Jordan Turbocharges Distributed Solar

Publication October 18, 2016

Conditions in Jordan are perfect for rapid growth in commercial and industrial solar.

The country recently abolished a limit on the nameplate capacity of renewable energy plants connected to the grid that can benefit from net metering.

Net metering permits a consumer of electricity generated by a renewable energy plant to feed any excess generation to the national grid in return for credits on future utility bills.

While the country’s initial net metering directive issued in September 2012 prohibited the connection of any renewable energy plant above five megawatts, the directive issued last month provides that plant capacity will be subject to the approval of the sole transmission company or the relevant distribution company, on a case-by-case basis, based on an assessment of the grid at the relevant location.

In the short-to-medium term, this means that new projects are likely to remain limited in grid-constrained areas such as the south of the country, but the removal of the nameplate capacity cap will create significant opportunities elsewhere.

Subject to approval by the transmission or relevant distribution company, there is no cap on the amount of electricity that the renewable energy plant may feed into the grid. However, the distribution and transmission companies are only required to pay an annual amount of up to 10% of the electricity consumed by the electricity consumer, at a kWh rate of 120 Jordanian fils (roughly US$0.17) for solar, 95 Jordanian fils (US$0.13) for hybrid resources and 85 Jordanian fils (US$0.12) for other renewable energy sources.

The government commits to pay a 15% tariff uplift if the renewable energy plant is of Jordanian origin. There is no official guidance on the meaning of Jordanian origin; however, in practice, very few renewable energy developers have benefited from these types of incentives.

As an extension to net metering, Jordan also permits electricity wheeling. In exchange for a capped fee, this allows electricity generated by a renewable energy system at an electricity consumer’s site to be transported, via the grid, to another site owned or leased by the same consumer (i.e., the same legal entity) and be either consumed or net metered at the alternative site.

The combination of the nameplate capacity cap removal, the relatively attractive electricity tariff paid by the transmission and distribution companies and the ability to wheel electricity is likely to give rise to larger-scale and more numerous projects than have been witnessed to date in the increasingly active commercial and industrial market segment.

Perfect Storm

Electricity that is produced at or near the point where it is used is referred to as distributed generation. Over the past few years, Jordan has witnessed a rapid expansion of renewable energy distributed generation, and solar photovoltaic distributed generation in particular.

The combination of high solar yields, plummeting solar photovoltaic plant costs and high electricity prices has created a perfect storm for solar photovoltaic distributed generation.

The German development agency, Deutsche Gesellschaft für Internationale Zusammenarbeit, says that in many of Jordan’s regions the solar yield — the electricity output achieved by a solar photovoltaic panel under full solar radiation — stands at around 1,800 kilowatt hours per kilowatt peak. This is far more, for example, than the 900 to 950 kilowatt hours per kilowatt peak recorded by research institute Fraunhofer ISE for solar output in Germany, the leading international solar distributed generation market.

The levelized cost of electricity of solar photovoltaics fell by 58% between 2010 and 2015, driven in large part by dramatic reductions in solar photovoltaic panel prices, according to the International Renewable Energy Agency. IRENA estimates that by 2025, the global weighted average levelized cost of electricity of solar photovoltaics could fall by as much as another 59%, most likely driven by efficiencies in balance of system costs, like inverters, racking and mounting systems, and civil works, technology innovations, operations and maintenance costs and quality project management.

Jordan has little oil and gas. Thus, the country has had historically to import almost all of its energy needs — 97% in 2014, according to the latest published annual report of the sole transmission company, the National Electric Power Company.

These energy imports have often been unreliable. Since 2011, the country has had to run its conventional gas-fired power generation plants on oil at high cost due to gas pipeline sabotage between Egypt and Jordan.

Electricity generation and distribution costs in Jordan are cripplingly high: around 157 Jordanian fils (US$0.22) per kWh in 2014, according to NEPCO. Because many small electricity consumers benefit from subsidized electricity rates, the rates charged to commercial and industrial consumers are particularly high. For instance, one kWh of electricity supplied by NEPCO or any distribution company currently costs a bank 285 Jordanian fils (US$0.40), and a high-consuming telecommunications company 300 Jordanian fils (US$0.42).

To put things into perspective, in May 2015, the Jordanian government announced the bid tariffs of its second round tender to procure four 50-megawatt solar photovoltaic projects, and the winning tariffs were 43.441 Jordanian fils (US$0.0613), 45.9784 Jordanian fils (US$0.0649), 48.949 Jordanian fils ($0.0691) and 54.3 Jordanian fils (US$0.0767).

While a number of market participants questioned the sustainability of the round two tariffs, it remains startling that the lowest bidder’s tariff is 72% less than NEPCO’s generation and distribution cost.

More importantly, it is incredible that a solar photovoltaic developer is able to provide electricity to NEPCO at a rate that is 85% lower than what NEPCO would charge a high-consuming telecommunications company.

In Jordan, like in many other emerging markets, the pendulum has swung far beyond grid parity, and the business case for commercial and industrial electricity consumers to adopt distributed solar, and renewable energy more widely, has become extremely compelling.

With the publication of the new net metering directive, Jordan creates even better conditions for the continued development of distributed solar and other renewable energy projects. The race for developers to secure deals with the most bankable and highest paying electricity consumers is well and truly on.

Recent publications

Subscribe and stay up to date with the latest legal news, information and events...