Power purchase agreements sit at the centre of many utility-scale electricity projects in the United Arab Emirates. They are not simply contracts for the sale of electricity. In a project-financed development, the PPA commonly defines the principal revenue stream, allocates operating and market-facing risks, supports debt service, and determines what happens when the plant is available but the grid or offtaker cannot take the electricity.

For developers, investors, lenders, contractors and public-sector counterparties, the headline electricity price is therefore only one part of the commercial picture. A low tariff can still sit beside material long-term exposure if the agreement does not deal clearly with availability, curtailment, grid constraints, change in law, payment security, force majeure, termination and lender protections.

The UAE does not operate under one single PPA model

The UAE power sector has important emirate-level structures, so parties should avoid assuming that a precedent used in one project or emirate will automatically apply to another.

In Abu Dhabi, the Department of Energy describes the sector as a single-buyer structure. Emirates Water and Electricity Company (EWEC) purchases capacity and output from production companies, including independent power producers and independent power and water producers, under long-term power and water purchase agreements. The Department of Energy also states that PWPAs for new plants are mostly twenty-year contracts and are competitively procured. The relevant Abu Dhabi regulatory framework includes Law No. 2 of 1998 concerning regulation of the water and electricity sector, as amended, together with Law No. 11 of 2018 concerning establishment of the Department of Energy.

Dubai has its own statutory framework for private participation. Law No. 6 of 2011 Regulating Participation of the Private Sector in Electricity and Water Production in the Emirate of Dubai regulates licensed private production activities and permits DEWA to establish project companies with private-sector partners. Article 23 of that Law provides that a licensee may not sell or supply the electricity or water it produces to an entity other than DEWA. Dubai has used the independent power producer model extensively, including at the Mohammed bin Rashid Al Maktoum Solar Park.

Long-term duration is also visible in public UAE project information. DEWA has reported 25-year PPAs for several solar phases at the Mohammed bin Rashid Al Maktoum Solar Park. EWEC states that the Barakah Nuclear Energy Plant is subject to a 60-year PPA for the purchase of electricity generated at the plant. These examples demonstrate why long-term risk allocation can be as important as the opening tariff.

1. Tariffs: the headline price is not the whole revenue model

A PPA tariff must be read together with the payment formula, indexation provisions, availability rules, dispatch regime, performance deductions, tax treatment and relief-event mechanics. The commercial question is not only “what is the price per kilowatt-hour?” but also “under what conditions is that price earned, adjusted, reduced or preserved?”

International project-finance practice distinguishes between different tariff structures. For dispatchable generation, a two-part structure may separate a capacity or availability payment from an energy payment. The capacity component is designed to compensate the project for making contracted capacity available, while the energy component may recover variable costs associated with actual generation. Renewable projects may use different structures, including energy-based tariffs where resource availability and deemed-energy provisions become particularly important.

Public UAE project announcements often highlight competitive levelised electricity prices. For example, DEWA announced a tariff of USD 1.6215 cents per kWh for the sixth phase of the Mohammed bin Rashid Al Maktoum Solar Park. That headline figure is useful for understanding the competitive result of the procurement, but it should not be treated as a complete description of the contractual revenue package.

Key tariff provisions to review

  • the base tariff and the precise payment formula;
  • whether the tariff contains fixed, variable, capacity or energy components;
  • indexation for inflation or specified cost categories;
  • foreign-currency exposure and conversion mechanics, where relevant;
  • tax and change-in-tax treatment;
  • performance deductions, heat-rate or efficiency adjustments for applicable technologies;
  • payment timing, invoicing, disputed invoices and late-payment consequences;
  • the relationship between tariff payments and deemed availability or deemed energy; and
  • whether any refinancing gain-sharing, tariff reopening or adjustment mechanism applies.

It is also important to distinguish the project PPA tariff from other electricity-sector tariffs. In Abu Dhabi, for example, the Department of Energy separately identifies the Bulk Supply Tariff and Transmission Use of System charges within the regulated sector. Those regulatory tariffs should not be confused with the negotiated revenue mechanics of a generation project’s PWPA.

2. Availability: when the plant is ready but generation is not requested

Availability provisions answer a fundamental bankability question: what happens when the plant is technically capable of generating, but the offtaker does not dispatch it or the system cannot receive its output?

For dispatchable plants, availability may be measured against contracted capacity, declared availability, testing requirements and permitted outage allowances. A well-drafted PPA should make the testing and measurement regime objective and should distinguish clearly between scheduled maintenance, forced outages, plant underperformance and events outside the project company’s control.

The consequences of failing an availability standard can include payment reductions, liquidated damages or other contractual remedies. Conversely, where the project is available but cannot generate because of an offtaker-side or grid-side event allocated to the purchaser, international bankable PPA structures may preserve revenue through deemed availability or equivalent payment mechanisms.

Contract-specific verification required: the exact deemed-availability formula, permitted outage regime and payment consequences for any UAE project must be confirmed from that project’s executed PPA, tender documents and related grid or connection agreements. Public announcements do not disclose the complete risk-allocation language for every UAE project.

3. Curtailment: who bears the cost of electricity that could have been produced?

Curtailment occurs when available generation is reduced or not taken. For renewable assets, the issue can be particularly significant because the project may lose a time-limited solar or wind resource that cannot simply be stored and sold later unless the project includes sufficient storage and the contractual structure permits it.

A PPA should define the circumstances in which curtailment is permitted and identify the financial consequence of each category. The agreement may need to distinguish among emergency instructions, grid security events, transmission unavailability, offtaker instructions, plant-caused restrictions, scheduled system work and force majeure.

International PPA guidance recognises that curtailment is a negotiated risk and that project companies and lenders generally seek protection where electricity would have been produced but for an event allocated to the offtaker or grid. Depending on the project, that protection may take the form of deemed energy, deemed generation, compensation above a stated threshold, extension of the PPA term, or another agreed mechanism.

Questions that should be answered before financial close

  • Who has the contractual right to order curtailment?
  • Which curtailment events are compensable and which are not?
  • Is there an annual curtailment allowance, threshold or cap before compensation begins?
  • How is lost generation calculated?
  • What plant data, irradiation data, metering or SCADA records are used?
  • Does grid unavailability receive the same treatment as an offtaker instruction?
  • Can storage reduce or shift the loss, and if so, how is that reflected in compensation?
  • Does prolonged curtailment trigger an extension, compensation right, force majeure mechanism or termination right?

A curtailment provision is therefore not merely operational. It can directly affect projected revenue, debt-service coverage and the lender’s assessment of long-term bankability.

4. Grid and interconnection risk

The PPA should be read together with the connection agreement, transmission code, dispatch rules and any other project agreements governing delivery into the system. A project may be fully constructed and technically operational but still face revenue consequences if the interconnection facilities are delayed, unavailable or unable to accept the contracted output.

Key points include responsibility for building and maintaining interconnection assets, the point of delivery, metering, electrical losses, testing, energisation dates, grid-code compliance, dispatch instructions, outages and the consequences of transmission-system failure.

For lenders, the critical issue is whether a grid-side failure is treated as a project-company risk, an offtaker risk, a relief event or a force majeure event, and whether the revenue model continues to cover fixed costs during the affected period.

5. Change in law and regulatory evolution

A PPA may run for decades. During that period, the regulatory environment, tax rules, technical codes, environmental requirements, localisation obligations, cybersecurity standards and permitting requirements can change.

Change-in-law drafting should therefore identify the relevant baseline date, define which legal changes qualify, set materiality thresholds where appropriate, and establish the available relief. Relief may include tariff adjustment, time relief, reimbursement, amendment of performance obligations or, in extreme cases, termination.

The issue is particularly important in a sector undergoing rapid technological and policy development. The updated UAE Energy Strategy 2050 targets major expansion of renewable and clean-energy capacity by 2030. Dubai is also expanding solar generation and storage through its IPP programme. As the generation mix evolves, projects should consider how new grid requirements, storage obligations, dispatch practices and technical standards could interact with contracts signed many years earlier.

6. Financing, security and lender protections

Project-financed power assets are commonly dependent on the PPA revenue stream. Lenders therefore examine not only the tariff but also the durability of the contractual rights supporting that tariff.

Common areas of focus include assignment of contractual rights by way of security, lender notice rights, cure periods, step-in arrangements, restrictions on changes of control, security over project assets, refinancing provisions and the relationship between the PPA and the financing documents.

These points must also be checked against the applicable regulatory framework. In Dubai, for example, Law No. 6 of 2011 restricts assignment or disposal of certain licensed project rights and principal assets without regulatory approval, while allowing the regulator to approve security rights or mortgages over principal assets to the extent required to facilitate financing. Transaction documents should therefore be structured with both contractual bankability and regulatory consent requirements in mind.

7. Force majeure and relief events

Force majeure drafting should not be treated as boilerplate. The definition determines which extraordinary events excuse performance, what notice and mitigation obligations apply, whether payments continue, and when either party can terminate after a prolonged event.

Parties should also decide whether political force majeure, natural force majeure, grid events, government action, supply-chain disruption and change in law receive the same treatment. In many project-finance structures they do not. A project may require different payment consequences depending on which party is better able to manage or insure the relevant risk.

8. Termination payments can determine the value of the entire risk allocation

A carefully negotiated operating regime can be undermined if the termination provisions do not protect the residual project value and outstanding financing appropriately.

The PPA should define termination events, cure periods, transfer requirements and the financial consequences of termination. Different outcomes may apply depending on whether termination follows project-company default, offtaker default, prolonged force majeure, illegality or another specified event.

For a financed project, lenders will focus closely on whether the termination payment is sufficient to address outstanding senior debt and how equity is treated under the relevant termination scenario. They will also examine payment timing, security, enforcement mechanics and any conditions that must be satisfied before payment becomes due.

9. Long-term technology and operating risk

A 20- or 25-year project can experience equipment degradation, changes in spare-parts availability, manufacturer insolvency, evolving cybersecurity requirements, new storage technologies, major maintenance cycles and changes in operating practices. The PPA must be coordinated with EPC, operation and maintenance, equipment-supply, warranty, insurance and long-term service arrangements so that risk passed to the project company can actually be managed downstream.

For solar-plus-storage projects, the parties may also need to address battery augmentation, degradation curves, charging rules, state-of-charge requirements, round-trip efficiency, dispatch priority and replacement obligations. Those issues can affect both availability and the calculation of lost or delivered energy.

A practical UAE PPA risk checklist

Issue Core question Why it matters
Tariff What is paid, when, and how is it adjusted? Determines the project’s revenue base and exposure to cost changes.
Availability How is available capacity measured and what deductions apply? Affects fixed-cost recovery and performance risk.
Curtailment Who bears lost-generation risk? Can materially change renewable-project cash flow.
Grid What happens if the system cannot receive output? Separates plant risk from network risk.
Change in law Which legal changes trigger relief and how is relief calculated? Protects long-term economics against regulatory change.
Force majeure Which events excuse performance and preserve payment rights? Defines extraordinary-event exposure.
Financing Do lenders have assignment, cure and step-in protections? Directly affects bankability and financing terms.
Termination How is the termination payment calculated under each scenario? Determines residual debt and equity protection.

Legal review should begin before the PPA is signed

PPA risk allocation should be reviewed at the tender and bid stage, not only when final documents are ready for signature. Tariff assumptions, financing terms, EPC pricing, insurance, grid obligations and operating costs are interconnected. A contractual concession obtained late in negotiations may have limited value if the financing model or downstream contracts were built on a different assumption.

For UAE projects, the legal review should also identify the competent emirate-level regulatory framework, licensing conditions, offtaker structure, required approvals and the relationship between the PPA and the other project documents. The objective is not simply to produce a legally complete agreement, but to ensure that the commercial model, financing model and legal allocation of risk operate together over the full project term.

Conclusion

In the UAE, a power purchase agreement can govern project economics for twenty years or more. The strength of the transaction therefore depends on far more than the headline tariff. Availability, curtailment, grid events, change in law, financing protections, force majeure and termination mechanics all determine whether revenue remains predictable when the project encounters real-world disruption.

Before bidding, financing, amending or signing a PPA, parties should review the full project-document suite and test each material risk against the financial model. Contract-specific drafting is essential: public tariff announcements and general market practice cannot replace review of the executed project documents.

HZ Legal note: Hossam Zakaria Legal Consultancy can assist with legal review of power purchase agreements, project documentation, risk allocation, contractual amendments and related UAE energy-sector arrangements.

This article is for general informational purposes only and does not constitute legal advice. UAE energy projects may be subject to emirate-specific laws, licences, tender conditions and project agreements. Legal and regulatory requirements should be verified for the specific transaction.

Sources and verification notes