Legislative reform: Moves to strengthen the mandate for renewable energy usage

The passage of the Renewable Energy and Energy Efficiency Law (REEL) in April 2012 marked a major step towards the development of a significant renewables generation capacity in Jordan. The key change in the law was to allow investors to propose renewable energy projects to the government, rather than having to respond to government tenders (as was previously the case); the reform has already seen dozens of companies come forward with fresh ideas for renewable generation facilities.

Other changes include allowing customers to generate all of their own consumption with renewables. Since the law was passed the authorities have also implemented a number of further changes, including fixing generation prices for the segment, which has further boosted the prospects for its rapid development. Renewables projects developed under the law are likely to start coming on-line from early 2014, though some challenges, such as ensuring the grid is able to cope with the new capacity, will have to be addressed before full operations can commence.

BACKGROUND: The passage of REEL had been subject to delays – the legislation was initially endorsed by the government in 2010 – which cast doubt on the achievability of the government’s aim for renewables to provide 7% of energy consumed by 2015 and 10% by 2020. However, parliament approved the law on April 16, 2012, and projects are expected to begin coming on-line from 2014.

One of the changes under the law was the granting of permission to companies to propose unsolicited renewables projects directly to the government, rather than responding to tenders for projects issued by the Ministry of Energy and Mineral Resources (MEMR), as has previously been the case.

Hanna Zaghloul, the CEO of Kawar Energy, told OBG that energy industry association Edama is working closely with the government to ease the process of proposal submission. “The government has been very cooperative,” Zaghloul said. “It can be slow, but it is a learning process and the government is working on speeding up the process.”

The law also obliges transmission firm National Electric Power Company (NEPCO) to purchase all of the electricity generated by utility-scale renewable projects, as well as to pay to connect them to the national electricity grid. The passage of REEL has also seen the establishment of a Renewable Energy and Energy Efficiency Fund, which will provide financing support for renewables projects in the country as well as help to fund training in the segment and public energy awareness campaigns.

In addition to being able to propose renewables projects directly to the government, companies investing in the sector benefit from relatively inexpensive leases for government-owned land and exemption from taxes for materials.

GROWING INTEREST: Since the legislation was passed, the government has received at least 64 expressions of interest in establishing renewables projects from companies; having evaluated these, the authorities have signed memoranda of understanding (MoUs) with 34 firms allowing investment in the segment, amounting to a combined generation capacity of 1000 MW. These companies are now in the process of submitting full proposals to the MEMR as per negotiations for licences. Zaghloul told OBG that smaller projects, below 20 MW, should start to come on-stream in early 2014 at the earliest, while larger ones will follow thereafter. “The main challenge is the capacity of the grid,” he said. “Lots of solar and wind projects will be built in Ma’an, which will exceed the current capacity to transmit electricity north. However the government has promised to construct a ‘green corridor’ to boost capacity by 2015.”

One of the renewables project being planned is Shams Ma’an (Ma’an Sun), a 100-MW PV solar project (to be built in two 50-MW phases). The project was originally announced in 2009, but an MoU – between the government and Kawar Consortium – was only signed in May 2012, after the passage of REEL. Zaghloul said the firm is looking to submit a full proposal for the project in early 2013. “The process is lengthy, taking around 40 months from start to finish, including 22 months to build a substation and other infrastructure,” he told OBG. “However, if the government speeds up the process and the substation is built at a shorter time, Shams Ma’an should be connected to the grid by the end of 2014.”

Jordan’s then minister of energy, Alaa Batayneh, announced in February 2013 that the kingdom had entered discussions with two companies for the establishment of a 10-MW solar power plant and a wind farm with a capacity of 117 MW. The Philadelphia Solar Power Company is expected to build the solar plant, at a cost of JD16m ($22.5m), on the outskirts of Mafraq. The wind farm is to be built by local Jordan Wind Power Company, to be located at Tafileh, at a cost of JD205m ($288.3m).

FOLLOW-UP STEPS: Changes in wider electricity pricing dynamics helped facilitate the issuing of tariffs attractive to both investors and the authorities. Previously, between 2007 and 2011 the government had tried to attract investment into the renewables segment, tendering two wind projects; however, these efforts were not successful.

“The main reason was the price asked for by the companies,” said Mahmoud Al Ees, the director of the planning department at the MEMR, told OBG. “At the time the cost of generating electricity from imported Egyptian gas was $0.06 per KWh, while the lowest cost for producing from wind was $0.14, so there was a big difference. However, the average cost now using diesel and fuel oil is around $0.18, which makes renewables a much more attractive investment opportunity.”

“The previous lack of investment in renewable energy was in part due to the lack of an appropriate regulatory framework, such as defined investment conditions and feed-in tariffs,” said Shahin. “However the biggest reason was low energy prices. There was always a cheap energy source – oil from the Gulf, then from Iraq and then cheap Egyptian gas. Past policy was to find the cheapest source of energy without investing or thinking about the future, which ultimately hurt us more than it helped us.”

PROSPECTS: Industry players see a need for some further steps but say the passage of the law has already made a big difference in the sector. “There is a need for some tweaks, especially as regards regulations on connecting the grid,” said Shahin. But, he adds, “The overall impact of REEL has been positive. Thanks to the law more people and institutions are interested in renewable energy.” Renewables are now set to play a major role in Jordan’s energy mix going forward, possibly growing well beyond current targets in the medium to long term.

“We cannot rely on renewables entirely because of the base load requirements, but they can play a huge role, especially if homes and institutions increasingly take up solar heating, for example,” said Zaghloul. “In the long term, renewables could account for well over 10% of capacity. The main challenge is grid limitation.” Providing such challenges are addressed, Zaghloul believes that that in the long term (beyond 2050) Jordan could eventually become an energy exporter, based in part on the expansion of its renewable and alternative energy capabilities.