes essentially from two technologies, solar photovoltaic and nuclear, with a very small share coming from recent wind projects.

There is one nuclear project in the UAE, the Barakah nuclear plant, located in Abu Dhabi -- a four-reactor facility with a total capacity of 5.6 GW and an estimated generation of 40 TWh/year once fully operational. The first reactor came online in 2020, and the last unit has recently been connected to the grid, with full commissioning expected later this year.

On the solar PV side, there are five plants registered in the I-REC system, two of which -- the Al Dhafra and the Noor solar plants -- are located in Abu Dhabi and under the EWEC/DOE structure. The other plants are located in the Emirate of Dubai, including the Mohammed Bin Rashid Al Maktoum Solar Park, with a planned capacity of 5 GW of solar PV and concentrating solar power upon completion by 2030.

Corporate sustainability goals and economic diversification drive I-REC uptake

The demand for I-RECs in the UAE has grown rapidly over the past two years. The commitment to net zero by 2050, with the corresponding energy strategy have compelled businesses and government entities to seek instruments such as CECs, particularly in the lead-up to the UAE hosting the 28th UN Climate Change Conference, or COP28, which further boosted momentum in the market.

As a purely voluntary market, demand is coming primarily from corporate sustainability goals across key sectors of the economy, such as finance, tourism and manufacturing.

The lack of publicly available auction results in both Abu Dhabi and Dubai makes these markets opaque. However, periodic announcements provide some insights into the scale of demand in the market.

For example, according to EWEC, the largest single purchase of CECs in 2023 was made by Zero Two, a digital assets infrastructure development company based in Abu Dhabi, covering 7.3 TWh. Meanwhile, Aldar Properties reported 728 GWh of CECs purchased in the same year. In 2022, Emirates Steel Co. LLC purchased 1.52 TWh of nuclear certificates and 500 GWh of solar certificates, representing about 80% of its electricity consumption.

Market opacity, oversupply hamper sustained growth

Looking ahead on the supply side, as the UAE continues to invest in renewable energy projects to achieve its long-term energy and decarbonization strategies, the availability of RECs is anticipated to expand. A steady supply of nuclear RECs will be complemented by a growing share of solar PV issuance, mostly from new utility-scale projects being procured through competitive auctions.

Growing electricity demand, particularly from the commercial and industrial sectors in the more developed CEC market of Abu Dhabi, will naturally boost demand for certificates. Simultaneously, the role of government entities in key industries across the UAE's economy in combination with the government's role in managing the REC market may further bolster the use of RECs as a cost-effective mechanism to procure clean energy.

Although the outlook for REC demand in the UAE is generally bullish, there are some factors that prevent the wider adoption of the mechanism. The lack of transparency, particularly around auction results and regulations, contrasts with other top REC markets and hinders awareness building and participation.

In addition, the geographic limitations imposed on certificate retirements originating in Abu Dhabi may lead to a situation of oversupply in the emirate, especially due to the high volume of nuclear issuance. However, this may be mitigated by potential cross-border trade within the UAE as the market matures, as well as future exchanges among the Gulf Cooperation Council Interconnection Authority members that also operate under the I-REC framework.