Business & finance Energy & environment

Jordan’s renewables sector on the rise

Over the last few years, Jordan’s solar and wind capacity has increased substantially, with a wave of projects in the pipeline. But in a country so reliant on imported oil, what impact are renewables really making? Abi Millar reports.

Over the last few years, Jordan’s renewables sector (particularly solar) has been on the ascendant. From a standing start in 2011, when the country had almost no renewables in its energy mix, the sector has been growing at a prodigious rate.

By 2015, commentators were speaking of an upcoming “solar energy boom,” with the then energy minister Ibrahaim Saif describing Jordan as “one of the pioneering countries in the region”.

By late 2017, the country had 467MW of solar in operation, along with 453MW under construction and 52MW under tender. These figures, from the Middle East Solar Industry Association (MESIA), are actually something of an underestimate in that they don’t include smaller projects.

More is expected to follow shortly. In April 2018, the government said it had received 16 bids in a new 200MW solar tender. The country also has an attractive net-metering scheme for rooftop projects, and recently approved a policy allowing all institutions, such as universities or museums, to build a solar plant up to 10MW.

Although wind is lagging slightly behind, there are clear signs of growth, most recently the issuance of a new 100MW tender. According to Jordan’s energy ministry, the country’s total installed renewables capacity stood at 732MW at the end of 2017.

“Jordan has been very successful in developing the renewable energy capacity in the country, and particularly renewable energy from private sources,” Gabriel de Lastours, lead senior banker for power and energy at the European Bank for Reconstruction and Development (EBRD), tells EMEA Finance. “We are now in a much more mature phase of renewable energy development in Jordan, where investors’ barriers to entry are low.”

It’s quite a turnaround from seven years ago, when nearly all Jordan’s energy needs came from imported oil or gas. Traditionally viewed as a resource-poor economy, the country relied mostly on natural gas from Egypt, supplied through the Arab Gas Pipeline.

However, the flow of gas was disrupted during the Arab Spring, and the country was forced to switch to pricier oil and diesel imports. Between 2013 and 2015, the National Electricity Company (NEPCO) racked up debts of almost $7bn.

The government responded with a law: NEPCO was now required to purchase electricity generated through renewables, and private companies could negotiate with the government directly.

As Samer AlMaany, CEO of the Shams Ma’an Solar Company, tells EMEA Finance, the country had little choice but to implement energy reforms.

“The government’s energy strategy was intended to reduce its dependence on imported energy,” he says. “It plans to boost the renewable energy generation capacity to 2,400MW by 2020. 1,400MW will be generated from solar power and 1,000MW from wind power.”

Since then, the government has made significant progress, with development efforts running ahead of schedule.

“As we understand it, the government has exceeded its objective to reach 10% of installed energy capacity from renewables by 2020 – it’s now aiming to reach 20% by 2020 – and for that reason the EBRD is committed to supporting this initiative,” says de Lastours.

The EBRD alone has financed eight solar projects in Jordan, along with several wind projects, over the last four years. Most recently, the bank provided a $22m loan for the construction and operation of a 61.3MW PV power plant in the Risha region, which will be developed by ACWA Power.

This plant will sit next to an ageing gas-fired power plant, and over time will replace it, generating the cheapest power in Jordan while using the existing transmission line.

“Having closed the financing, we are now looking forward to successfully building the plant and commencing the commercial operations by Q3-2019. Our goal is to reliably deliver clean energy at the lowest ever tariffs for Jordan,” said Thamer Al Sharhan, managing director of ACWA Power.

Other recent projects of note include the Baynouna project, which is being developed as a PPA between Nasdar and NEPCO and should be finished in early 2019. At 200MW, this is the largest single solar project in the pipeline.

Then there is the 103MW Quweira project, a solar farm owned by the government and funded by the Abu Dhabi Fund for Development (ADFD). It started injecting power into the grid at the start of 2017.

In terms of multinational lenders, the International Finance Corporation, part of the World Bank, has financed a series of solar plants collectively known as the Seven Sisters. It also funded the 117MW Tafila Wind Farm, the first privately financed renewable energy project in Jordan. Meanwhile, OPIC (the US government’s international finance institution) is financing a 52.5MW solar project with the AES Corporation.

To date, the largest single solar project remains the 52.5MW Sham Ma’ans PV plant in the Hashemite Kingdom. The project became operational in October 2016 following various hurdles in its development process. Since then, it has gone from strength to strength, boosting employment in the local area and benefiting from excellent operating conditions.

“This is the first renewable energy project by an independent power company in the Middle East, and the first large-scale photovoltaic generation project under a PPP scheme in Jordan,” says AlMaany. “The success of this project greatly increased trust in the government of Jordan and the PPP scheme NEPCO built, making a good impression on investors who are considering investing in business in Jordan.”

As should be clear from this (non-exhaustive) run-down, the investment pool for Jordanian renewables is highly varied. It includes a growing number of regional players, as well as multinationals. According to de Lastours, Jordan’s solar sector is attractive for several reasons.

“Firstly, there are stable and reliable regulatory frameworks in place,” he says. “Secondly, the government has been very supportive of the development of private renewable energy and keen to attract investments. Thirdly, there’s a lot of sun in Jordan and solar resources are very good. Fourthly, there has been a track record of very successful investment and commissioning of solar projects in the country.”

He adds that, over the last few years, the country has begun to develop an ecosystem of suppliers and construction companies, giving investors a newfound confidence in their project logistics.

“The corollary of all this is that there is intense competition for investors in Jordan. That means you can find very competitive prices for power, achieved through tenders,” he says.

Prices do seem to be coming down. In Jordan’s second PV tender in 2015, the projects awarded had feed-in tariffs around 6 or 7 US cents per kWh, down from around 17 cents three years previously.

While the latest solar tender has not yet announced its winners, we could well see a further drop in prices. ACWA Power’s Risha IPP project – which recently came in around 5.92 cents per kWh – may give us an indication of what to expect.

According to the International Renewable Energy Agency (IRENA), the costs of solar PV are expected to drop by a further 60%, offshore wind by 35%, and concentrated solar power by 45% over the course of the next decade.

“The electricity we are producing in Jordan is being generated at low cost – less than the average price of electricity in the country. It is financially viable, as well as having a positive impact on the environment,” said Omar Al-Madhi, CEO of the Saudi-based Abdul Latif Jameel Energy, which is developing three solar projects in Jordan capable of powering 120,000 homes.

These kinds of price reductions will be critical if Jordan is to move away from its dependence on imported oil. At present, energy imports comprise around 10% of GDP, down from around 18% in 2014, when oil prices hit their peak.

With oil prices now steadily climbing again, there’s a risk that Jordan’s spending could return to earlier levels. In December 2017, a Jordan Times article warned that, should oil reach $100 a barrel: “Jordan will be back to its energy crisis, especially when production of clean energy, solar and wind, is still in its initial phase.”

With the MENA region expected to double its energy demands by 2030, the need for a home-grown energy sector is clear. As de Lastours points out, if Jordan wants to increase its renewable energy capacity, it will need to make a few adjustments.

“Last year, the Jordanian government launched a tender for battery storage, so that is one of the options,” he says. “At the moment, the EBRD is helping the Jordanian government to write and develop the bespoke regulatory framework to allow this to be run by the private sector. We think it is one of the projects that could help further increase the share of renewable energy in the energy mix.”

According to market analysts, battery storage prices dropped by nearly 80% between 2010 and 2016, meaning this technology is starting to look more viable.

Another idea, says de Lastours, is to develop smart networks and grid systems that would improve the way power is dispatched through the system, while reducing the risk of energy curtailment. Still another is to develop interconnections with neighboring countries, like Egypt and Saudi Arabia.

Finally, the country needs to work on strengthening its transmission networks. NEPCO is currently developing a project called Green Corridor, which will enable renewable projects built in the South to send their energy northwards. The ‘corridor’ is scheduled to become operational later this year.

“EBRD is committed to supporting and developing renewable energy in Jordan in the coming years, and we see it in two different ways,” says de Lastours. “First, we will continue to finance private sector projects, and second, we will finance the strengthening of the transmission network.”

With so much support of this nature, Jordan is surging ahead of its neighbours in many ways. It ranks third for renewable energy capacity in the Arab world, just behind Morocco and Egypt, and first for solar. What’s more, recent developments – such as a 12.9MW solar plant in a refugee camp – suggest the country has the flexibility to deal with whatever new demands arise.

As the former energy minister Ibrahim Saif put it in a 2017 interview: “Jordan is now a regional leader in diversifying its sources of electrical generation. We still need to do further reforms in terms of efficiency, improving the energy audit and rationalising consumption. But Jordan has succeeded in terms of transforming the energy challenge into something positive.”

Despite the scale of the challenges remaining, ‘positive’ does seem to be the right word.

This article appears in the April-May 2018 edition of EMEA Finance

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