CLEAN TECH:

Emirate channeling oil wealth into bid for green economy

ABU DHABI, United Arab Emirates -- The discovery of oil here in 1958 sparked Abu Dhabi's transformation from an outpost of palm-frond huts to a city of skyscrapers with a standard of living much like that of the United States or Europe.

But Abu Dhabi isn't content with fossil-fueled success.

Worried that an economy based on oil won't last forever, the government is building a new city nearby that will use a host of technologies -- some of them not yet invented -- to tame the harsh desert conditions and afford all the luxuries of modern life without the carbon baggage.

Masdar City -- masdar is Arabic for "the source" -- is supposed to lure researchers, venture capitalists and entrepreneurs with a goal of making the United Arab Emirates a world leader in sustainable energy, the Silicon Valley of the desert.

As conceived by the government-backed Mubadala Development Co. and announced with fanfare in 2006, Masdar City would cover 2.25 square miles and house 1,500 businesses, a mix of young tech companies and established energy powerhouses. The city would be home for 40,000 people, with another 50,000 commuting to work via planned mass transit links with downtown Abu Dhabi.

"The world needs more energy and it needs cleaner, lower carbon energy," says Masdar CEO Sultan Ahmed Al Jaber in an open letter on the initiative. "We are moving quickly in order to deliver results as quickly as possible."

The project's biggest promise: Become the world's first carbon-neutral, zero-waste city. Electricity is to come from solar panels, while air conditioning will rely on ancient thermal-cooling technology. Seawater will be desalinated at a plant powered by renewable energy and wastewater recycled for agriculture and landscaping.

The Masdar Institute for Science and Technology, a graduate research facility modeled on the Massachusetts Institute of Technology, will anchor the city. Masdar will also be home to the International Renewable Energy Agency, an intergovernmental body formally established last year and currently housed in downtown Abu Dhabi while its new headquarters are prepared.

Broadly, Masdar City is the technology facet of a larger effort to transform Abu Dhabi's economy from its foundations in oil and natural gas to a more sustainable, diversified model.

"Masdar is like the seed for this transformation" to a knowledge-based marketplace, said Nawal Al Hosani, an architect and associate director of sustainability with Masdar's property development group.

Other elements of the program include building an island of cultural tourist attractions, including a Frank Gehry-designed branch of New York's Guggenheim museum, an Abu Dhabi Louvre, and a series of outdoor pavilions for biennial art festivals.

Some plans are petro-centric: A Formula 1 race track has been built just outside the city (reportedly the only course in the world that runs through a hotel), and a Ferrari amusement park is under construction nearby.

More than $100 billion in new infrastructure investments are also anticipated over the next five years, including a new world-class port, several industrial zones, and construction of new steel and aluminum manufacturing facilities.

Al Hosani said Masdar City is designed to have direct impacts on the local economy, building capacity for "green" design and clean technology and helping to establish the infrastructure for sustainably built projects elsewhere in Abu Dhabi.

"A lot of the things we learn here," she said, "are being cascaded to other groups."

Investing beyond oil

The push for sustainability here is in contrast to what's happening in neighboring Dubai, where flashy buildings and risky ventures have made headlines. Dubai recently suffered a cash crunch just as it completed construction of the world's tallest tower, the Burj Khalifa.

But Abu Dhabi is known for putting its 94 percent share of the country's oil wealth into more sober investments.

Masdar owns a partial share in an offshore wind energy project, the London Array, designed to power up to 750,000 homes through turbines planted in the Thames. A joint venture with E.ON AG, a global energy services company, targets creditworthy carbon-emissions reduction projects, while partial ownership in WinWinD, a wind turbine company, puts Masdar in partnership with Finnish and Indian companies.

Two investments in traditional renewable-energy powerhouses, Spain-based solar company Torresol Energy and Germany-based Masdar PV, include brick-and-mortar facilities in countries where the technologies have fared well in the past, although recent government policy changes in both countries have upended the European industries (Greenwire, March 31).

Masdar is also working on carbon capture and sequestration projects to harness local emissions and use them to boost oil-well production through enhanced oil recovery. The first project in development is a plant that would turn some of the emirate's abundant natural gas into hydrogen and carbon dioxide. Burning the hydrogen gas for electricity could replace about 5 percent of Abu Dhabi's generation, while the CO2 would be repurposed for use in oil fields.

At home in Masdar City, organizers aim to forge relationships with major companies to foster a vital technology community. General Electric Co. and BASF SE are advertised as future tenants of commercial space that's now on the drawing boards, while Boeing Co. is backing a high-profile biofuels research project (Greenwire, Jan. 19).

In January, Schneider Electric SA, an international energy management company, announced it would build an innovation center at Masdar to do research and development on energy efficiency, green building, smart grid technologies, water, and information and communication technologies. Many of those projects will be integrated into the city's infrastructure.

To help lure smaller commercial players that the initiative hopes will fill out the technology ecosystem, venture funding is built in from the beginning.

Masdar Venture Capital manages the Masdar Clean Tech Fund, a fully deployed $250 million investment launched in partnership with Consensus Business Group, Credit Suisse and Siemens AG. Focal areas for investment include companies developing and commercializing technologies in renewable energy, energy efficiency, carbon management and trading, water usage and desalination.

Masdar's venture capital arm is now building a second fund with a target size of $500 million together with Deutsche Bank. In January, the group announced it had reached $265 million with a first round of fundraising that has not yet been committed.

Reality hits

Despite its lofty aims, Masdar City exists now almost entirely on paper, and the pages are in disarray.

The original city plans, drawn up several years ago, reflected a thriving global economy and record-high oil prices. But project officials admitted this year they were re-evaluating Masdar's blueprints in light of the changed financial universe.

In March, officials said the Masdar company would shift from being the project developer to a "master planner" role, working with other entities willing to shoulder some of the cost and risk associated with putting up buildings.

In line with that change, they said, the project fired more than 30 employees and hired Al Dar, a local construction management company with a track record in one-of-a-kind projects, to steer the completion of the first building on the site and manage subsequent ones.

Fares Ghneim, Masdar's spokesman, insists the initiative still has plenty of cash and -- more importantly, in a country where major decisions are centralized -- the full backing of UAE's royal family. "The original vision for the initiative remains intact; central to that vision is the concept of testing, evaluating and adapting to new information," Ghneim wrote in an e-mail.

As Al Dar takes on responsibilities for building and tenants of the city are pushed to put up more of their own money, Ghneim insisted that the high standards of carbon-neutrality and elimination of waste would still be met.

"Our objective continues to be the creation of a unique, sustainable city that is commercially viable and can serve as a 'greenprint' for future developments in the UAE and on a global scale," he said.

Ghneim said specifics of the city plan are on hold while officials re-evaluate, a process that would take about four months. "With the first building nearing completion, now is an opportune time to review the master plan, reflect on our significant accomplishments and also reflect on lessons learned," he said, "to ensure the development remains aligned with current and future market trends" and with technological innovations.

Originally, Abu Dhabi's government planned to put down $4 billion of the project's $22 billion total price, with investment partners and debt financing to make up the rest. Officials have not updated the price, but it almost certainly has escalated since 2006.

Already, the construction end date has been pushed back. Originally, the entire city was to be built by 2016. But in January, officials said the first phase, including the institute and Masdar's headquarters building, would be delivered in 2013. Further development, they told various news outlets, would be completed "organically."

Some of the technological plans have similarly stalled. A scheme to power the city largely with wind energy ran into the reality that the wind isn't strong enough at the Masdar site, and turbines could not be built high enough to capture it without interfering with operations at the nearby airport. The high cost of rooftop solar panels is also causing second-guessing, officials said.

Measuring success

In interviews, virtually everyone involved with Masdar said they were prepared to accept some failure as a price of success. But still, it stings.

"One thing we have to admit as Masdar is that when this was launched, there were a lot of bold statements," Ghneim acknowledged. "But we're all learning as we go along. We have to be honest with ourselves and admit that maybe four years ago when this was launched we were very optimistic, and of course we're still optimistic, but it's maybe more difficult than some people thought at the beginning."

Surprisingly, given the city's high-tech mission, organizers have built another major hurdle into their plans: They say the result should be reproducible anywhere in the world.

"The success of Masdar will be measured by how much of it can be replicable, with respect of course to social and environmental constraints in other societies," said Al Hosani, the sustainability planner.

"At the end of the day, Masdar has to make sense economically," she said. "So if Masdar turns out to be, like, ridiculously expensive or more expensive than any other developer might spend, that's not sustainable."

Looking at the master plans, it's hard to imagine the shiny PV panels and brand-new laboratory buildings being useful to builders in rural India or tropical Brazil. But project officials say the ability to transfer such development elsewhere is central to the city's underlying purpose.

"Success is going to be on the elements that come for free," Al Hosani said, like integrating a building's orientation and design into its setting to minimize energy use. "These things come with proper thinking when you design the city. It's a mindset."

Ironically, while it's not clear that poor countries will be able to use some elements in the city's design -- for example, the plan calls for robotically driven "personal rapid transit" pods to travel the city via subterranean tunnels -- they may benefit from the current project deceleration. Moving in stages and responding to market changes are things all planners can identify with, whether dollars flow easily from underground or not.

"It doesn't make sense for us to build this project and for it to be a white elephant in the desert, and for it to be something that only an oil-rich country, or Abu Dhabi, can afford," Ghneim said. "It makes no sense to build something that is really expensive and no one can afford to live in."

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