Protests that erupted in June, 2018 in the Hashemite kingdom of Jordan exposed an economic crisis caused by a perfect storm of increased taxes; subsidy cuts for fuel, electricity, and bread; and a high cost of living. While the protests were largely peaceful, the demonstrators managed to oust the government of the Prime Minister Hani al-Mulki, scrap the planned tax hikes under a newly appointed PM Omar Razzaz, and make strong demands that subsidies be restored.
One of Jordan’s economic challenges is meeting the energy demand of the growing population, while relying more than 96 percent on imports of petroleum products and natural gas due to the shortage of domestic energy resources. Imported energy is often expensive, accounting for over 40 percent of Jordan’s budget. A silver lining in the face of economic problems has been Jordan’s bold step to adopt renewable energy. Jordan is now ranked first in the Middle East and North Africa in renewable energy growth and third out of 71 countries globally. How is Jordan meeting these challenges of integrating solar and wind power into its energy mix?
Renewable Energy Drive
Jordan faces increasing internal pressure to meet its growing energy needs. The country’s officials anticipate that electricity demand will triple by 2030. In addition, the state’s budget has come under severe strain from massive energy subsidies, which the Jordanian government has been phasing out since 2012. Imports of cheap natural gas from Egypt dropped significantly in 2012 due to sabotage of the Arab Gas Pipeline. Consequently, the kingdom has switched to much costlier diesel and heavy fuel oil.
Heavy dependence on energy imports has prompted the government to change its policies on energy use and find ways to reduce imports. Renewable energy rose as a priority given the uncertain future of domestic nuclear power and oil shale development. While it is unlikely that renewable energy will be a cure-all for the country’s heavy dependence on imported fossil fuels, solar and wind power are beginning to impact some areas of the economy. For example, for a country facing a severe shortage of water, clean energy helped cut the cost of water pumping, accounting for 15 percent of Jordan’s overall budget.
Key policies that propelled the development of renewables in Jordan were the Renewable Energy and Energy Efficiency Law (REEL) and the National Energy Strategy 2007-2020. REEL was instrumental in accelerating investments in renewable energy. Some of its main provisions include cutting red tape to hasten a bidding process for renewable projects, setting a requirement upon the national electric utility to procure generation from renewable sources, and introduction of feed-in tariffs.
Under the National Energy Strategy, Jordan is seeking to reduce dependence on fossil fuels by ramping up domestic production of renewable energy. The Strategy also provides grant and tax exemptions to energy efficient cars and solar water heaters. While Jordan has set an ambitious goal of adding 10 percent of renewable energy production to the primary energy mix within only the year and a half by 2020, renewable energy has already reached 5 percent of Jordan’s total generation in 2016.
Aided by an average of 330 days of sunshine annually and a simplified regulatory and investment climate, Jordan’s solar energy has grown rapidly since 2012. In addition to large utility-scale projects, solar panels are found everywhere from residential homes to schools, universities, and mosques. Solar energy has been also crucial to fueling remote and off-grid facilities such as desalination plants, water pumping, and telecommunication towers. With an annual average speed of 4 to 6.5 meters per second in the northern and southern part of Jordan, wind power also has major potential for the kingdom. The country currently operates four wind power plants with a cumulative capacity of about 184 megawatts (MW). In 2017, Jordan’s solar and wind generation reached a substantial combined capacity of about 500 MW.
Jordan has made remarkable progress in developing its renewable energy potential since 2012. However, the rapidly growing new industry presents its own set of challenges. First, the surge in wind and solar power is starting to test the limits of the country’s power grid. Struggling to take in more power from renewables, the kingdom’s small grid is putting a pause on future investments in renewables. A Green Corridor project is intended to develop power generation in the south and send it to consumers in central and northern Jordan once it is operational in 2018. Given the government turnover during the recent protests, however, it is unclear that the project will be finalized as planned.
Second, with the growth of the renewable energy sector, the Jordanian government began recognizing the importance of storing the intermittent power of the sun and wind. To improve grid reliability and sustain the sector’s growth, MEMR issued a tender for a 30-MW energy storage system in 2017. If a proposal from one of 23 interested companies is approved this summer, Jordan plans to implement the first phase of the project by April 2019. As the capacity of renewables increases, more storage will be needed given that Jordan plans to significantly boost its clean energy targets by 2030 and 2050.
Third, the recent unrest shows that austerity measures can be unpopular. One such measure involved removing Jordan’s fuel and electricity subsidies, resulting in increased energy prices, a change that faced strong public resistance. A possible alternative approach could be something similar to Iran’s 2010 solution to end its energy subsidies: drastically cutting subsidies and substituting them with cash payments to the population. Although the Iranian government has maintained its program to the present day, it is considering ending payments to the high-income earners in 2019. The upside was that the Iranian government saved about 10-20 billion USD a year by ending the energy subsidies and replacing them with the monetary compensation. But keeping energy subsidies below the cost of generation undermines the economic sustainability of the renewable energy sector. To bolster this promising sector, Jordan will have to walk a fine line to balance to the demands of the public with the economic fundamentals of energy that will allow renewables to flourish.