‘We want to be a global player in renewable energy’

The small Gulf State Abu Dhabi, one of the world’s major oil producers, has the ambition to become a global centre of sustainable energy research and production. A mirage? Certainly not, says Frank Wouters, the Dutch Director of Masdar Power, one of the vehicles the Abu Dhabi government has set up to realise its green dreams. ‘Everything we do is intended to contribute to the diversification of the economy of Abu Dhabi.’

Frank Wouters, Director Masdar Power
How serious should the ambitious sustainable energy plans of Abu Dhabi be taken? Most people will have heard of Masdar City – the $22 billion city in the desert that is to provide “green” jobs and housing to 90,000 people. When it was announced two years ago, it made headlines across the world. But skeptics may be forgiven to think that Masdar City is as much a showcase as anything else. After all, Abu Dhabi’s sister state within the United Arab Emirates (UAE), neighbouring Dubai, is pretty good at building sensational showpieces.
Fact is that the UAE is the 8th biggest oil producer in the world and the number 4 oil exporter, with a production of 2.6 million barrels per day. The country also possesses huge proven reserves of oil: with almost 100 billion barrels, it is number 6 in the world, ahead even of Russia. Its proven gas reserves are also substantial: three times as large as those of a country like Norway. In other words, OPEC-member UAE is a key player in the global oil and gas industry – and is likely to remain so for a long time.

Yet there may be more to Abu Dhabi’s green ambitions than meets the eye. For one thing, Masdar City is just one of the five units of the Masdar group, the vehicle the government of Abu Dhabi has created to enable the country to – in its own words – ‘remain a global energy leader, prepare its citizens for a post-oil future and help humankind find a development model that is sustainable’.

The other four units are at least as important. There is the Masdar Institute of Science and Technology, developed in cooperation with the world-famous Massachusetts Institute of Technology (MIT) and committed to the same high standards as MIT. This institute, which will start next year, is set up to become a top-level R&D institute in the field of sustainable energy technologies. Then there is Masdar Carbon, which invests in carbon emission reduction projects across the world as well as in a major carbon capture and storage project in Abu Dhabi itself. There is Masdar Venture Capital, which manages two investment funds that already have more than $500 million invested in cleantech companies across the world. It includes partners like Siemens, Japan Oil Development Co, Nippon Oil Corporation and Credit Suisse. And there is Masdar Power, a unit that develops and invests in renewable energy power projects both within the UAE and internationally.

This last unit may well one of the most important carriers of Abu Dhabi’s green drive. Just last week it announced that it is going to build in Abu Dhabi the largest concentrated solar power plant in the world, together with Total and Abengoa Solar. It has also bought a 20% share in the London Array, which will be the largest offshore wind farm in the world, and is a joint-venture partner in Spanish solar power company Torresol and Finnish wind turbine producer WinWinD.

Idealism

In an interview with EER that took place at the PowerGen exhibition in Amsterdam early in June, Dutchman Frank Wouters, who recently became Director of Masdar Power, says that his company has the ambition to become a ‘substantial worldwide player’ in sustainable power generation. According to Wouters, Masdar Power is planning to invest ‘several billions’ in projects around the world over the next ten years. Referring to Masdar City, which has recently been confronted with delays and layoffs, Wouters says that Masdar ‘perhaps did not manage expectations very well’, but he insists that the transformation of Abu Dhabi in a global centre of sustainable energy is not a mirage.

‘Masdar was initiated by the highest leadership of the country, in particular Crown Prince Sheikh Mohammed, who is convinced of the necessity of diversifying the country’s economy. At this moment, 60% of Abu Dhabi’s income derives from oil and gas. The government wants to turn this around and turn the country into a knowledge economy. They consider sustainable energy to be one of the most important growth sectors and want to continue to play a central role in the global energy industry far into the future. They really look ahead to the time when oil and gas are not dominant anymore in the world’s energy supply. That is why they have chosen this strategy.’

Wouters, who for 15 years worked at the ambitious Dutch renewable energy producer Econcern, which went bankrupt last year, emphasizes that the activities of his company are purely commercially driven. ‘There may be idealism behind it, but our primary aim is to make money. Each project that we undertake is judged on its financial merits – it has to be profitable in the long run. In the end everything we do is intended to contribute to the diversification of the economy of Abu Dhabi.’

Partnerships

Masdar Power drew up a ‘fairly ambitious’ strategic plan last year, says Wouters. ‘We have defined in which markets we want to be active, what technologies are relevant and what our business model looks like.’ As to this last, Wouters says Masdar Power prefers to work in partnerships, particularly when it comes to projects ‘far from home’. ‘When we work close to home, in the Middle East, we can be the leading partner. But when we work in Europe or North America, we don’t want to build up local organisations. In that case we look for a partner with experience, who has his own local network. But we are not averse to taking risks. And we go in to stay. We are not a private equity investor who wants to sell his investment quickly to make money.’

Concentrated solar power is one of the energy sources Masdar is investing in.
Masdar has several assets to contribute to such partnerships, says Wouters. ‘Money of course, which is important in the current time of crisis. But we also have our own technologies through WinWinD, Torresol and Masdar PV. And we have good relationships at the highest governmental levels. That’s the advantage of being a state-owned company.’

Geographically, Masdar primarily focuses on the Middle East, Europe and North America. In terms of technology, the company has selected four sectors in which it wants to be active: onshore and offshore wind, concentrated solar power (CSP) and photovoltaic (PV) solar power. About onshore wind, Wouter notes that Masdar is joining the game at a rather late stage. ‘This is a growth market. In many places in the world onshore wind is just as cheap as conventional forms of power generation. But to become a big player in this sector, we probably are too late already.’

Climate deal

In offshore wind, on the other hand, the Dutchman still sees very good opportunities to become a big player. ‘We have now put our foot in the water with London Array, and we like the feel of it. It is a new market, that still has a lot of growth potential. And offshore projects tend to be big, which suits us very well. We are a small country with few people, so we have to be efficient with our resources. If you don’t have many people, you cannot divide them over many projects.’

Isn’t he worried about the relatively high subsidies offshore wind currently requires? After all, this was one of the reasons why Shell got out of the London Array project. ‘Well, it all depends on how you look at it. If you consider that the 37 biggest developing countries each year subsidise fossil fuels with $550 billion, then you may wonder what course is most sustainable. Some governments, like the UK government, choose to subsidise now to achieve certain results later. As the European Climate Foundation has shown in its recent study, if we take the right approach renewable energy is cheaper than conventional energy forms – if, that is, a shift takes place to electric cars and if large investments are made in infrastructure. The main challenge of renewable energy is that the costs are front-loaded. You have to invest now to reap the benefits later.’

Wouters estimates the current costs of offshore wind power at roughly 15 eurocents per kilowatthour. ‘Of course this number has to be cut in half, at least. But I think that’s doable. One big improvement will come from the development of bigger turbines. Apart from maintenance and grid connections, half the costs of offshore wind power are in the turbines, half in the foundations. If you can increae the size of the turbine, you cut the cost of the foundations. I think 10 Megawatt turbines are possible.’

Wouters believes a global climate deal would be important, if it came about. But, he says, ‘whether or not CO2 will get a price, the march of renewable energy will continue. I don’t see any mechanism that will put a stop to this. They call renewables “alternative” energy, but they are not an alternative. They are the only form of energy that will last. The rest is temporary.’

Doesn’t he meet with a lot of skepticism from the people in the oil industry in Abu Dhabi about the green program of Masdar Power? ‘There is a layer of decision-makers that has to be convinced, yes. In that sense you can compare public opinion in Abu Dhabi with where Europe was 10 to 15 years ago. And there is always discussion about when exactly the peak of oil production will take place. But if you look at the oil spill in the Gulf of Mexico, even though it is an incident, it does have a huge impact. It does show we have to continue to do our utmost to develop renewable energies.'