Dubai Electricity and Water Authority (DEWA) said it has deferred plans to build the US$1.3bn Hassyan independent power and water project, citing increased efficiency at existing power plants.
"The Hassyan power plant project can be deferred until a later date," the state company said, adding that it had raised power production capacity elsewhere while demand growth had slowed.
Demand for cooling and fresh water have driven rapidly rising use of electricity in Dubai. But the government has been forced to reassess many of its projects following its standstill debt announcement in 2009
Located 60 km south-west of Dubai in the UAE, the Hassyan power and water complex was expected to have a total production capacity of 900 mw of power and 720m gallons per day of desalinated water.
The government of Dubai owns DEWA, while the Dubai Supreme Council of Energy is responsible for ensuring energy supplies in the emirate.
Abu Dhabi National Energy Company in December identified itself and its consortium partners Marubeni of Japan and South Korea's SK E&S as the lowest bidders for the project.
"We are still waiting to hear the consequences of this decision from them," said Taqa spokesman said on Thursday, without elaborating.
Some bidders said the decision may even damage the government's future project plans. "It's disappointing. In the future bidders may think twice," said an executive from one of the international companies that had bid for the project.
The Hassyan project had attracted a lot of interest from banks and was the government's first use of the public-private partnership (PPP) model to fund construction of a project.
Dubai has also launched plans to build a solar park with a potential capacity of 1,000 MW to help reduce its energy imports. The first solar plant in the park will have a capacity of 10 MW and is planned to commence operations by end of 2013.