The energy sector in Jordan Crises caused by dysfunctional and unjust policies

In February 2011, parts of the Egyptian-Jordanian gas pipeline in the ‘Arish region in Egypt were blown up. These attacks continued over the next two years1, culminating in gas supplies from Egypt to Jordan being stopped completely in 2013.2 With the country’s electricity supply, and thus all economic activities threatened, Jordan was plunged into a serious crisis. The events made clear that Jordan was excessively dependent on Egyptian gas – which was providing over 80 percent of the country’s overall requirements for power generation at the time.3 Having no ready alternatives to Egyptian gas, Jordan was forced to import large quantities of oil products at a moment when global oil prices were extremely high, leading to steeply growing costs for local electricity production. Cumulative losses by the electrical authority reached $7.7 billion by 2022: 14.3 percent of the country’s public debt.4

The gas pipeline crisis demonstrated the fragility and dysfunctionality of Jordanian energy policies. In the years leading up to the crisis and more specifically around 2007, the government, supported by the International Monetary Fund (IMF), started privatising Jordan’s electrical generation, and distribution and investment companies had been introduced in the country as partners under agreements which shielded them from financial risks and guaranteed their profits. These dynamics had increased the government’s financial burdens and also reduced performance in the public energy sector. At the same time, state planning failed to address the issue of energy security.

Although the official narrative about the gas crisis blamed the Arab Spring and the scarcity of domestic fossil resources for the increasing costs of energy production, poor management and planning contributed greatly to the crisis. The country’s dependence on a single insecure source was a result of political and policy choices that had eschewed the possibility of diversifying sources and establishing plans for emergencies.

As a result of the crisis, the government adopted a new strategy after 2011, based on diversification and the exploitation of local energy sources. This strategy involved multi-billion dollar contracts with multinational corporations to develop new power generation projects. One such investment is a contract signed in 2016 with the American enterprise Noble Energy and its partners in the Leviathan field to purchase Israeli gas. Despite widespread popular protests, legal issues and doubts surrounding the project’s safety, and its economic usefulness for Jordan, the government forged ahead with the deal.5 However, this deal repeats the dynamics of the pre-2011 period: neglecting energy security and exposing the Jordanian people and economy to the risks of being dependent on foreign sources of energy.

Another post-2011 project was the construction of the oil shale-fuelled Attarat Power Plant, which has been developed with Estonian company Eesti Energia (Enefit), with financing from multinationals. This was initially expected to meet 15 percent of Jordan’s electricity needs, at a cost of $3 billion.6 However, the government realised that the high costs of the project would significantly increase its annual shortfalls and has now resorted to international arbitration in the hopes of reducing the exorbitant cost.7

Finally, since 2011, the Jordanian government has also promoted renewable energy and has established a domestic market for renewables. Renewables now contribute 30 percent8 of Jordan’s total power generation, with the country promoted as a model for clean energy. However, this figure conceals a crucial fact: Jordan’s renewable energy projects are dominated to a large extent by rich individuals and private companies, and policies in this area prioritise personal production instead of reducing the costs of state-level energy production or supporting economically depressed sectors (like agriculture) and low-income populations. Such profit-oriented policies have also resulted in significant public losses, which have been made up for by borrowing from the IMF and the World Bank. These lenders’ remedial plans for the energy sector follow a basic recipe: privatisation and liberalisation of the energy market, and increasing electricity prices, irrespective of the severe socioeconomic impacts this may have.

The remainder of this article will explore each of these dynamics in more depth, before providing some recommendations for an alternative vision of Jordan’s energy future.

1. The World Bank and the IMF: privatisation and diminished consumer subsidies

The Jordanian energy sector was partly privatized in 2007 as a condition of the loans received from the IMF and World Bank to cover its public deficit. In the 1980s, decreased financial flows from the Gulf and increased public spending had resulted in a severe economic crisis in the country. Economic growth declined steeply, with the exchange rate collapsing in 1989. ‘Corrective’ lending programmes became the only means of avoiding a worsening crisis. Washington Consensus policies adopted by the IMF and the World Bank as a quick fix for ‘failed states’ – including Jordan, in their view – were premised on controlling public spending, liberalising markets, removing barriers to international trade, and privatising state institutions. It was argued that this would resolve weak government performance and reduce the economic burden on the state.9

Privatisation was institutionalised in Jordan beginning in 1996, when the Executive Privatization Unit10  was established in the Prime Minister’s office, in collaboration with the World Bank.11 In the same year, a recommendation was made to convert the Jordan Electricity Authority, a public body founded in 1967 which owned and managed all activities in the sector, into a public shareholding company, the National Electric Power Company, owned by the government.12 This new structure was more amendable to possible future privatisation. A restructuring in 199913 further divided the Company into three distinct companies: the National Electric Power Company (NEPCO), in charge of purchasing primary energy and transmission, control and interconnection; the Central Electricity Generating Company (CEGCO), in charge of electric power generation stations; and the Electricity Distribution Company (EDCO), in charge of electrical distribution. These three companies are administratively and financially independent. The Energy and Minerals Regulatory Commission (EMRC) was also subsequently set up as an independent entity regulating the relationship between different activities in the sector.14

The restructuring of the Jordanian energy sector was a prelude to the privatisation of distribution and generation companies, in a process that has displaced the public sector’s role and turned companies and investors into key actors in the energy sector. Despite evidence showing the efficient performance of the National Electricity Authority, the state adopted the IMF’s neoliberal vision and privatised the Authority in 2007. At the same time, 51 percent of the shares of the CEGCO were sold to the Emirati company Dubai International Capital (DIC).15 One year later, 100 percent of the shares of the public shareholding EDCO and 55.4 percent of the shares of Irbid District Electricity Company – a distribution company in Northern Jordan –were sold to the Kingdom for Energy Investments Company (KEC) - also owned by DIC, the Kuwaiti Privatisation Holding Company, and the United Arab Investors Company.16 Subsequent generation projects were transferred to the private sector through direct proposals or competitive bidding. Distribution activity was therefore fully privatised, while generation activity saw a mixture of public and private ownership, with a tendency towards the latter. Transmission and fuel purchasing activity remained under the ownership of NEPCO, which represents the government in the sector, and the independent EMRC continues to regulate all of these activities.

The sector’s structural problems only worsened after privatisation, with the dismantling of a single government authority leading to unnecessary administrative costs in the sector and weakening its overall performance. Under privatisation, contracts and agreements tend to ‘privatise profits and socialise risks’, including by applying the ‘cost-plus’ approach, which guarantees a fixed profit rate for companies without effective guarantees on performance and efficiency. Furthermore, generation contracts oblige the state to pay the charges of generation capacities even if are not needed or used.

Ultimately, privatisation has worsened Jordan’s energy crisis. The Privatisation Evaluation Committee was established in 2013 by a royal decree issued on October 10th of that year. In 2014, the committee released an evaluation report on the privatization experience in Jordan. The report found that performance indicators showed a decline in the quality of services (e.g. increased electrical losses in privatised distribution companies), alongside an increased financial burden. The report stated : “Privatisation had not achieved the desired economic goals … [of] increasing strategic investment, protecting the treasury from the consequences of increasing fuel cost, maximising the efficiency of the sector, or diversifying energy sources.”17

Furthermore, the report argued that the majority of companies’ profits (which averaged 20 percent annually at the time) were linked to the high energy prices set by the Electricity Regulatory Commission, rather than to increased efficiency or productivity, with companies achieving an unusually high rate of profit due to sales and profits being guaranteed. In its defence, the government argued that privatisation occurred in collaboration with financial investors who were not specialised in energy, whose goals therefore centred around profitability rather than enhancing the sector's productivity. The government argued that it had to resort to these investors in some cases because strategic investors did not show an interest in the process.18

The second aspect of the World Bank and IMF’s plans after restructuring Jordan’s electricity sector, relates to reducing consumer subsidies on electricity prices. As a condition of their lending to the Jordanian government after the 2011-2013 Egyptian gas crisis, these institutions required that the energy mix be diversified and the electricity tariff adjusted, i.e., abolishing fuel and electricity subsidies, which they argued was necessary to resolve the debt crisis of the national energy company, NEPCO.

The IMF’s conditional loan of approximately $2.0619 billion in 2012, followed by additional loans and grants in subsequent years, led to the implementation of a major subsidy reform program which removed subsidies on petroleum products, increasing prices by 14 to 50 percent,20 and involved a five-year plan to raise the electricity tariffs in five stages starting 2013.21 This plan was only partially implemented as electricity prices increased three times between 2013 and 2015, but implementation was halted after NEPCO’s losses diminished steeply as a result of stabilising international oil prices and renewed access to gas. Nevertheless, NEPCO’s shortfalls are now climbing again, with further increases forecast, which means IMF plans and other proposals to reduce subsidies are likely to be back on the table. This could be a gateway to renewed privatisation.

World Bank reports insist that the IMF’s planned policies will lead to financial savings in the energy sector, which will enable investment in programmes targeting the poor, ultimately improving the standard of life in Jordan as a whole. However, recent facts and figures do not support the claims that reducing subsidies raises profits: rates of economic growth22 continued to decline even as the IMF’s plans were being implemented,23 the middle class was eroded, rates of poverty rose, and purchasing power decreased.24 Even though subsidies were not abolished outright, the negative impacts of rising electricity prices on poor and middle class people was evident.

2. The least expensive option first

The Egyptian gas crisis was not the first to hit Jordan’s energy sector. A similar – albeit less severe – crisis took place with the stoppage of Iraqi oil in 2003 after the US invasion of Iraq. Like Egyptian gas, Iraqi oil was a cheap but insecure source that was heavily relied upon for generation. As a result, the stoppage led to energy price hikes in Jordan. Nevertheless, this experience did not change the government’s approach to the sector, and in the same year, Egypt signed a 15-years agreement to supply Jordan with natural gas, covering 80 percent of electrical generation requirements at a low price that protected energy costs from rapidly climbing global oil prices.25 At first the agreement had a positive effect on energy prices and the Jordanian economy, but gas supplies began to fluctuate and decrease in 2008, triggering a renewed crisis. Furthermore, in 2010, only 60–70 percent of the agreed quantity of gas was delivered, casting doubt on Egyptian gas as a secure long-term solution to Jordan’s energy needs.26 Despite these problems, the government did not search for new sources of gas, as had been explicitly recommended in its Energy Strategy 2007–2020. Indeed, the sector continued to rely on Egyptian gas as a primary source for electrical generation right up until the explosions in ‘Arish in 2011–13.

When the Egyptian gas crisis struck, to replace the now-unavailable Egyptian gas, Jordan began to import oil (and its derivatives), despite record prices. This greatly impacted energy costs paid by the state-owned company, which increased by a staggering 129 percent, from about 9.6 US cents per kilowatt hour (kWh) in 2010, to 22.5 US cents per kWh in 2014.27

The Jordanian energy sector struggled with both high prices and inadequate supplies until the return of gas supplies in 2015, when importation began under new gas agreements mainly with Qatar.28 These new agreements made use of a Floating Storage Unit for liquefied natural gas in the Sheikh Sabah Al Ahmad Oil Terminal in Aqaba, in the south of the country, on the Red Sea, which was chartered as part of an agreement with the company Golar LNG.29

At about the same time as the gas supplies began to arrive, global oil prices stabilised, causing a fall in the costs of energy production by approximately 10.3 US cents per kWh in 2016.

Fear of repeating the 2011-2013 crisis did finally result in Jordan shifting away from heavy reliance on a single energy source and towards a policy of diversifying energy sources and forms of generation, as well as intensive domestic exploitation. In 2012, legislators rushed to pass the Permanent Renewable Energy and Energy Efficiency Law, after years of delay, and began issuing bids and competitive offers for renewables projects, quickly establishing a large local renewable energy sector. At the same time, billions of dollars’ worth of nuclear energy and oil shale projects were also planned. Nevertheless, the high costs of these latter projects made the government uneasy and nuclear projects, in particular, were abandoned before they could be implemented. All of this occurred alongside talks that led to a restoration natural gas supplies from Egypt. Also at this time, a gas agreement was concluded with Israel that threatened Jordan’s government with either rising electricity prices or periodic blackouts.30

The new policies and practices implemented since 2011 can be assessed by asking the following questions: Are the new energy sources sufficiently secure to protect the Jordanian people from the risk of interruptions and supply shortages? What has been the impact of these sources on the energy bill and on the economy? Have these resources been properly managed at financial and technical levels? Are all of these energy sources necessary for the country’s energy security and the need of its people?

1. Gas: the key word

Natural gas is the most important word in Jordan’s energy security strategy. It is the most used component in domestic generation and the most significant contributor to energy costs. Gas agreements, prices, and sources are therefore critical for Jordan’s energy sector.

Gas as a percentage of the total energy mix in 2010, before Egyptian gas was cut off; in 2014, when gas supplies were cut off; in 2016, when the exploitation of the floating storage unit began in the Port of Aqaba; and in 2020, as Jordan’s reliance on gas for electricity production increased again.

The percentage of gas in the electricity mix correlates closely with the cost of production.

Twelve years after Jordan’s 2011 energy crisis, it is important to reconsider current gas agreements, the most important of which is the agreement with Israel. In 2015 Jordan signed a $10 billion agreement to import Israeli gas from the Leviathan field in the Mediterranean over a period of 15 years, for electrical generation. This agreement followed another deal with the Jordanian Arab Potash Company, worth $770 million, to import gas from the Tamar field, also off the coast of Israel.31 Not only did the government ignore Jordanian public opinion, which rejected the Leviathan agreement, it also ignored all considerations related to the security of Jordan’s energy supply, given that the owner of this energy source is a strategic enemy,32 with whom relations are marked by deep tensions and conflicts.

The Leviathan agreement, which was supposed to be kept secret, includes high penalty terms ($1.5 billion) for the buyer (NEPCO) in the event of default, with lower penalties applying to the seller (only $1.2 billion). Furthermore, on paper the seller is a company that is registered in the Cayman Islands, meaning partners in the Israeli field may be able to avoid all responsibility in the case of a default. This suggests the possibility of gas being cut off as a result of an arbitrary decision, with limited consequences for Israel but devastating impacts on Jordan. The agreement also constrains Jordan’s ability to replace imports with its own production: if Jordan increases domestic extraction, it cannot reduce the contracted quantity by more than 20 percent, and that only after at least half the contracted quantity has been purchased.33

In its 2020 report, the Economic and Social Council (ESC) of Jordan stated that the Leviathan gas agreement is problematic because engineering, financial and supply details are cloaked in secrecy and because the contract mentions some parties without clearly identifying them. Further, the pipeline that carries Leviathan gas to Jordan is managed by the Egyptian Fajr company, without Jordanian input. As such, the details of the agreement and its implementation are beyond Jordan’s control. This reliance on external partners without adequate protections or guarantees threatens the country’s long-term energy security. In this respect, Article 19.4.15 of the agreement states: ‘Under no circumstances shall the Partners in the Leviathan Field have any obligation or liability whatsoever to the Purchaser [i.e., NEPCO] in connection with the subject matter of this Agreement.’

In the absence of explicit contractual and legal guarantees ensuring Jordan’s right to have its gas supply needs fulfilled, the pumping of gas and control over the quantity of gas supplied can be used as leverage by Israel. This represents a real threat to Jordan’s energy security and to its economy, and provides an opening for foreign interference in Jordanian affairs. The ESC recommends cancelling the Leviathan deal or re-contracting. If this is impossible, it argues that Israeli gas should not exceed 15 percent of Jordan’s imports or consumption, so that any interruption to supply can be absorbed. Nevertheless, the $1.5 billion penalty clause for breaking the terms of the agreement, as well as additional fines for reduced purchases, call into question whether any of the council’s recommendations are possible.34

In line with the spirit of the ESC’s recommendations, some state officials (such as the ministers of energy and finance) have attempted to reduce the strategic position of Israeli gas by limiting imports from Israel to no more than 20 percent of the energy mix.35 However, imports are likely to exceed this cap as various gas contracts, including the one with Egypt and the agreement relating to the Floating Storage Unit in Aqaba, come to an end. At the same time, the Energy Strategy 2020–2030 – which states the Ministry of Energy’s goal of reducing the percentage of electric generation relying on gas from 82 percent in 2020 to 53 percent by 2030 – outlines that nearly half of the gas used in electric generation will be Israeli during this period. If this is true, the pricing and security of Israeli gas will remain a critical factor in years to come.

In 2012, as part of the turn to local energy sources, the state started reconsidering the question of oil shale. Under 14 previous energy ministers this discussion had remained stuck at the level of studies and consultations, due to the relatively high costs of oil shale exploitation. Studies have estimated Jordan’s reserves of oil shale at between 40 and 70 billion tonnes, the sixth largest national reserves globally, with available energy estimated at 600–900 megawatts per site in several locations,36 equal to roughly half of Jordan’s annual electricity consumption. After extensive studies, an agreement was concluded with the Estonian National Energy Company (Enefit) in 2017 to establish an oil shale-burning power plant in the Attarat region southeast of Amman, with a total capacity of 470 megawatts (15 percent of Jordan’s electrical needs). The Attarat Power Plant came into operation in 2021 and is currently the largest energy project in Jordan.37

However, in 2019, as the project was nearing completion and operation, the government announced that it was resorting to international arbitration against the company managing the Attarat Power Plant. It cited the ‘obscene injustice’ of the price charged for energy produced by the plant, and argued that NEPCO should be able to terminate the agreement if that gross injustice is not rectified.38 Importantly, the World Bank had earlier asked the Jordanian government to reconsider the cost, usefulness and productivity of the Attarat project, while an IMF report39 connected the project to increasing projected losses for NEPCO. According to Jafar Hassan estimations, former Minister of State for Economic Affairs, the project will increase NEPCO’s annual losses, which it is estimated to be more than $560 million by 2024, with total losses between 2020 and 2024 projected to reach $2 billion.40 This is assuming that the tariff remains unchanged, and that Brent crude oil prices are $55 per barrel. Furthermore, government reports (NEPCO 2020) confirm that NEPCO saved $82.6 million when COVID-19 delayed the Attarat project.

According to the Jordanian government, the real cost of the Attarat project was misrepresented by the managing company,41 the contracted tariff is too high, and the state is now pursuing arbitration to reduce the selling price. Government data show that the average tariff for buying electricity from Attarat is about 14 cents per kWh and is sold to the consumer at 18 cents42 when transmission and distribution costs are included. This makes Attarat’s oil shale production the most expensive source of electricity in Jordan per kWh, more than 41 percent above the average.

While it is true that the Jordanian government signed the Attarat agreement during a moment of crisis, when global oil prices were high and the country was facing dramatic shortfalls in primary energy sources, which led to it accepting the project’s significant costs, official statements fail to mention that the government later had a chance to back out of the contract, in 2016. At this time, global oil and primary energy prices had dropped significantly and stability had returned to the local energy context as production costs decreased. Nevertheless, when the Attarat company nearly failed to secure necessary funding in that year,43 the government pressed forward with the deal, giving the company an additional two months to resolve its financial issues, rather than cancelling the contract altogether. As such, the government missed a real opportunity to avoid these financial burdens.

One cause of the high costs of oil shale, which make it uncompetitive compared to other energy sources, is the immaturity of the technology involved. Oil shale also has significant environmental costs. It emits a lot of carbon dioxide in comparison to burning natural gas, let alone renewable energy production, and burning oil shale also demands large quantities of water, which is especially problematic in a country facing a major water crisis. Thus, it can be concluded that it was a strategic mistake for the Jordanian government to enter into this high-cost investment at this point in time (given that the costs of shale oil are likely to decrease over time as technology matures), and to invest in a solution that will only exacerbate the country’s water scarcity. Furthermore, the Attarat project is also a local polluter, so the cost of pollution to the healthcare sector needs to be factored in.

Renewable energy currently constitutes 30 percent of Jordan’s energy mix:44 the largest share after gas, and the largest domestic source. Renewable energy thus plays a pivotal role in determining energy costs and influencing the way the energy sector is organised and planned. The renewable energy sector witnessed a significant boom after the 2012 permanent Renewable Energy and Energy Efficiency Law was passed. This boom continued until 2018, during which time Jordan’s clean energy model was widely publicised for its promise of energy self-reliance and competitive prices. However, this promise quickly began to dissipate, with green energy dreams turning into a nightmare for the government institutions managing renewables. Poor planning in the new sector led to widespread problems that created a burden for producers and workers alike, leading to discussions about the immediate closure of local renewable energy companies in 2022.

Jordan has excellent prospects for renewable generation, especially solar. Large areas of land are available in the southern and eastern regions and the country is located on the ‘global solar belt’, with ideal solar radiation and long hours of sunlight year-round.45 Solar projects could thus provide a very reliable and secure source of energy due to the abundance of solar energy, its accessibility, its sustainability and the low cost of operation and use.

Before 2011, only modest attempts were made to include renewable energy in the energy mix, due to the high costs at that time, with renewable energy about twice as expensive as energy produced from Egyptian gas. However, following the gas stoppage crisis, diversification of energy sources was prioritised and the Renewable Energy and Energy Efficiency Law was approved in 2012. The Law set out instructions, regulations and guidelines regulating the renewable energy sector, in parallel with the development of renewable projects. Two distinct categories of projects were created: first, direct bidding projects and competitive bids that sell energy to the government according to specific agreements; and second, self-generation projects owned by end users (citizens or corporations) in the form of wheeling and net metering projects (see below).

With the aim of attracting foreign and domestic investment, the government invited investors and developers after 2012 to submit technical and financial proposals for renewable energy plants. In the first phase of direct bids, the government avoided the competitive bidding process and offered attractive prices of 16 US cents per KWh for solar energy and 10 cents per KWh for wind, with a 15 percent premium for domestic projects.46 This first phase of direct bids, saw the establishment of plants with a total capacity of 204 megawatts of solar energy and 423 megawatts of wind energy, mainly concentrated in southern Jordan. Competitiveness increased in the second and third phases of offers, for which the government implemented a competitive bidding model. As a result, projects were awarded to proposals offering lower prices: 6.5 cents per kWh in the second phase, and 2.5 cents per kWh in the third phase (which has since been discontinued).

At all stages, power purchase agreements were signed requiring the government to purchase all of the energy produced at the agreed price for 20 to 25 years. It should be noted that such agreements stand in contrast to the situation in other countries, where a shift is taking place to variable price contracts that deliberately reduce the purchase price after investors have recovered the costs of the project. However, it is the case that funding agencies remain unwilling to accept the investment risks associated with such variable price contracts.

The high price of the first round of bids generated debate in Jordan about the viability of renewable energy, with the sector being held responsible for increasing energy prices at this time. However, official figures refute this interpretation: for solar projects, for example, first-phase projects account for just 2.5 percent of total generated energy,47 so their impact on overall energy costs is minimal. The average cost of renewable energy per kWh is close to the average cost of gas-generated energy (the least expensive option locally), and the difference in the final cost is just 0.7cents per kWh. This indicates that renewable energy is not to blame for Jordan’s rising electricity prices.

Nevertheless, objections were raised regarding Jordan’s renewable energy projects, with some considering the high prices of the projects agreed in the first phase as providing a form of subsidy to investors. These objections, and the issue of increased electricity prices, led the Jordanian Ministry of Energy and Mineral Resources in 2022 to announce ‘corrective measures’ to reduce the costs of electrical production, including renegotiating prices with renewable energy companies covering 29 projects.48 Ultimately, however, the government made the decision in 2019 to discontinue the bidding, with the third phase of bids discontinued. This is in spite of the fact that the estimated renewable energy prices in the third and fourth bidding phases stood to be more than 9 cents per kWh cheaper than 2021 energy prices. This would have made renewables the cheapest available energy source in Jordan, significantly cheaper than either natural gas or oil shale.

By withdrawing support for renewables at this juncture, Jordan has therefore missed a great opportunity to reduce energy prices and to accelerate the energy transition. Yet, if renewable projects can reduce energy costs, why did the government stop the third phase and stop accepting offers? Several potential factors behind this decision can be identified. In the first place, Israeli gas, the oil shale project, and fossil plants are meeting current energy needs. Thus, further renewable energy generation projects would have led to oversupply. Second, for technical reasons (mainly due to the intermittency of solar and wind energy), the electricity network’s capacity to absorb renewable energy remains limited. Third, there is also the fear of emergencies when components of the system cease to work with wind farms and solar plants becoming unresponsive – which can be translated into a serious risk of complete shutdown. This calls for investments in infrastructure, expanded networks and increased generation capacity. This investment has been lacking due to financial and organisational challenges in the government energy sector. Fourth, and lastly, there were significant problems with the way the government had invested in self-generation renewable projects (this is discussed below).

In 2012, after the introduction of the Renewable Energy Law, the government paved the way for consumers to establish renewable energy projects for their own use, under two systems: net metering and wheeling. Both systems enable consumers to produce electric energy from renewable sources, to use it for personal purposes, and to exchange any surplus with government-owned energy to cover times when their own renewable sources cannot cover their own needs. The difference between the two systems is that a net metering system is installed near to where the electricity is consumed, while wheeling systems are located at a distance and are linked to the consumption location through transmission and distribution networks. In both systems, the producer-consumers are billed for the shortfall between the surplus electricity they produce and the electricity they draw from the government. In the case of the surplus electricity produced exceeding the amounts of what is drawn, the government commits to buy it at a determined reference price. This is known as a ‘compensation’ scheme and is a government strategy to support and stimulate the renewable energy sector, enabling consumers to enjoy ‘zero’ bills.

Unfortunately, those in charge of regulating Jordan’s electricity market, and the compensation scheme specifically, have not taken into account all of the economic ramifications of the scheme. The estimated cost of 1 kilowatt produced from the net metering and wheeling systems does not exceed 5.5 cents, while the average cost for every 1 kilowatt drawn from the state is 11 cents, notwithstanding the fact that the cost is even higher during night when most energy is drawn. The cost difference therefore constitutes a loss which the state is compelled to shoulder. This is one of the core organisational errors behind these projects.

Self-generation systems have achieved tremendous growth in recent years, reaching 972 megawatts – 39 percent of Jordan’s total installed renewable energy capacity in 2021.49 However, most of these systems belong to large consumers, including telecommunication companies, banks, hotels, private hospitals, and large household consumers, who see renewable energy as a way to avoid the high tariffs charged by the state. Thus, alongside the growth in private renewable energy projects, there has been a decrease in energy sales to large subscribers50 (the large industrial sector51 especially): in 2020, industrial energy sales were just 68 percent of what they were in 2014, before the introduction of renewable energy. Although some of this is due to the closure of certain factories for economic reasons, the biggest part of this decline is due to the growth in self-generation, especially renewable generation.52 This lost revenue has had significant impacts on the public energy sector.53 These large consumers were previously subsidising the operation of the national grid, and thereby subsidising poorer energy users. They are now no longer doing so. It can be argued that the state has thus incurred direct losses due to its ill-conceived, neoliberal approach to the renewable energy sector. Indeed, these richer energy users are themselves being supported by the compensation scheme. At the same time, their use of the national grid infrastructure causes additional wear and tear that is not covered by the fees they pay.

Major private sector institutions and companies now control a considerable share of the renewable energy sector in Jordan. This raises crucial questions. Who are the beneficiaries of renewable energy, and who can access it? In whose interest is the transition towards renewable and clean sources and who controls it?

Jordan’s energy sector planners have thus far not taken the question of a just distribution of renewable energy into account. In contrast to the current approach, which, as we have seen, benefits large private sector players and high-income individuals, just policies would instead direct energy to vital and economically challenged sectors, such as agriculture and medium and small industries, and/or would use renewable generation to reduce the government’s overall energy bill. For example, alternative renewable policies could have focused on replacing financial subsidies for lower-income groups with autonomous solar generators, protecting them from tariff hikes, or on deploying renewable generation in government buildings and facilities, which are major energy users. In 2012 the government established the Jordan Renewable Energy and Energy Efficiency Fund (JREEEF) to address some of these issues. The fund was set up to provide financing and technical assistance to various social groups, including small and medium consumers and those in productive sectors, to enhance their access to renewable energy and to reduce their energy consumption. However, the fund’s output was modest compared to private sector investments or existing electricity subsidies. According to the fund's website, the financial savings from the fund's projects in all sectors amounted to $9.44 million, while annual electrical subsidies are estimated at $564 million.54

Guaranteeing just access to renewable energy does not necessarily mean undermining the ability of the private sector to reduce its costs through self-generation, or abandoning market competition. However, it does require certain key changes to be made to the renewables regime in Jordan to ensure fair and targeted distribution of renewable energy to industrial, commercial, agricultural, water, and domestic users. Key here is the setting of fair tariffs that reflect the costs generated by private renewable projects while using the national electrical and grid systems. These tariffs must enable investment in electrical networks to improve their reliability and capacity to absorb self-generated electricity in a useful way. If this were to happen, renewable self-generation would allow the government system to provide better and cheaper energy access for the Jordanian people. Furthermore, a new billing system needs to be put in place that disposes of the net metering system, so that it reflects the true value of the energy drawn from the network, instead of the current unfair exchange whereby the state loses tens of millions of dollars by effectively buying self-generated electricity at deeply unfavourable rates. This net billing system must be established in a way that benefits all parties. Lastly, large consumers should continue to support the provision of energy to poorer users in various forms that can be direct cash transfers or through a system that requires self-generation projects to raise the size of their systems in excess of their need, so the surplus quantities of renewable energy generated are supplied to the grid.

In sum, any system supporting renewable energy production should ensure justice and access to adequate energy for all.

In 2019 the government announced that it would stop issuing licenses to renewable energy projects above 1 megawatt. This was presented as a temporary suspension, while the government studied the capacity of the grid.55 However, even before this decision there had been clear signs that the government was reducing its commitment to new renewable projects, and also struggling to meet consumer demand for private solar licences. New projects had faced delays in receiving approval, approvals were made contingent on scaling down generation capacity, and onerous technical requirements were imposed that increased the costs.

Tracking the volume of renewable energy investments in Jordan over time reveals the level of growth in the sector, and the extent to which this has been affected by government decisions. Between 2012 and 2020 some $3.09 billion was invested in renewable energy. Investment peaked in 2016, at $955 million per annum,56 with foreign investment accounting for about 75 percent of this.57 The period between 2015 and 2018, corresponding with the second phase of direct bid offers for renewables projects, represented a high point of growth. The most significant development in this period was the licensing of net metering and wheeling projects on a large scale. This produced a renewable energy boom, and the sector was seen as a promising area for investment. However, this growth slowed abruptly with the 2019 decision to suspend approval of third-phase bidding and to stop licensing projects over 1 megawatts. The situation was further exacerbated by another decision to suspend wheeling plants on Fridays and Saturdays during the COVID-19 period further exacerbated this trend. Investments thus fell sharply in 2020, to just $16.8 million. This decline posed a threat not only to the renewable energy sector as a whole, but also specifically to its local workforce.

However, a change occurred after Bisher Al-Khasawneh’s new government assumed power in October 2020, with the renewable energy sector again experiencing growth: in 2021 the value of investments reached $307 million. Furthermore, in 2022 the government decided to resume licensing renewable energy projects larger than 1 megawatt, albeit with strict new regulations.58

While this return to growth in the sector is positive, it should be noted that there have been no radical amendments to the billing and tariff system, and no policy reforms. A modest fee (equivalent to $2.8 per kWh of renewable energy) was imposed in the domestic sector only (specifically those owning renewable energy systems), overlooking other sectors like banks, private hospitals, factories and telecommunications companies, for which a revised tariff structure is equally needed. As a result, the problems that have hitherto plagued the sector may expand in the future.

Mainstream media in Jordan have presented a rosy image of Jordan's rapid transition to renewable energy, but this narrative glosses over the considerable obstacles still facing the country’s electricity system, such as the inability of the electrical grid to absorb more energy. This problem arises because the very rapid growth in new energy sources has not been accompanied by matching growth in infrastructure and the development of the electrical grid.

Any proposed solutions to the energy crisis in Jordan need to be realistic and implementable. At the same time, popular, civil and trade union forces should push for national policies that make energy sovereignty a top priority. Despite the unavoidable ramifications of the unjust contracts entered into by previous Jordanian administrations it is possible (and necessary) to start gradually building the capabilities of the sector towards achieving its independence. To do this, the sector should continue to expand at the local level, thereby reducing both energy production costs and the need for large projects that are funded by the private sector and foreign investments. This will benefit NEPCO financially and will also reduce its need for international funds. However, this will only be possible by moving towards more renewable energy sources, and by putting in place a framework to treat these sources as public goods, rather than commodities.

Developing a national strategy for building Jordan’s renewable energy capacity is the first building block in this trajectory. The next priority should be to develop decentralised small-scale self-generation systems for individuals and small institutions that can meet their needs equitably and directly while also reducing the load on the national grid. This will improve people’s lives by lowering their energy costs while simultaneously reducing the burden of subsidies on the state. Such decentralised systems are a crucial means of achieving development and can be effectively deployed and strengthened on a national scale. This can help reduce the role of large companies in Jordan’s energy sector. However, the effective deployment of these systems requires a strong role for public funds and financial institutions, such as has been played in the past by the Cities and Villages Development Bank, the Agricultural Credit Corporation, the Rural Electrification Project, and Jordan’s Renewable Energy and Energy Efficiency Fund. Such institutions could act as the largest funders of renewable energy systems and could seek partnerships with engineering and commercial sectors, and with local expertise, to establish new systems and projects.

Jordan’s energy sector has suffered in the past due to reliance on sources (local and imported) in excess of its needs, often at unaffordable prices, which has raised the cost of energy domestically and caused financial losses for the public energy sector. This could be remedied through a comprehensive strategy that stimulates the demand for electricity in key sectors where this would be socially beneficial, including by electrifying the activities of government ministries. For example, transport (public and private), which consumes approximately 49 percent of Jordan’s primary energy imports,59 could be electrified. This (and other similar) changes would reduce the state energy bill, optimise the use of local resources, and stimulate much-needed economic growth.

Another area of use for Jordan’s existing generation capacity is sea water desalination. Through powering desalination plants, electricity could be used to address the country’s water poverty. Here it is important to take note of the recent agreement between Jordan and Israel, sponsored by the UAE,60 under which Jordan will purchase 200 million cubic metres of desalinated water from Israel each year, in exchange for electricity produced by a 200-megawatt solar power plant in Jordan. This makes Jordan dangerously dependent on Israel, especially alongside its above-noted reliance on Israeli gas (please see Manal Shqair’s chapter in this book). It is essential to pressure the state to cancel this agreement, and to strive for domestic synergy between the energy and water sectors, including by using modern renewable energy technology for water desalination and restructuring water networks to waste less energy and water. This would enhance the role of clean energy in Jordan and provide for its water needs into the future.

Finally, creating a common Arab and regional energy market remains an important, as yet unfulfilled, project for the region. This would contribute to resolving the energy crises, not only in Jordan, but across the region. Strengthening current electrical interconnection projects with Egypt, Palestine and Iraq, and establishing new and expanded projects to connect the region, would enhance the stability of electrical systems in Jordan and abroad. Further, such a move would reduce the technical problems currently facing the sector and increase the capacity of renewable energy networks. This would be of great economic benefit as it would exploit all of the contracted generation capacities and would allow for the mutually beneficial sale of energy to neighbouring countries – like Lebanon – that are suffering from acute energy shortages.

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