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JORDAN – an energy market for investors & EPC?

published on 30th November 2023

Jordan has emerged as a focal point of global interest within the renewable energy sector, driven by its strategic location and its abundance of solar and wind resources. The kingdom has actively sought international partnerships and implemented investment incentives positioning it as a promising hub for international investments and initiatives in the renewable energy field. However, Jordan faces challenges and hurdles in its photovoltaic landscape. In this article, we will delve into the current state of Jordan's photovoltaic sector, examining both its achievements and the obstacles it encounters.

Energy Profile

Nestled in the heart of the Middle East, the Kingdom of Jordan is home to a population of 11.2 million inhabitants and encompasses a land area of 89,342 square kilometers, with approximately 75 % characterized as arid terrain. Jordan occupies a strategic location within the global sunbelt, the country enjoys roughly 316 days of sunshine each year. The daily specific photovoltaic power output ranges between 4.74 – 5.70 kWh/kWp/day with an average of 5.32 kWh/kWp/day.

The southern governorates of Ma'an, Tafilah, and Aqaba stand out as the prime candidates for solar energy investments, boasting the highest levels of direct normal radiation.1

Abbildung 1: Das PV-Potenzial Jordaniens ²

EE-Aktie & Ziel

RE Program that sets this target:	RE Targets:		Carbon reduction target	Targets Date:	Share of RE in Installed Capacity (2022)
RE Program that sets this target:	MW	%	%	Targets Date:	%
The updated Master Strategy for the Energy Sector 2020-2030	3,200	31	31	2030	27.30

Figure 1: Jordan's PV potential ²

The graph below illustrates the installed capacity by source and the evolution of the renewable energy share in Jordan from 2018 to 2022.

Figure 2: Installed capacity by source & RE share³

Policy Makers & Stakeholders

Electricity Regulatory Agency	RE Policy Maker	Transmission Network System Operator	Distribution
Energy and Minerals Regulatory Commission (EMRC)	Renewable Energy Department at the Ministry of Energy and Mineral Resources (MEMR)	National Electric Power Company (NEPCO): System operator, transmission provider and market operator. Single state-owned transmission system operator and the only authorized energy off-taker at the wholesale level.	Jordan Electric Power Company (JEPCO) Irbid District Distribution Company (IDECO) Electricity Distribution Company (EDCO)

Table 2: Policy makers & stakeholders ^4,5

RE Market Structure

In the kingdom, Independent Power Producers (IPPs) are permitted to operate and sell power exclusively to utility entities. the legal foundation for IPPs to participate in RE Third-Party Supply is currently nonexistent. The table below illustrates the supporting policies in the context of IPPs.⁴

Renewable energy projects are primarily developed through three distinct routes. These routes serve as the foundation for Jordan's renewable energy market, each offering unique opportunities and challenges. The following table provides an overview of these routes:⁵

Direct proposal submission	Government-owned projects	Self-consumption projects
Investors compete to build, own, and operate projects via Competitive bidding	Offered as Engineering, Procurement, and Construction (EPC) contracts to the private sector	Wheeling and net metering

Table 4: RE development routes^4,5

I. Direct proposal submissions

Under the direct proposal submission route, investors in Jordan hold the opportunity to identify and undertake the development of grid-connected renewable energy projects, which they can subsequently present to the Ministry of Energy and Mineral Resources (MEMR). This process unfolds in organized rounds, set by the MEMR, taking into account the available capacity for contracting. Each round encompasses a well-structured two-stage tender process. It commences with the pre-qualification stage, where the developers' experience and capabilities are assessed. Subsequently, shortlisted developers proceed to the tender stage, where they craft project proposals and submit tariff bids. Importantly, the submitted tariffs must be competitive and lower than the ceiling reference price, a benchmark calculated through a methodology issued by the Energy and Minerals Regulatory Commission (EMRC). ⁵

The graph below presents a direct comparison between the average prices of winning PV bids across three rounds and the average cost of power procurement by the National Electric Power Company (NEPCO). The evident trend showcases that the cost of electricity from renewable energy is significantly cheaper than NEPCO's average cost of electricity procurement. ⁵

It's crucial to highlight that in the 2012 tender round, the Ministry of Energy and Mineral Resources (MEMR) opted for a feed-in tariff rather than a competitive bidding scheme but then switched to competitive bidding in subsequent tender rounds. ⁵

Figure 3: Comparison of solar PV average winning bids prices under three rounds with average cost of power procurement (USD/kWh) by NEPCO^1,5

To entice private sector participation in tenders, the Jordanian government has taken a series of proactive steps to mitigate key investment risks. These include government guarantees that underpin Power Purchase Agreements (PPAs) and alleviate off-taker risks. Additionally, the tender package now incorporates template contractual documents such as the PPA, Land Lease Agreement, Grid Connection Agreement, and the Government Guarantee Agreement. ⁵

The government has also introduced a range of preferential tax schemes. For instance, it offers a 75% income tax relief for the project company for ten years, exemption from various customs and duties, relief from stamp duties, and exemption from general sales tax and withholding tax on income related to local or imported goods, materials, and services. Moreover, non-Jordanian investors and financiers are exempted from income tax and general sales tax that may arise on interest payments, fees, and any instalments stemming from financing activities. ⁵

The Direct Proposals Bylaw prioritizes the use of private land for renewable energy projects. Consequently, developers often need to engage directly with local communities rather than through formal institutions. which poses risks of project delay and disruption. Additionally, developers are mandated to pay a fee ranging from JOD 5-8 per square meter for a change in the land's "type of use". ⁵

For public lands managed by the Department of Land and Survey (DLS), developers seeking these lands under the Direct Proposal Scheme must coordinate with MEMR, which collaborates with DLS. The specific leasing price is determined by a dedicated committee within DLS and requires approval from the Minister of Finance. 5

Currently, several factors are contributing to a slowdown in the issuance of subsequent rounds, including uncertainty related to the overall electricity demand growth, available grid infrastructure capacity and existing take or pay contracts with IPPs. Without demand growth measures, future rounds of direct proposal submissions are unlikely to take place. ⁵

II. Government-owned projects

Renewable energy projects following the government-owned route are characterized by their ownership by the government and financing through grants and loans sourced from government entities and development agencies. In this context, the Ministry of Energy and Mineral Resources (MEMR) initiates a competitive tendering process to select a qualified Engineering, Procurement, and Construction (EPC) contractor. The selected EPC contractor assumes a comprehensive role, overseeing all project phases, from design and engineering to procurement, construction, commissioning, and ultimately, the handover of the renewable energy facility to MEMR. ⁵

III. Wheeling and net metering projects

The development of self-consumption renewable energy projects in Jordan is steered by the wheeling and net metering programs, the country stands out for its noteworthy adoption of wheeling and net metering projects. The Electric Power Wheeling Scheme has been introduced to incentivize large consumers to harness renewable energy for self-consumption, thereby reducing energy costs and enhancing competitiveness. This scheme permits users to establish renewable energy systems at locations separate from the consumption facility and link them to the transmission or distribution grid. ⁵

On the other hand, the Net Metering scheme is geared toward fostering the development of renewable energy, predominantly solar photovoltaic (PV), for all metered consumers to cover up to 100% of their energy consumption, mainly by connecting the system to the distribution grid. Net metering is particularly appealing for high-consuming residential consumers and public buildings subject to high electricity tariffs. 5

For net metered users, the distribution company manages monthly billing and an annual settlement, balancing electricity consumption from the grid with electricity exported to the grid. The total installed capacity linked to the grid should not exceed the average monthly consumption. In the context of monthly billing, if grid consumption exceeds exported renewable electricity, the consumer pays for the additional electricity used, based on the prevailing tariff structure. In cases where exported energy surpasses consumption, the surplus is carried forward to the following month, commonly referred to as "banking of power." The annual settlement can take the form of either a financial settlement, capped at 10% of electricity imported from the grid, or an energy-based settlement, where excess energy is carried forward to the next year. ⁵

Due to uncertainties in grid capacity to absorb further generation for both the wheeling and net metering schemes, new projects over 1 MW on the distribution network have been suspended until the completion of technical studies to assess the capacity of the electrical grid to integrate further capacities. Even those under 1 MW are reportedly often not approved, or approval is granted for only part of the capacity applied for. 5

Financing utility-scale renewable energy projects and infrastructure

International development finance institutions have played a significant role in financing utility-scale renewable energy projects. The majority of these projects have adopted a project financing structure, with the European Bank of Reconstruction and Development (EBRD) emerging as a key financier in Jordan's renewable energy landscape. EBRD has committed over USD 350 million, supporting a total capacity of 392 MW in utility-scale wind and solar projects. These investments primarily take the form of senior secured loans, often in collaboration with other financial institutions, including commercial banks (such as Europe Arab Bank) and development finance institutions (e.g., Development Energy Bank, Netherlands Development Finance Company [FMO], and Proparco, a subsidiary of the French Development Agency). ⁵

The International Finance Corporation (IFC) also plays a pivotal role in financing renewable energy projects in Jordan. It serves as a direct financier and lead arranger for project financing. While some local banks co-finance large projects in collaboration with multilateral development banks, local financial institutions have not been extensively engaged in utility-scale renewable energy financing. ⁵

On the economic front, the Jordanian dinar, the official currency of the Kingdom of Jordan, has been pegged to the U.S. dollar since 1995, with a fixed exchange rate of 1 USD being equal to 0.7090 JODs. This arrangement has contributed to the currency's stability and strength, ranking it as the fourth-highest valued currency globally. Such financial stability makes Jordan an attractive prospect for foreign direct investment (FDI), especially in the thriving renewable energy sector.

Global and Regional Renewable Energy Attractiveness Index

Figure 4: Jordan's strengths and weaknesses ⁴

In the regional context, Jordan has achieved the notable 2nd rank in Renewable Energy Attractiveness as per The Arab Future Energy Index (AFEX) 2023. AFEX offers a comprehensive evaluation of five critical domains that significantly influence the deployment and implementation of renewable energy initiatives within the Arab States. These areas of assessment are the market structure, policy framework, institutional capacity, finance and investment, and carbon emissions and monitoring.

The assessment is conducted through a collaborative effort between the Regional Center for Renewable Energy and Energy Efficiency (RCREEE) and the United Nations Development Program. Jordan's impressive second-place ranking underscores its commitment and advancements in these key areas, positioning it as a leading regional player in the promotion and development of renewable energy solutions. ⁴

The spider web figure above illustrates Jordan's strengths and weaknesses in the areas mentioned above, offering a comparative analysis with other Arab countries based on AFEX 2023 data.

In the global context, Jordan secured the 40th position among the world's best markets for renewable energy investments as per the 2023 edition of The Renewable Energy Country Attractiveness Index (RECAI).

RECAI evaluates the attractiveness of renewable energy markets using diverse criteria, including the magnitude of development pipeline, which reflects the absolute size of the investment opportunities in renewable energy. This approach naturally favors larger economies. However, to level the playing field and ensure a fair comparison, the index normalizes the data by considering a country's gross domestic product (GDP). Normalization enables us to identify those markets that are exceeding expectations relative to their economic size. ⁷

In this context, Jordan secured the 4th position worldwide and emerged as a noteworthy player in the global renewable energy landscape. This ranking signifies Jordan's ambitious and promising plans in the renewable energy sector, making it an attractive alternative for potential investors, despite its smaller economic size compared to some of the larger economies on the list.⁷

Conclusion

This article provides a comprehensive analysis of Jordan's current photovoltaic landscape, offering valuable insights for decision-makers and investors in strategic project planning. With its notable photovoltaic potential, Jordan has garnered impressive regional and global rankings in 2023. Despite these achievements, challenges persist on both technical and regulatory fronts. Addressing regulatory barriers, particularly the legal framework for Independent Power Producers (IPPs) to engage in Renewable Energy (RE) Third-Party Supply, remains crucial. Technical challenges, such as limited grid capacity, directly impact the sector's growth. However, Jordan is actively working to overcome these obstacles, investing in research for grid integration and seeking solutions to expedite adoption. As the nation navigates these challenges, it stands poised as a promising international hub for renewable energy investments and initiatives. After resolving grid-related issues, the country plans to conduct future rounds of direct proposal submissions, presenting a significant opportunity for prospective investors. We strongly encourage interested parties to explore these future initiatives and consider participating in the country's promising renewable energy landscape.

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1 The status and potential of renewable energy development in Jordan: exploring challenges and opportunities

2 Global solar atlas by world bank group

3 NEPCO Annual Report 2022

4 United Nations Development Programme: Arab Future Energy Index (AFEX) 2023

5 International Renewable Energy Agency 2021: The Hashemite Kingdom of Jordan Renewables Readiness Assessment

6 Investopedia: Jordanian Dinar (JOD)

7 RECAI 61 (2023): The Inflation Reduction Act has sparked a renewables race, but may skew international capital allocation and shift net-zero goals.