UAE data centres face regulatory hurdles as digital growth accelerates towards cleaner energy

Data centres in the UAE are set for rapid growth, but there are some concerns about how the country’s energy procurement rules might slow down their move towards cleaner energy, according to a fresh analysis from Wood Mackenzie. The consultancy’s findings suggest that demand for electricity from data centres in the UAE could roughly double, from around 3 terawatt-hours in 2025 to over 6 TWh by 2030. This increase will put more pressure on the power systems, which are already transitioning to lower-carbon sources.

The main driver behind this surge is the government’s ambitious plans to attract more artificial intelligence infrastructure and cloud technology capacity. Industry reports indicate that partnerships and investments are pushing significant capacity into the UAE market. For example, Microsoft and Abu Dhabi’s G42 announced a joint venture called Stargate UAE, worth US$1.5 billion, focused on AI infrastructure. Meanwhile, telecom group DU revealed a US$544 million hyperscale data centre project in partnership with Microsoft. Additionally, AWS and e& signed a US$1 billion deal to expand cloud services across the Middle East. These commitments support the forecast that the UAE’s total electricity demand could reach around 225 TWh by 2040, as digital adoption continues to grow.

However, Wood Mackenzie warns that current regulations limit how data-centre operators can buy clean energy. Many international markets rely on long-term corporate power purchase agreements, or CPPAs, to finance new wind and solar projects, these are vital for attracting private capital on a large scale. But in the UAE, such corporate and virtual off-take contracts are practically not allowed. Instead, data centres mainly depend on rooftop solar installations, small captive projects, or the purchase of renewable energy certificates, which significantly restricts their options for scaling up clean energy.

The consultancy points out some specific hurdles. Dubai’s rooftop solar support program, called Shams, caps installations at about 2.08 MW per site. Abu Dhabi’s net-metering scheme allows for up to 5 MW for small energy connections. Each emirate has its own rules about which projects qualify for clean-energy incentives, and government auctions have been the main way to procure utility-scale renewables. While some pathways exist, like Abu Dhabi’s self-supply licenses and Dubai’s D33 Industry-Friendly Power Policy, they mainly facilitate on-site or directly connected projects, and don’t support wheeling power nearby or third-party off-take at a large scale.

“I mean, every major hyperscaler we keep an eye on, well, they all use a pretty similar strategy globally,” said Nicolas Groues, a Principal Consultant at Wood Mackenzie. “They sign a 15-year contract with an independent developer, secure offtake, and then the wind or solar project gets built. That’s what unlocks private funds at scale. But, here’s the thing, the UAE doesn’t currently allow that kind of model. So, there’s a mismatch. These companies are used to deploying capital in places where they can, and here, well, the regulations don’t support it. Fix that, and suddenly the discussion shifts from ‘Can we meet our climate goals?’ to ‘How quickly can we grow?’ The infrastructure is there. The key problem, well, it’s policy, not technology.”

That said, the UAE does have some inherent advantages that could facilitate quick decarbonisation if policies change. It’s located at the center of major international fibre optic networks, with 19 submarine cables linking Europe, Asia, and Africa, and more planned. Additionally, the country operates the only regional commercial nuclear fleet, which currently supplies a significant amount of low-carbon, reliable power. Solar capacity is expanding too, Wood Mackenzie and PV Magazine highlight a major planned project of about 5.2 GW of solar with storage, designed to provide up to 1 GW of continuous baseload power. That’s a pretty good sign that battery-integrated solar could start to replace conventional fossil fuel plants, even though the costs are still higher per unit.

The report outlines three practical ways to connect data-centre growth with decarbonisation efforts: First, allowing corporate and virtual PPAs would enable operators to finance renewable projects and attract private investment. Second, harmonising renewable energy certificates across the emirates, including introducing more detailed, timestamped certificates, could boost trustworthiness in claims about when and where renewable power is generated. And third, reducing dependency on diesel backup generators, by shifting to on-site storage solutions, biodiesel, or cleaner gases, would cut down Scope 1 emissions from back-up systems.

There’s added motivation for reform. Globally, cloud giants have set ambitious decarbonisation targets and regularly use long-term offtake deals in markets like the US, Europe, and Australia. For example, Amazon announced it achieved 100% renewable energy matching in 2023 and is among the largest renewable power buyers. Microsoft, Meta, and other hyperscalers maintain similar commitments and procurement strategies. Industry experts highlight that the current UAE rules, well, they create friction and slow down investor interest, making it harder to monetize new clean energy investments quickly.

For policymakers in the UAE, the challenge is balancing two goals: attracting AI and cloud investments, while also keeping the country’s energy transition moving at pace. Wood Mackenzie’s analysis suggests the fundamentals are actually in place for faster adoption of clean power. The real bottleneck is policy. Allowing more flexible off-site procurement and cross‑emirate crediting could turn the anticipated demand from data centres into a catalyst for new renewable projects, rather than an additional burden on the grid.

And beyond emissions, fixing these regulatory issues could ultimately lower renewable energy costs, speed up project delivery, and strengthen the UAE’s position as a key player for global hyperscalers. If policymakers take the right steps, the country’s strong network links, existing low-carbon baseload from nuclear, and large-scale solar-plus-storage potential could make the UAE a sort of test case, showing how to manage rapid digital growth alongside credible decarbonisation efforts.