Dubai Renewable Energy

Could Abu Dhabi Bailout Billions Clean Up Dubai?

Written by Brian Hicks
Posted March 24, 2009

You know the energy world is changing when a Persian Gulf financial crisis has big renewable energy implications...

Abu Dhabi produces about 90% of the oil in the United Arab Emirates and is host to the world's first green city project, Masdar. Abu Dhabi is also an angry neighbor, since it just had to bail out heavily-indebted Dubai with $10 billion in bond purchases.

That was the biggest news of the year in the UAE, but it barely got a column in the Western press.

Dubai got itself $80 billion underwater in the past few years, leveraging itself into the stratosphere so it could build opulent manmade islands, indoor ski slopes, and the world's tallest building. It was an orgy of irresponsibility in the conservative Gulf region.

Even though it holds only about 5% of the UAE's oil, Dubai's rulers and eager entrepreneurs spent like they had an endless bounty of the commodity. They anticipated oil prices would stay high and optimism would soar higher still. Both expectations crashed in 2008.

Now, Abu Dhabi's Masdar initiative, a partnership with MIT to build a zero-carbon emissions city on the emirate's desert edge, was almost the polar opposite in terms of fossil fuel foresight. Masdar, which means "source," was launched with the goal of maximizing current oil exports and creating a prosperous future that doesn't hinge on oil wealth or even oil usage.

Masdar's supply demands already have global solar, wind, water, and cleantech firms salivating...

American solar stock First Solar (NASDAQ:FSLR) is first to bite, having been chosen to provide solar panels to Masdar's solar power plant. Other Green Chip Stocks favorites are sure to follow. Will those same companies have a fresh target in Dubai, after Abu Dhabi imposes bailout conditions that promote clean energy?

Dubai can't expect its next-door financial safety net to come without some conditions. As Gulf Research Center economist Eckart Woertz said early in March:

"Most likely this comes with strings attached, with a price tag. Before, Dubai was dependent on international banks. Now it's dependent on Abu Dhabi."

Masdar 2: Dubai?

The UAE, with all of its seven component monarchies, was the first major bloc of oil producers to ratify the Kyoto Protocol.

This could stem partially from a tight relationship with Japan, which is the UAE's top crude oil customer (60%) and the consumer of almost all UAE's natural gas.

But ratification and action are of course two different things, and motivation can come from many sources. In Abu Dhabi, the Masdar project opened the flow of the world's largest sovereign wealth fund, estimated at $328 billion late last year, into bottom-up renewable energy development.

The strings we'd like to see attached to the UAE central bank and Abu Dhabi's Dubai bailout are ties that bind Dubai to smart growth projects such as Masdar.

Dubai can turn from hosting glitzy sports events and branding itself as a sort of Middle Eastern Monte Carlo into a cooperative effort for sustainable regional development through negawatts.

On that note, Masdar is currently operating not as a city but as a sovereign investment firm, the Abu Dhabi Future Energy Company.

Future Energy Company CEO Sultan al-Jaber said in mid-March that project leaders and financial analysts will exercise due caution in 2009, but will still spend $15 billion on Phase 1 of the Masdar plan.

That's more than the bailout Abu Dhabi had to pony up on Dubai's behalf, but it's still only the first chunk of money it will take to make Masdar a carbon-neutral home for 40,000 people by 2016.

"2009 is an execution year for us. We will be looking for opportunities worldwide but are being cautious in finding investment opportunities. It is wait and watch now. . . how the economic downturn will be," al-Jaber says.

We'll wait and watch, too. But the energy tide in the Persian Gulf is turning steadily towards clean energy market growth, and the opportunities are mounting by the day.


Sam Hopkins

P.S. - First Solar is an American firm, but Abu Dhabi's strong ties to Japan and worldwide reach mean the UAE's sovereign wealth will be diffused throughout the international renewable energy market. By diversifying into clean energy companies in different regions, including the Middle East, Green Chip International readers are positioned to capture Masdar project spending wherever it ends up. To learn more, check out GCI today:

P.P.S. - Not every country can count on a neighbor's money stockpiles to fund energy projects, and they certainly can't expect banks to finance as freely as they used to. I'm heading to the Renewable Energy Finance Forum in Brazil next month to find out just how the gears are turning these days, to make sure promising plans aren't abandoned and due diligence is back to responsible pre-bubble standards. I'll be reporting regularly from Rio and other spots in South America, but the best way for you to understand is to be right there with me. Find out about the 2nd Latin America Renewable Energy Finance Forum in Rio right here.