November 11, 2016 / 0 Comments
Jordan climate project: The solar wheel of fortune
Smart regulation from the Jordanian government leads to an investment in an innovative renewable energy fund
When the Arab Gas Pipeline was first disrupted by explosions in Egypt during the Arab Spring, Jordan had to suddenly switch to imported heavy fuel oil and diesel. The pipeline had provided most of the energy required for power generation in Jordan and so the cost of power generation went up. At first, the government made up the difference, to keep people from taking to the streets, as they had done in several countries in the region.
Meanwhile, refugees continued to pour into Jordan from Syria, in addition to those who arrived decades ago from Palestine. The government had to spread itself thinner over a wider number of social and economic concerns. With the fuel subsidies adding up to almost a fifth of all government expenditures, and with no end in sight, the government decided to rethink its approach to the energy sector.
Part of Jordan’s solution has been to develop an innovative regulatory framework for the renewable energy sector. It’s already luring private sector investors. One of them is GEEREF (Global Energy Efficiency and Renewable Energy Fund). This European Investment Bank-advised fund made a recent investment in the Catalyst MENA (Middle-East and North-Africa) Clean Energy Fund, a pioneer in implementing projects in Jordan under the new framework.
“Jordan is a modern, open economy with an enabling regulatory framework for the development of renewable energy projects and it has become increasingly interesting for private sector investors,” says Monica Arévalo, a GEEREF senior investment manager. “The continuous rise in energy prices in the country, coupled with recently introduced regulatory changes, has made investment in renewable energy generation very attractive for the private sector.”
Jordan climate project “wheels” solar power
That framework is the Jordanian energy “wheeling” regulation. What’s wheeling? If you invest in solar panels for your house or business, you will probably be able to “inject” the energy you produce into the grid. That offsets your energy consumption bill. You might possibly make a profit, if your panels produce more than it takes to heat and light up your home, and your arrangement with the power company allows for it.
Now imagine you cannot put solar panels on your roof. Maybe you live in a castle and the local government objects. Maybe you live in a valley of perpetual fog, or perhaps you live in a community of coalminers who’d feel betrayed by your use of renewable energy. The energy wheeling regulation would allow you to set up the panels on a shed in a sunny part of the country, feed that power into the grid, and still offset what you consume, in the castle or in the foggy valley.
Jordan climate project gets royal approval
The benefits for many companies are enormous, explains Ennis Rimawi, managing director of Catalyst Investment Management/Jordan, which manages the Catalyst fund. He knows. This spring he inked a contract to establish up to five solar power plants in Jordan for telecom operator Orange with French renewable energy developer Neoen. It was an important deal signed under the approving gaze of Jordan’s King Abdullah II and President François Hollande of France. The fund has already won a second tender in Jordan. A large hospitality group wants to build its own photovoltaic energy plants totaling approximately 14MW. The plants will be many miles away from where they would actually use the power. While Orange, at over 30MW, will be one of the largest, there will likely be up to a hundred companies per year looking to set up their own renewable power source, Rimawi estimates.
“The result of the wheeling regulation is that one is not constrained by land available at the site,” he explains. “One can also use lower-cost land, land with better conditions like more sun, or land that is flatter, or where any potential environmental impacts can be easily avoided or mitigated.”
“The company afterwards only pays for the use of the grid.”
International backing for Jordan climate project
GEEREF invested in the Catalyst fund along with the Dutch development bank (FMO), the Finnish Fund for Industrial Cooperation (Finnfund) and the German Investment and Development Corporation (DEG). Catalyst aims to have raised a total of USD 100 million by next year, doubling the initial commitment of these anchor investors. The next investments will include private capital.
GEEREF’s Catalyst investment is not the EIB’s only contribution to Jordan’s shift in energy policy. In autumn 2015, the EIB signed a EUR 88 million loan with Jordan’s national energy firm, NEPCO, to reinforce its grid. That would enable it to handle the integration of all the renewable energy plants springing up thanks to the wheeling law. The EIB investments are in two new transmission lines and upgrades in three existing ones. They are mostly in Jordan’s desert area, where you may not find a lot of clients for your business, but where there are 330 days of sunshine a year for the generation of solar power that could be used in the capital, Amman.
It is not only solar plants that are popping up. Jordan’s more mountainous terrain has been deemed suitable for wind farms, in which the EIB has also invested.
Catalyst looks across North Africa
Now Catalyst looks beyond Jordan to invest in renewables in Tunisia, Egypt and Morocco. There wheeling regimes are at different stages of implementation. Elsewhere in the region, possibly due to the abundance of oil, wheeling has not yet been introduced.
“The beauty of the investment is that it takes a pioneering role in the implementation of an innovative regulatory framework that fosters green energy production. Jordan only allows the wheeling of renewable energy,” GEEREF’s Arévalo says. “It needs investors who are brave to seize the opportunity and who want to take a market development role. It also needs managers, like Ennis Rimawi and his team. They have the appropriate skill-set and experience, coupled with their commitment to environmental and social best-practices, to make it happen.”
“Together with our partners, we expect our investment into the Catalyst fund to deliver on our triple bottom-line objective of People-Planet-Profit.”
The “brave” GEEREF was established in 2008 with EUR 112 million in financing from the EU and the governments of Germany and Norway, on top of which it raised EUR 110 million from private investors and the EIB. The fund-of-funds is focused on the development of renewable energy and energy efficiency projects across emerging markets. To date GEEREF has invested in 11 funds that in turn have invested in over 65 small and medium-sized renewable energy and energy efficiency projects across developing countries.
Each one of these projects makes a difference. The Orange telecom solar plants in Jordan are expected to save 40 000 tons of CO2 emissions per year. According to the US Environment Protection Agency calculations, it would take a million trees to be planted every year to sequester that amount of carbon. Try planting trees in the Jordanian desert and you’ll see why that’s a big deal.