Though it lacks the petroleum resources of many of its Arab neighbours, Jordan’s hydrocarbons shortfall has led its energy industry to become one of the most progressive and dynamic in the region, with renewables development and nuclear energy set to significantly boost domestic capacity and reduce the kingdom’s fuel bill in the coming years.
The emphasis on renewables should help Jordan showcase its commitment to a serious climate change policy. The country has already committed to reducing greenhouse gas emissions by 14%.The private sector will play a critical role in ongoing energy development, with the government moving to introduce a number of incentives and new laws aimed at offering attractions for investors, particularly in renewables development.
These efforts have paid off, and solar capacity is set to soar in 2016, reaching 500 MW, while ongoing development of new gas-fired, oil shale and nuclear power projects will include extensive private sector participation, making the energy sector one of the most attractive in the kingdom to foreign investment and painting a positive near- and long-term growth outlook.
Sector Structure:
Following a restructuring of the sector in 2014, the Ministry of Energy and Mineral Resources (MEMR) remained responsible for comprehensive planning, providing energy for national development, organising the sector and attracting international capital for investment in this field. Investment is especially sought for the generation of electric power, production of oil derivatives, and transportation of oil and gas, as well as exploitation of domestic resources such as oil shale and renewable energy.
Regulatory responsibilities are held by the Energy and Minerals Regulatory Commission (EMRC), which was created after various entities were merged with the passage of Law No. 17 of 2014. The EMRC replaced the National and Natural Resources Authority, Electricity Regulatory Commission and Jordan Nuclear Regulatory Commission, and is responsible for issuing licences to new generating, transmission, distribution, system operation and bulk supply companies, as well as regulating the sector, setting electricity tariffs and connection charges, and making recommendations to improve the electricity market’s competitiveness.
Two entities are tasked with developing the kingdom’s nuclear energy programme: the Jordan Atomic Energy Commission (JAEC), which was established in 2008 and sets nuclear energy policy, and the Jordan Nuclear Power Company (JNPC), which was created in November 2015 and is responsible for developing the kingdom’s first nuclear power plant, scheduled for completion within the next decade. In the oil and gas segment, the National Petroleum Company oversees oil and gas exploration activities, and the Jordan Petroleum Refining Company manages operations at the Zarqa Refinery, the sole refinery in the kingdom.
Electricity & Utilities:
Following the promulgation of Electricity Law No. 64 of 2002, Jordan’s electricity sector underwent considerable restructuring, with an emphasis on privatisation and private investment in power generation. The kingdom’s electricity sector is now divided by activity into three separate categories generation, transmission and distribution. In power generation, there are six private companies operating, including the Central Electricity Generating Company, Samra Electric Power Generating Company, AES Jordan Company, Qatrana Electric Power Company and two recent entrants, Amman Asia Electric Power Company and AES Levant Holdings BV Jordan, both of which were granted licences in January 2013.
In power transmission the state-owned National Electric Power Company (NEPCO) is the sole entity in charge of high-voltage lines, in addition to being responsible for the electrical system and power exchange, which operates through two electric interconnection lines between Jordan, Egypt and Syria. In addition, in May 2016 the Jordanian government signed a memorandum of understanding with the GCC Interconnection Authority, authorising a joining of Jordan’s power grid with that of the GCC via Saudi Arabia.
On the distribution side, three companies are active: the Jordanian Electric Power Company (JEPCO), responsible for distribution in Amman and its immediate vicinity; Irbid District Electricity Company, which was privatised in 2007 and covers roughly 25.6% of Jordan’s geographic area today; and the Electricity Distribution Company, which covers the area around Aqaba and most of Jordan’s rural regions. The Ministry of Water and Irrigation (MWI) is tasked with monitoring the water sector, water supply and wastewater systems, planning and management of national water strategies and policies, and procurement of financial resources. It is also the main agency responsible for developing an ambitious multilateral desalination project that will connect the Red Sea and Dead Sea. Jordan’s Water Authority, meanwhile, split from the National Resources Authority to become a separate entity in 1983 and is responsible today for supplying all residents with drinking water, managing available water resources efficiently and providing sanitation services.
National Strategy:
Jordan’s energy policy is guided by several major strategic plans. Jordan Vision 2025, the government’s ambitious economic plan, pays close attention to the energy sector. Under the plan, the kingdom seeks to raise the proportion of energy consumption met from local supplies from 2% to almost 40% within the next decade. The government also hopes to boost the share of renewables from 1.5% to 11% by 2025, while aiming to see nuclear power contribute 15% over the same period.
The kingdom’s overarching energy development is guided by the updated Master Strategy of the Energy Sector of Jordan (National Energy Strategy), originally created in 2005 but updated in 2007 to include renewable energy targets. Running until 2020, the plan forecasts $18bn of new private and public investment in domestic power projects to boost domestic energy generation from 4% of the total to 40% by 2020. The first phase emphasises new international investment in power generation and gas distribution projects, as well as a restructuring of the downstream energy sector. Later phases will target diversification in energy generation, with plans to construct a host of new renewables projects, in addition to an oil-shale power plant and, most significantly for long-term development, a nuclear reactor – a flagship project for the kingdom.
The plan is notable for its emphasis on private investment in the energy sector, and includes a host of incentives for potential investors, including a 100% exemption from income tax for 10 years in a bid to encourage development of independent power projects on both a build-own-operate and build-operate-transfer (BOT) basis. It also includes measures to boost renewable energy deployment, including the gradual removal of oil and electricity price subsidies to better reflect their actual cost, development of an energy data bank, provision of grants and soft loans for large renewable power projects, elimination of sales tax and Customs duties for equipment that will boost energy efficiency, such as thermal insulation, establishment of an energy audit system for large industrial companies and a targeted 20% reduction in power consumption by 2020.
New Targets:
The updating of the plan reflects the success the government has had in implementing many of its parts. Although the National Energy Strategy originally targeted meeting 29% of total energy needs by natural gas, 14% by shale oil, 6% by nuclear and 10% by renewable energy projects, developments that have taken place in recent years have shifted these targets. Original targets called for 600 MW of solar energy to come on-line by 2020, but rapid progress in solar development has led the government to boost this target to 1000 MW by 2020; Ibrahim Saif, minister of energy, told Abu Dhabi-based daily The National in January 2016 that he expects 500 MW of new solar power to come on-line in 2016 alone. Nuclear energy targets have also been adjusted. Abdullah Ensour, the former prime minister of Jordan, told delegates at the Jordan International Energy Summit 2016 that the kingdom expects to meet 40% of total electricity supply through nuclear power by 2025.
Import Bill:
This is heartening news given the kingdom’s skyrocketing energy import bill. In contrast with many of its neighbours in the MENA region, Jordan does not possess significant reserves of crude oil and natural gas, although its supply of oil shale, an energy-rich rock that must be treated to produce petroleum products, is the fourth largest in the world.
According to the US Energy Information Administration (EIA), the kingdom’s proven oil reserves stood at an estimated 1m barrels in 2014, while its natural gas reserves are an estimated 200bn standard cu feet (scf). In possession of so little domestic energy reserves, Jordan has relied on energy imports to meet almost all of its domestic demand – 97% in 2013, according to the most recent figure from the Ministry of Planning and International Cooperation (MPIC).
Changing Tariffs:
In March 2015 the EMRC announced that it had approved new electricity tariffs for households and other end-users, in line with government obligations to the IMF to cut spending. The price hike went into effect the previous month and was applied until December 2015. The government was able to lower the increase to 7.5%, instead of the initially proposed 15%. Under the new tariffs, households in 2015 paid between JD0.033 ($0.05) per KWh for consumption of 1-160 KWh per month at the lower end of the scale and JD0.265 ($0.37) per KWh for anything over 1000 KW at the higher end. Meanwhile, commercial users saw their tariffs rise to between JD0.129 ($0.18) per KWh for 1-2000 KWh and JD0.181 ($.025) per KWh for over 2000 KWh. Given the substantial fiscal burden that energy subsidies still represent for the government, further increases are expected in the future. In late 2015 the government sought to allay consumer concerns about more rate hikes by announcing that no fee increases were planned for 2016. Whether and when there will be further hikes in the short term is unclear.
Egyptian Interruptions:
Until 2011 most of the kingdom’s fuel imports were supplied by the Arab Gas pipeline running across Egypt’s Sinai Peninsula and into Jordan. However, repeated sabotage of this pipeline in the years following the 2011 Arab Spring uprisings saw Egypt’s contribution to Jordan’s total energy supply fall from 85% in 2009 to 14% in 2012, with supply all but halted in 2014, according to the Carnegie Endowment for International Peace. Oil imports, particularly of the fuel oil used for power generation, were necessary in the wake of this unrest, although the MPIC reported that these fuel types are four times more expensive than natural gas, and cost the kingdom an estimated JD3.5m ($4.9m) per day by 2013. In January 2016 The National reported that energy imports cost the kingdom an estimated $3.6bn annually, equivalent to 14% of GDP, while a July 2015 study published by the German Marshall Fund found that fuel imports accounted for an estimated 40% of the national budget in 2014. The cost of heavy fuel imports has been further exacerbated by rising electricity consumption over the previous decade. The EMRC reported that total consumption rose from 8090 GWh in 2004 to 8713 GWh in 2005, 9595 GWh in 2006 and 10,550 GWh in 2007, expanding a further 22% by 2010 to reach 12,871 GWh. Consumption increased by 5.4%, 5.3% and 2% in 2011, 2012 and 2013, respectively, and rose a further 5.6% in 2014 to reach 15,391 GWh – nearly double 2004 levels.
New Supply:
The EIA reported that Jordan is pursuing a number of pipeline deals, including a pipeline to Iraq that would transport oil from the area around Basra to the Port of Aqaba on the Red Sea and carry up to 1m barrels per day (bpd) of oil, including more than 100,000 bpd for use inside of Jordan, as well as a natural gas pipeline running the same route and carrying up to 100m scf per day. Although regional volatility continues to cloud the timeline of this project, in March 2016 Iraq’s Ministry of Oil reported that it had received a bid from a Jordanian-Chinese consortium to build and operate the 1m-bpd crude pipeline. The consortium is led by Jordan’s Mass Group Holding and has proposed developing the project under a build-own-operate-transfer, public-private partnership (PPP) model, with crude to be supplied by Iraq’s state-owned South Oil Company. The deal is expected to reach financial close during the first half of 2017, according to a March 2016 Platts report.
Israeli Pipeline:
An even more promising development occurred in March 2016, when Israel Natural Gas Lines announced that a planned natural gas pipeline delivering supply from Israel is moving forward and is expected to begin operations in 2017. The pipeline, which is currently being constructed in the Sdom region near the Dead Sea, will supply gas from Israel’s Tamar reservoir to consumers in Jordan as part of a landmark 15-year deal signed between the two nations in 2014. A second $15bn deal was inked in September of 2016 between NEPCO and shareholders of Israel’s Leviathan offshore gas field. The deal, which is valid for 15 years, comes as Jordan has sought alternative sources of fuel, as traditional partners such as Egypt have become less reliable due to instability, according to the Financial Times. The deal was not accepted by all segments of the population. While critics accused the government of tacitly supporting the Israeli occupation, the government has argued that the deal will save the country nearly $600m per year.
At present, however, Jordan continues to import the bulk of its natural gas from Qatar through a floating jetty at Aqaba. Its energy import bill remains high, despite the 2014-16 oil price crash that brought international crude prices from $115 per barrel in June 2014 to around $45 per barrel in mid-2016. Although crude prices had rebounded to around $50 per barrel temporarily in June 2016, continued market volatility is likely to keep development of renewable energy on the government’s priority agenda. In the meantime, rapid recent progress on this front paints an optimistic outlook for such an undertaking.
Renewables:
To meet renewable energy targets set by the National Energy Strategy, the government is moving to amend the Renewable Energy and Energy Efficiency Law in 2012, which aims to streamline investment procedures and open channels through which citizens may eventually sell excess electricity back to the national grid. Fulfilling these targets will require an estimated $1.4bn-2.4bn in investments, according to an August 2015 report by Brussels Invest and Export.
This has opened doors for private companies to invest in renewables and has led the kingdom to become a leader in private-sector-driven solar power projects. Although Jordan had just 10 MW of installed renewable energy capacity in 2014, at that time there were 15 projects under development. Solar capacity alone is expected to hit 500 MW by the end of 2016.
This follows the government’s 2011 call for expressions of interest to build 1800 MW of wind, 600 MW of solar and 30-50 MW of biomass power plants, with the MEMR awarding contracts based on proposed tariff prices. The government had also signed 12 power purchase agreements (PPAs) for 200 MW of solar power as of March 2016, according to a report in The National.
Two high-profile projects in the segment are the $287m Tafila Wind Farm and the $150m, 52.2-MW Shams Ma’an solar plant. The former, located 180 km south-west of Amman, and is Jordan’s first and largest privately sponsored utility-scale renewables project, having opened in September 2015. The $287m project was developed by a joint venture between InfraMed Infrastructure Fund, the UAE’s Masdar and EP Global Energy, and it powers over 250,000 homes today. The Shams Ma’an solar plant launched under a PPP model after authorities signed a 20-year PPA at $0.148 per KWh. The project was developed by a consortium consisting of Diamond Generating Europe, a subsidiary of the Mitsubishi Corporation; Nebras Power, a subsidiary of the Qatar Electricity and Water Company; and the Kawar Group. Commercial operations are expected in 2016. The Ma’an area has become something of a centre for solar energy projects. In October 2015 international solar asset care firm Alectris and Modern Arabia for Solar Energy (MASE) announced that the two companies would be partnering on Arabia One Solar, a 10-MW solar photovoltaic (PV) plant also in Ma’an. While MASE will lead field operations and maintenance services, while Alectris will offer support and technical expertise, as well as plant management software. Located 218 km south of Amman, the plant will have 45,192 PV modules with a peak power of 11,524 KW.
The 10-MW Shamsuna solar project, located in the southern Aqaba special economic zone, was the first of 12 direct proposal projects approved by the Jordanian government. Shamsuna was the first to sign a PPA and reached a financial close in September 2015. The project was developed by Foursan Capital Partners in partnership with a Jordanian investor, and in February 2016 it became the first utility-scale solar project to connect to the national grid. A more recent development was the announcement in September 2016 that the International Finance Group was financing a new 50-MW PV solar plant in the north of the country.
Special Focus
Central to the kingdom’s efforts to increase the contribution of renewables to the energy mix is the Green Corridor project. This aims to reduce dependence on hydrocarbons by increasing Jordan’s ability to absorb the loads generated by new renewable energy capacity stemming from wind and solar. The upgrades involve the construction of two new transmission lines – a 400-KV, 150-km line and a 132-KV, 51-km line – as well as upgrades to three existing 132-KV lines stretching 100 km each. Additionally, a new 1200-MVA electricity substation will be constructed in northern Ma’an, while the stations at Qatraneh and Queen Alia International Airport will also be expanded. In 2015 the $159.7m multi-component project was awarded key funding, with development being co-financed by the French Development Agency, the European Investment Bank, NEPCO and the EU Neighbourhood Investment Facility. While tendering for the construction was delayed in the first half of 2016, the winner is expected to be announced in December 2016 and the project is slated for completion in 2018. The Green Corridor investments are specifically designed to reinforce the nation’s electricity network in the deserts of the country’s central region, which are ideal for the use of solar generators.
Rising Interest
New deals have been on the rise in recent months. In March 2016, Saudi Arabia’s Acwa Power International announced that it had acquired Sunrise Solar Energy, a project company currently building a 50-MW power plant in Jordan, after winning a construction contract for the project in May 2015 with a bid of JD0.043 ($0.06) per KWh. The unit is part of a 150-MW solar complex under development in Mafraq, north-east of Amman, with Sunrise Solar Energy having signed a 20-year PPA with NEPCO.
The announcement followed a host of developments in 2015 and 2016. Among these was the announcement by Abu Dhabi’s Enviromena Power Systems of plans for a 102-MW facility expected to come on-line in the second quarter of 2017. Plans for a further, 50-MW facility comprising four solar plants were announced in January 2016 and are under development by Swiss firm ABB and Spain’s Martifer Solar. That same month, Norwegian solar panel manufacturer REC told The National that Jordan had become a key growth area for the company, with commercial solar rooftop installations expected to hit between 5 MW and 8 MW in 2016. More recently, South Korea’s state-run utility firm, the Korea Electric Power Company, announced in June 2016 that it is considering launching a solar business in Jordan as it seeks growth opportunities in new markets. A month earlier, German PV panel manufacturer Meteocontrol signed an agreement with a second German firm, Phoenix Solar, to provide monitoring services for new solar projects in the MENA region, including a planned 11-MW solar plant in Jordan.
Nuclear
In September 2014 the JAEC signed a project development agreement with Russia’s Rosatom to define the development phase of a two-unit, 2000-MW nuclear power plant in the Qasr Amra region 60 km east of Amman. To facilitate development of this project, the JNPC was officially established in November 2015, and will act as the owner and operator of the plant. Ahmad Hiasat, director-general of the JNPC, told OBG the government expected the plant to begin operations in 2025. Currently in the pre-investment stage, the project will first see JNPC conduct two years of “site characterisation” environmental impact assessments, feasibility studies and necessary national grid upgrades, alongside a selection process for technical, financial and legal consultancy services. The JNPC will also finance, negotiate and finalise a host of project agreements, including engineering, procurement and construction and power purchase agreements, as well as manage the selection process for engineering, consulting services and contractors.
Contracts will be awarded through international tenders, according to Rosatom, with the company’s reactor export subsidiary AtomStroyExport slated to supply the “nuclear island” which is the heart of the nuclear plant. Rosatom Overseas will be the plant’s strategic partner, and TVEL will provide fuel for the plant over the first 10 years.
Project costs will be split 51:49 between Jordan and Russia, according to a March 2015 report in World Nuclear News. Jordan is currently preparing its workforce to assume operation and maintenance functions, and in time most of the positions at the plant will be filled by native Jordanians. As one of the most significant long-term solutions to Jordan’s energy deficit, the nuclear project holds considerable opportunity for the private sector. “Nuclear energy would be a stable source of electricity for the country for 60 years,” Khaled Toukan, chairman of the JAEC, told OBG. “By 2024-25, the first nuclear reactor should be operational and it should represent 40% of the total generated power.”
Sea Project
The Red Sea-Dead Sea (RSDS) desalination project in Aqaba is another major utilities project slated for development in partnership with the private sector. A joint initiative between Israel, Jordan and the Palestinian Authority, the project aims to meet urgent regional needs for potable water through the development of a sea intake structure, desalination plant, reject brine pipeline and associated infrastructure works. The size and scope of the project makes it one of the largest in the Middle East.
Authorities from all three participants plan to develop the RSDS project in three phases. The first phase includes the desalination of 80m-100m cu metres of water annually by extracting between 177m and 222m cu metres of seawater from the Red Sea through an intake infrastructure that will ultimately provide one-third of total desalination capacity. Total capacity is set to rise to 2.2bn cu metres annually. In a first for the region, if not the world, the remaining brine and seawater will be discharged into the Dead Sea, eventually reaching a rate of 235m cu metres per year, helping to maintain sea level. The Dead Sea water level is declining by 1 metre annually, according to the MWI. Seawater used for desalination will be treated and desalinated at a planned facility roughly 5-11 km north of the King Hussein International Airport in Aqaba.
The project is expected to be 100% owned by Jordan, as it is almost entirely located within the kingdom. Significantly for the private sector, it is planned for development under a BOT PPP model. The MWI reports that Israel is expected to purchase 50m cu metres of water annually on a “take or pay” basis at the BOT contractor’s cost, while Jordan will purchase 50m cu metres of water annually at $0.43 per cu metre, and Palestine will receive 30m cu metres of water annually.
In May 2016 Jordan signed a technical cooperation agreement with the European Investment Bank and Agence Française de Développement to start the project’s first phase, which will commence with economic, financial, social and environmental impact studies. Although the project’s budget will exceed $1bn, according to a report in industry magazine Water Desalination & Reuse, Jordanian authorities announced that $450m worth of grants and investments had been secured as of May 2016. In December 2015 the MWI put out a call for applications from BOT contractors, with a total of 93 companies acquiring documents, and in April 2016 the MWI extended the deadline for applications from pre-qualified bidders to May 30.
Outlook
Although the sector has faced significant challenges in the wake of rising energy imports and regional instability, promising developments in the renewables and nuclear segments, as well as two planned new pipelines supplying gas and oil from neighbouring countries, should see the kingdom’s energy bill fall significantly in the coming years, paving the way for long-term energy self-sufficiency and offering attractive new investment opportunities to the private sector.
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