Business & finance Energy & environment

Jordan’s solar energy boom

While Jordan’s solar market has been slow to get underway, plummeting prices and government initiatives are paving the way for a solar energy boom. Abi Millar reports.

For anyone who has been tracing the fortunes of Jordan’s solar industry, progress may have seemed remarkably slow. Despite experiencing around 330 sunny days a year, and registering an average solar radiation of 5.5 kWh/m2 a day, the Kingdom has historically failed to exploit its most abundant natural resource.

According to Greenpeace, renewable energy resources (particularly solar) do not just have the potential to meet Jordan’s electricity needs; by 2050, they could provide more than 60 times the country’s energy consumption.

Unfortunately this projection – which currently seems almost whimsical in its ambition – is a far cry from the status quo. As late as 2011, Jordan imported around 97% of the energy it consumed, with a heavy reliance on natural gas from Egypt.

Only in the last few years have signs of change become evident, and it is only in the last few months that these changes have really started to snowball. As ever more projects break ground, it seems we are sitting on the cusp of a new era for Jordanian solar power. In May 2015, following the lowest ever bids for a PV power project in Jordan, industry commentators were quick to speak of an upcoming ‘solar energy boom’.

“Solar companies around the world are showing a healthy appetite to invest in Jordan,” Vahid Fotuhi, president of the Middle Eastern Solar Industry Association (MESIA) told EMEA Finance, shortly after the bids were announced.

“We’ve seen a huge improvement in cost in Jordan, which will get a lot more people excited in investment in the country. Many of these developers and investors have had exposure to the Jordanian market over the last few years, so they’re more comfortable with it, and I suppose they’re taking more risks, which in turn reduces the price.”

These price reductions were not insignificant. At Jordan’s first round of renewable energy auctions in 2012, the majority of the projects received a tariff of US$0.169 per kWh. This time round, the winning bids (for four 50MW projects) were less than half that figure, with the very lowest coming in at just $0.0613 per kWH. This is not far from the lowest tariff on record, $0.0598 per kWh, for the DEWA 100MW PV plant in Dubai.

So what lies behind this reversal in fortunes and why has solar taken so long to become economically desirable? The story perhaps starts in 2004, when Jordan approved its Energy Master Plan. An integrated document for the development of the energy sector, this masterplan highlighted what was becoming an increasingly unsustainable situation.

Lacking much in the way of indigenous oil or gas, the country was effectively dependent on imports, which accounted for nearly 10% of GDP. But with its energy requirements predicted to soar, altering the energy mix was viewed as a critical component of economic reform.

Unfortunately, as of 2011 the country had failed to make much meaningful progress. That year, following an attack on the Arab Gas Pipeline, Jordan was forced to import a higher proportion of pricey oil derivatives. At a time when domestic demand was surging by 7% a year, its total energy bill climbed by at least 60%.

With urgency mounting, the government stepped up its efforts, launching a series of initiatives to promote wind and solar. Most notably, it enacted the Renewable Energy and Efficiency Law, which requires the National Electricity Power Company (NEPCO) to purchase electricity generated by renewables.

This law also established a means for private companies to negotiate directly with the Ministry of Energy and Mineral Resources (MEMR). By late 2014, the Kingdom had signed 12 20-year power purchase agreements (PPAs) to develop solar projects, all of which were heading towards financial close. This made Jordan the first country in the Middle East to successfully launch and complete a solar procurement programme.

Of the many projects in the pipeline, probably the most notable is the 52.5MW Shams Ma’an PV plant in the Hashemite Kingdom. Due to be built and maintained by First Solar, with the financing overseen by a group of international banks and export credit agencies, this will be one of the largest solar plants in the Middle East to date.

Also in the Ma’an area are three planned PV power stations, with a combined capacity of 40MW. Financed jointly by French development agency PROPARCO and the European Bank for Reconstruction and Development (EBRD), all three had reached financial close by May, and are now gearing up to begin construction.

Last October, the International Finance Corporation (part of the World Bank Group) finalised the region’s largest private sector-led solar initiative– a $207.5 million debt package which will fund the construction of seven PV plants. Meanwhile, SunEdison is borrowing $50 million from the EBRD and Overseas Private Investment Corporation (OPIC) for a 23.8MW plant in South Jordan.

As these projects, and many others, make clear, Jordan represents an increasingly attractive climate for private investment.

“There is a good history of private sector involvement in the Jordanian power sector, and EBRD’s decision to invest is driven by strong market fundamentals and its mandate to support private sector participation in the energy sector,” says Nandita Parshad, director for the power and energy sector at the EBRD. “Solar projects are easily able to compete with the cost of conventional power in Jordan as well as having very limited environmental impact.”

“Our mandate is to leverage the private sector to carry out developmental projects overseas, and to give them the tools they need to confidently do that,” says Charlie Stadtlander, a spokesperson for OPIC. “We believe our project is going to have a positive impact on Jordan and its energy independence and energy security, in addition to being environmentally beneficial.’

“Jordan has been one of our staunchest allies in the region – they’re surrounded on all sides by conflict, but they’re a beacon of stability and a beacon of private investment, and that’s been very encouraging to us and to the developers that seek to do business there.”

The government has been playing its part too, having launched a Renewable Energy and Energy Efficiency Fund in 2013. Boosted by donations from the Gulf Co-operation Council, this provides grants for energy projects and guarantees investors’ funding requirements.

There is also a government initiative underway to transfer all 6,000 of Jordan’s mosques to solar power, with the first 120 expected to make the transition later this year. The mosques will not only be self-sustaining; they will also be able to sell any surplus power back into the country’s main grid.

As the costs of PV panels continue to plummet – driven by heavy investment in R&D, increased supplies of the necessary raw materials, and improvements in modular efficiencies – the movement toward solar is gathering momentum.

While the early investors were mostly stepping into uncharted territory, tomorrow’s investors will benefit from a track record of successful renewable projects in the MENA region. And with the necessary risk mitigants in place (hedging against currency devaluation and interruptions in construction, for instance), it seems likely that smaller, more local players will be inspired to make their mark.

“We see a wide range of investment today in Jordan,” says MESIA’s Vahid Fotuhi. “If you look at the Round 1 tenders, they were primarily through multinational solar developers, but in Round 2 we see the emergence of more regional players from Saudi Arabia and Jordan. So the investment pool is quite diversified, and we expect this to continue as the Jordanian solar market grows.”

Although international banks and development finance institutions have had the largest role to play so far, Jordanian banks too are beginning to make inroads into renewables, with the Arab Bank, the Capital Bank and the Jordan Kuwait Bank all involved in financing projects. Just this April, Capital Bank signed a JOD 11 million agreement to build a solar power plant with a Jordanian PV panel manufacturer.

Because projects of this kind are still so new, teething problems are perhaps to be expected, and both rounds of tenders have been subject to long delays. A proposed third round of tenders, announced in February last year, was cancelled a few months later, prompting some fears that the scope for renewables in Jordan was not all that it seemed.

That said, with so many projects breaking ground, we can afford to be relatively optimistic. By the end of 2018, 600 MW of solar projects – and 1,200 MW of wind – are scheduled to be connected to the national power grid. By 2020, the country is aiming for a 10% renewable energy input into the energy mix, and 30% of all households are expected to be equipped with a solar water heating system.

The Round 2 tariffs present the clearest indication yet that times are changing. With another important tender – for a gargantuan 65-75MW plant on the Quweira site – set to be finalised in July, the industry will be on the lookout for signs that those record low costs were no blip. In the eyes of many commentators, a revolution in solar financing is underway.

If this is the case, there could be repercussions not just for Jordan, but for the MENA region more broadly. As a MESIA news release commented: “The results in Jordan will send a strong signal to other solar markets, notably Saudia Arabia, who are sitting on the sideline of the region’s solar market… If they decide to follow in [Jordan’s] footsteps, we will see the Middle East solar market take off like never before.”

This article will appear in the upcoming edition of EMEA Finance

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