The CEC Scheme provides a regulatory framework, underpinned by international standards, to the Abu Dhabi market to help identify the source of electricity.
Mark BrownPartner, Head of Projects
Marianna MargaritidouTrainee Lawyer,Real Estate
Sustainability, energy transition and carbon footprint reduction are key trends influencing businesses and governments. Companies endeavour to portray themselves as being green, sustainable or low carbon but to be credible their efforts need to be demonstrable. Complicating the objective, many of the things that influence a business’ environmental impact are also outside of its control.
One area that exemplifies this issue is the use of electricity from the distribution network. Electricity is fungible so a user cannot immediately determine if what is supplied comes from a renewable or non-renewable source. Hence, demonstrating the use of clean energy can be difficult when the sole source is the open grid. A solution is clean energy certification – a process where an electricity user that is seeking to meaningfully reduce its greenhouse gas emissions can verify the source of electricity.
Clean and renewable energy certification has gradually been promoted globally through various certificate types. Some examples include Renewable Energy Certificates (RECs) issued in the US, India, Australia, and South Africa as well as Renewable Obligation Certificates (ROCs) in the UK and Renewable Energy Guarantees of Origin in Europe. Despite the variety of denominations, all these certificates have the common purpose of tracking and recording that an amount of energy comes from a renewable source.
In August 2021, the Abu Dhabi Department of Energy (“DoE”) issued Abu Dhabi Decision No. 10 of 2021 which sets out the regulatory framework for the implementation of the Clean Energy Certificate scheme in the Emirate of Abu Dhabi (the “Policy”). The Clean Energy Certificate scheme (the “CEC Scheme”) has been modelled on the internationally recognised attribute tracking system for renewable energy certificates developed by the International Renewable Energy Certificate Standard Foundation (“I-REC”). As of 8 August 2022, there were more than 50 countries authorised by the I-REC board to implement attribute tracking systems.
Clean Energy Certificates (“CECs”) are described under the Policy as ‘[transferable and] voluntary tradeable instruments which detail and evidence the generation of a specific amount of electricity (1MWh) from clean energy resources’. In short, they are a digital accounting and tracking mechanism for clean energy, from the products to the final consumer, and thus allow private actors to own and identify the attributes of the electricity supplied to them.
Under the CEC Scheme, the two types of certificates are CECs for solar and nuclear generated electricity. While solar energy certification is traditionally covered by renewable energy certificates, the Policy is the first time globally that nuclear energy has been included in a CEC scheme and was a deliberate and innovative step by the DoE and I-REC in light of Abu Dhabi’s generation mix.
According to the website of the Emirates Water and Electricity Company (“EWEC”), CECs “are the only recognised instruments in Abu Dhabi to trace electricity from clean generation sites”. CECs issued by the DoE are, at present, only valid within the Emirate of Abu Dhabi.Enabling Roles of the CEC Scheme The CEC Scheme is established by three main enabling roles; namely, the issuer, the registry, and the single registrant.
The Issuer: DoE Under the CEC Scheme, the DoE is formally authorised to act as an I-REC local issuer of CECs in Abu Dhabi. This is a continuation of the DoE’s role as the regulator of the non-oil and gas energy sector in the Emirate. The fees, the issuance conditions as well as any prohibitions or restrictions in the trade / sale of CECs are determined by the DoE. Currently, the DoE does not charge a separate fee for acting as a local issuer in order to encourage maximum participation in the CEC Scheme.
The Registry: I-REC The I-REC Registry is maintained outside the UAE and is the central (and sole) registry which is responsible for the CEC Scheme’s registration platform for exchange accounts, production devices and groups of generation facilities as well as for tracking CEC ownership, recording trading transactions, verifying claims, and ensuring that there is no double counting.
The Single Registrant: EWECEWEC is the sole procurer of power within Abu Dhabi by law and the Policy reiterates this. Consequently, EWEC acts as a single registrant for clean electricity supplied into the grid from generation entities licensed by the DoE. After EWEC lists the energy in the I-REC Registry for validation and the energy is verified, it then requests the DoE to issue the CECs, which EWEC can then sell to private persons or legal entities.
However, the Policy provides that the DoE may allow the involvement of other registrants injecting electricity in the local grid from outside Abu Dhabi. This can enable other generators outside of Abu Dhabi to also have their supply certified.
A private individual or corporate body is required to open an account in the I-REC Registry in order to own CECs and perform transactions (“Participant”) by completing the application process. Thereafter, it must comply with the rules and obligations set under the International Attribute Tracking Standard (the “Standard”) and the associated Code and guidance which describe the practical implementation of the Standard. These documents set out the processes through which the various enabling and participating stakeholders can coordinate to ensure the efficiency and reliability of the attribute tracking system as well as the accessibility to the CEC market. For example, the Standard and Code establish the process of issuance of CECs, the requirements relating to the registration of ownership and transfer of CECs as well as other important technical matters such as redemption requests and error management.
Under the Policy, EWEC must implement the Policy’s non-discrimination principle. This means that all Participants have access to CECs under the same conditions and with minimum barriers to entry.
In practice, CECs are sold by EWEC through quarterly auctions which are open to all Participants such as large multinationals, SMEs, estate owners households, and the general public. The fourth CEC auction was conducted in Abu Dhabi on 14 June 2022.
A “Pay as Bid” mechanism is be used during the auctions to enable discovery of the highest bid. A reserve price is used to provide price support. Under the Policy, EWEC’s revenue from the sale of CECs is taken into account in the calculation of the Bulk Supply Tariff (“BST”) (i.e. the hourly charge paid to EWEC by the distribution companies for water and electricity supplied to them).
Post auction, certificate owners can either redeem or sell certificates to other Participants. Redemption is when a CEC is used to make a claim on the attributes or benefits of the certified amount of energy for a stated purpose within a consumption period. If a CEC is redeemed it can no longer be traded.
The CEC Scheme has already received support from major stakeholders in the energy sector. There have been a number of public announcements on various collaborations with EWEC relating to CECs, including the partnership to supply 100% of Abu Dhabi National Oil Company’s grid power from solar and nuclear power resources, arrangements with Abu Dhabi government departments and participants in the healthcare and real estate sectors. The adaptability of the scheme will also mean that it can be the foundation for the development of energy source certification for new areas, such as green hydrogen certification – an area where a number of initiatives have been announced in Abu Dhabi.
The CEC Scheme provides a regulatory framework, underpinned by international standards, to the Abu Dhabi market to help it identify the source of electricity and assist participants in reaching their own environmental goals. It also enables a greater awareness in the market of the changing Abu Dhabi energy mix as increasing solar and nuclear energy supply becomes available – which a few years ago did not exist. CECs are another tool to facilitate the UAE Net Zero by 2050 initiative and the achievement of the UAE’s reduction targets under the Paris Agreement on Climate Change.
For further information, please contact Mark Brown.
Published in November 2022