Following the severe disruption of energy supplies in the wake of the Arab Spring, plans are underway for Jordan to reach energy independence with the help of cutting-edge renewable power projects.
By Elisa Oddone
A heavy reliance on imported energy has weighed heavily on Jordan’s already stretched budget over recent years, prompting the government to launch a strategy that aims to raise the proportion of energy consumption met by local supplies from around two percent to almost 40 percent over the next 10 years.
Jordan imports the great majority of its energy needs, spending 20 percent of its GDP to produce electricity from cheap oil from Iraq and gas from Egypt up until recent years. Ongoing unrest in these neighboring countries has disrupted these once dependable supplies, forcing Jordan to turn to expensive oil imports.
The disruption of Egyptian gas flows, which generated 80 percent of Jordan’s electricity in the past, has spurred the Kingdom to invest in alternative energy projects to quell the growing pressure on a national budget officials have called unsustainable.
But the country has made important progress this year towards improving its energy independence. This is particularly true in the case of locally-sourced renewable power, the contribution of which the government intends to raise from 1.5 percent of the total energy mix to 10 percent by 2025. “This is a very ambitious target,” said Ziad Jibril Sabra, the director of the Ministry of Energy and Mineral Resources’ renewable energy department.
While he believes the contribution of renewables might actually reach as high as 15 to 20 percent, he stressed that Jordan’s quest to develop green fuels has not been easy. The country’s energy policies have for decades been based on favorably-priced oil pipe-in from its neighbors, which hampered any incentive to push for renewable energy projects.
“Since we as a ministry have to provide energy resources to people at the cheapest price, and our state electricity firm NEPCO also has to purchase power from the cheapest sources, it would not have been logical to resort to something else like the renewables that were expensive at the time, when we were instead able to produce power from very cheap heavy fuel and natural gas,” Jibril explained.
But Jibril added that Amman has also spent a lot of time in the past decade trying to set up an appropriate framework upon which to build the country’s renewable energy production. He said the process had been a steep learning curve for his ministry. “We have floated numerous tenders and projects since 2007 and had to establish many regulations to attract investors in the meanwhile. But we have also learned many things, mainly the legal framework, pricing mechanism, and our grid capacity.”
A major turning point came in 2012 with the introduction of the Renewable Energy and Energy Efficiency Law, the first of its kind in the region. The law dictates that the ministry issues tenders to attract competitive proposals for the development of renewable energies on selected sites. As a way to ease the project implementation process, it also allows domestic and international companies to bypass a previously complex bidding process and negotiate directly with the Minister of Energy.
In 2014 and under the first round of tendering, the ministry signed 12 deals with private companies to generate 200 MW. In April this year, the government announced it had pre-qualified 15 companies for the construction of a $150 million, 65 to 75 MW solar power plant in Quweira in southern Jordan. Four more companies were selected in a second-round tender the following month to develop 50 MW of solar capacity each, exploiting irradiance levels in the country’s south that are amongst the highest in the world at around 6.4 KWh/sq meters/day.
In this second round of national renewable energy Independent Power Producer (IPP) tenders, a consortium comprising Jordan’s Arabia Group and three other solar developers clinched a deal to provide a combined capacity of 200 MWp in power plants and sell electricity at record low tariffs of around $0.06 per kWh.
Arabia Group, the only company to be involved in both rounds, has already started working on a 10 MW solar energy plant in southern Jordan, said the group’s Project Development Director Tareq Khalifeh. “Most of the projects [in round one] are planned to start generating electricity by the first quarter of next year,” he said.
Also the biggest project to be approved under the first tender round, the 52.5 MW Shams Maan Solar Photovoltaic Project—the largest privately developed solar energy project in the Middle East, according to Jordan’s Prime Minister Abdullah Ensour—has started construction on the $170 million development in June, due to be completed next year.
Khalifeh said the process leading to the second round of national renewable energy IPPs is progressing much faster than the previous one, when it took developers two years to finalize the Power Purchase Agreement (PPA) with the government. He estimates the same negotiation for round two projects will be completed in less than a year.
“We have templates in place, the bank agreements, and a proof of concept from the first round,” he said. “This makes it much easier to find investors and banks to lend money to the projects. In the first round, most of the lenders were financial institutions like the European Bank for Reconstruction and Development [EBRD] and the International Finance Corporation. There weren’t many commercial banks.”
Khalifeh said entrepreneurs looking for round two backers have spoken instead to several commercial banks and discussed lending terms, which are even more competitive than the ones offered by international lenders. Still, he would like to see more opportunities for local banks to invest in those projects, since they have been prevented from doing so by limitations on lending cycles by Jordan’s Central Bank.
But the void left by local investors seems to be easily replaced by international ones, who are eyeing the rising renewable energy sector in Jordan with piqued interest. This is the backdrop on which Jordan has recently signed a memorandum of understanding with the Chinese Hanergy Thin Film Power Group for the construction of 1 GW-worth of wind and solar energy projects, worth an estimated $1.5 billion and an associated 20-year PPA.
Also, Jordan’s first utility-scale wind project, run by Jordan Wind Project Company, started operation in September in Tafileh. Funding for the 117 MW wind farm came from a syndicate of six international banks spanning the IFC, the European Investment Bank, the Dutch Development Bank, the OPEC Fund for International development, and Europe Arab Bank. According to Jibril, the wind project will account for some five percent of the country’s electricity generation.
The EBRD, which has so far invested $75 million in solar projects for the construction of a 60 MW round-one site in Ma’an, also hopes to increase its shares in the sector. “We hope to be part of the financing in the second round. Discussions are ongoing with all four companies selected,” said Heike Harmgart, the head of the EBRD’s Jordan office. “This is a real growth area for us. We are very keen to scale up our investment into renewable energy in the country, an uncontroversially beneficial area of growth for Jordan.”
Harmgart said the scale of the projects has so far been small, but still shows investors Jordan’s know-how in the sector, helping attract a number of joint ventures with international players and putting the country in the perfect position to pitch for larger projects.
Even with these milestones, there are still a number of issues that have to be dealt with for the sector to advance further. Amongst the most pressing is the need to enhance energy transmission and grid capacity across the country. At the moment, Jibril said the grid can handle between 800 and 1000 MW of renewable energy without any reinforcement. But a new push is needed to launch the third round of renewable energy projects and to reach Jordan’s target of 1,600 MW from renewables by 2020.
This is where plans for a “Green Corridor” come into play. Jibril said NEPCO has secured financing from the French Development Agency and the EBRD, and will sign the agreement and float the tender for the project next month. It will be ready by mid 2018 with some additional 600 MW of renewables to the grid. Chinese Hanergy is also providing the Kingdom with a $310 million grant to expand the grid.
Meanwhile, smaller-scale solar electricity generation is also expanding at a rapid pace in Jordan. Following the 2012 Renewable Energy Law, households and businesses have been allowed to generate 100 percent of their electricity consumption through their own solar panels and sell excess output back to the grid. This has led to the installation of around 25 MW of capacity over the last year.
To further boost uptake, the Ministry of Energy and Mineral Resources’ renewable energy fund signed agreements to fit 600 houses in northern Jordan with photovoltaic panels. The fund is also set to allocate $35 million in funding for sustainable energy projects over the next three years throughout the country.
Former Minister of Energy Malek Kabariti said his own domestic electricity bill was slashed to some $7 a month from over $140 since installing a PV system on his own roof. Despite the red tape associated with fitting these systems, he urged others to follow his lead. “Every house should have a PV system on the roof and a solar water heater in Jordan. This would benefit the economy, the pockets of consumers, and the environment.“
Khalifeh agrees and said he hoped to see more renewable energy projects, both on a country-wide scale and a local level.
“There are still some bureaucratic difficulties but the framework is developing as we talk,” he said. “The sector is becoming a place where people jump and take their chances, it is going to be the natural selection, and this is going to happen soon.”