Jordan’s renewable energy market has been characterized by strong government support in recent years and the results are beginning to show. The market has transitioned in a short space of time from being non-existent to hundreds of millions of dollars per year. Since 2012, the government has adopted a Renewable Energy and Energy Efficiency Law (REEEL) that sets the legal framework for various incentives, developed a National Energy Strategy Plan underpinning the national targets for renewable energy generation and completed two rounds of auctions for the licensing of over 600MW of solar and wind projects. A third round, with 200MW solar, 100MW wind and an optional storage component is currently underway and is expected to be finalized by the end of 2017.
The support for renewables is largely driven by Jordan’s high dependency on fossil fuel imports and the pressure this has put on the economy in recent years. Jordan imports 96% of its energy and relies heavily on a region that is politically volatile. This has led to disruptions in its energy supply, particularly natural gas from Egypt, and increased the country’s energy expenditure substantially. In 2015, the cost of consumed energy accounted for 10% of GDP. The large influx of immigrants resulting from the war in Syria has also increased energy demand considerably, putting further pressure on its energy supply. Unlike its neighbors, Jordan has very limited fossil fuel resources. There is thus a clear role for renewables to boost energy security and economic growth.
The National Energy Strategy of Jordan targets 10% renewables in the energy mix by 2020. The emphasis is on solar and wind, with an aspiration to reach 1,200MW and 600MW from each technology respectively. The installed capacity of renewables at the end of 2016 was 626MW, a steep rise from 2015’s 199MW, with most of the new capacity coming from solar. Renewable energy accounted for 5% of Jordan’s total generation in 2016 – half way to its 10% target for 2020. With 700MW of solar and 400MW of wind projects in the pipeline, the renewable energy capacity is expected to ramp up rapidly.
The direct proposal submission scheme which hands out licenses through competitive bidding has been the predominant way of attracting investment in renewables in Jordan. A capacity of 430MW was approved in the first round, consisting of 12 solar and four wind projects. The solar projects were all commissioned in 2016. The wind projects are delayed as they will be connected to the ‘Green Corridor’ – the country’s major grid investment project that is expected to be completed in 2018. The second round of proposals, with four 50MW solar projects as winners, are expected to come online in 2018. This round saw strike prices halved to $0.06-$0.08 per kWh, compared to $0.17 per kWh in the first round. This resembles the experience of other countries where the first round of projects build the confidence of investors, and is typically followed by much more competitive offers in the subsequent rounds.
The single bulk supplier, National Electric Power Company (Nepco), is obliged to buy the electricity from renewable energy generators according to the regulations set out by REEEL. The financial responsibility of grid connection also resides with Nepco according to this law and the terms of purchase are negotiated in the power purchase agreements (PPAs). Nepco has been running a deficit exacerbated by the high electricity subsidies it finances and the increasing cost of energy supply. At the end of 2016, it introduced some subsidy reforms in order to reduce this burden. Payments from Nepco have a sovereign guarantee explicitly stated in the PPAs, which addresses investors’ concerns over the off-taker risk. Currency risk is also largely circumvented in these projects by indexing 85% of the tariffs to the dollar exchange rate.
In addition to utility-scale megawatt sized projects, smaller installations in the commercial sector is also gaining pace, thanks to net metering and wheeling regulations that were introduced in 2014. Approximately 116MW of projects have been installed under these schemes so far. Commercial electricity rates are unsubsidized, and some sectors such as telecommunications can face tariffs as high as $0.4/kWh, encouraging consumers to seek alternative ways of meeting their energy needs. Some developers are able to undercut these prices by as much as 40%, and payback times for projects can be as low as two years. The lack of a legal framework for establishing PPAs is a barrier, but developers are finding ways of surpassing this by ‘solar leasing’ type of models.
The limitation of the grid is one of the major factors holding back renewable investment growth in Jordan. The abundant land in the central part of the country – cheaper, sparsely populated and with little current use – is suitable for utility-scale projects but is far away from the north, where most of the energy consumption takes place. Grid expansion is needed to allow the integration of renewable energy projects and the Green Corridor project is expected to remedy this to some extent, by allowing access from these areas to the main consumption centers in and around Amman. However, further grid investment would still be required to accommodate new projects.
Despite a series of significant reforms in its electricity sector, Jordan maintains its single-buyer model. Only Nepco is allowed to buy electricity from the independent power producers. This is then purchased and distributed by the three retail supplier companies, each serving one region of Jordan. The license holders for power generation are procured competitively but electricity prices are not market-driven because generators are not able to sell directly to retail suppliers.
According to Jordan’s Intended Nationally Determined Contribution (INDC) commitments, the country will reduce its greenhouse gas (GHG) emissions by 14% in 2030 compared to the base year of 2006. 1.5% of this target will be met unconditionally compared to a business as usual scenario. Subject to availability of international financial aid and support, an additional 12.5% reduction will be achieved.
Jordan’s score of 2.17 was one of the stand-out performances of Climatescope 2017. It climbed eight places to rank third globally, behind only Brazil and China. It overtook Chile, Uruguay and South Africa, all of which were in placed in the top five in 2016. Its biggest improvement was on Greenhouse Gas Management Activities Parameter IV.
On Enabling Framework Parameter I, Jordan maintained its top five ranking. It climbed from fourth place to second with a score of 2.28, being narrowly beaten to the top spot by Rwanda. It performed well thanks to the presence of numerous clean energy policies, such as net metering and tax incentives. Its score was also boosted by the addition of almost 200MW of wind and more than 400MW of solar capacity in 2016.
Jordan was ranked number one globally on Clean Energy Investment and Climate Financing Parameter II, up from 10th last year. This reflected the more than $1.1bn invested in new solar, wind and biomass power generating capacity. Additional positive factors included the country’s low average cost of debt, the presence of loan and grant programmes and the fact that local investors are putting money into the sector.
The country’s worst performance was on Low-Carbon Business & Clean Energy Value Chains Parameter III. It took 38th place, a decline of 11 places from 2016, reflecting the low number of renewable energy equipment manufacturing businesses and dearth of companies offering services such as testing and certification.
Jordan jumped 25 places on Parameter IV to rank 20th. Its Nationally Determined Contribution sets a goal to reduce its emissions by 14% below ‘business as usual’ by 2030 (conditional on international financial aid), or by 1.5% unconditionally. This goal is not backed up by a long-term strategy or a domestic climate change policy.