Investing in Jordan: The Run on Renewables

Energy starved Jordan, which has to import some 96% of its energy needs, is very serious about renewable energy-and so are international investors who are flocking to the country at a shocking pace, but there are pitfalls to look out for and the pace of investment should perhaps be a bit more cautious.

Jordan's 2007-2020 National Energy Strategy aims to reduce energy imports from 96% to 61%, the government has pledged to upgrade the energy sector by taking advantage of local resources, including renewable energy and oil shale (not to be confused with shale oil).

If nothing else, Jordan has massive solar energy potential, located within the world's "solar belt", with average solar radiation ranging between 5 and 7 KWh/m2, which implies a potential of at least 1000GWh per year. While this is all decentralized right now-with solar units in rural and remote villages currently used for lighting and water pumping, and some 15% of all households equipped with solar water heating systems-by 2020, this figure is expected to be at around 30%.

Jordan's first phase of its potentially overly ambitious renewable energy program envisions 12 solar projects; and it is now preparing to sign agreements with developers for every single one of them, following detailed negotiations.

Jordan plans to generate 850MW of renewable energy per year, with 2017/2018 when it should all be linked to the national electricity grid, according to the official game plan.  

For the solar projects (as for wind projects), companies submitted development proposals that were then approved by the government and should now be implemented on a build-own-operate model that is attractive to investors.

Beyond this, Jordan is being lauded for having (almost) uniquely defined feed-in tariffs, which dictate what third parties have to pay for renewable energy. In the entire region, outside of Jordan, only Iran and Algeria have this model, which makes procurement much easier. In essence, what investors appreciate is that it is signing power purchase agreements for the first phase, and this in turn helps ensure that Jordan will see investments in the subsequent phases of its renewable energy program.

Who Is Investing?

That question is easy. Everyone is investing, and Amman is now specifically trying to lure more Saudi investment into the renewable energy sector, which Jordanian officials have singled out as "particularly lucrative."

Here is a look at who is investing in round one of Jordan's solar project so far:

•    Qatari-owned Nebras Power (set up in 2013 by Qatar's Electricity & Water Company for the express purpose of buying up foreign energy and water assets). Nebras in June 2014 agreed to buy a 35% stake in a new 52.5MW solar power plant being constructed at Shams Ma'an in southern Jordan. Nebras is a $1 billion investment vehicle, which is 60% owned by Qatar's Electricity & Water Company).

•    Diamond Generating Europe, a subsidiary of Mitsubishi. Diamond will also be investing in the same solar plant along with Nebras, buying its own 35% stake.

•    Jordan-based Kanwar Group is investing in the same solar project, acquiring a 30% stake. (At the end of the day, the Nebras-Diamond-Kanwar consortium will finance, build and operate the plant with a 20-year deal to supply Jordan's National Electric Power Co (NEPCO) for THE ENTIRE output of the plant, which will be the largest in the Kingdom and the first to come online.)

•    Portuguese Martifer Solar and Dubai-based Adenium Energy Capital, an investment and development group, are also in on the Shams Ma'an solar project.  

Round two, or phase two, of the solar plan will see more investment, with some key international players to look out for.

Oil shale contracts seem to have progressed more slowly than renewable contracts, however, the government in mid-June concluded negotiations on one such project -- designed to generate 470 megawatts of electricity from the country's vast shale oil reserves -- with an international company. On 29 June, the Jordanian Council of Ministers finally endorsed all agreements between the NEPCO and an Estonian company that will lead a mega oil share energy project there (after it's already been trying to extract for five years or so). The $2.4-billion project will produce electricity through the direct burning of oil shale. This makes for the largest oil shale project anywhere in the world.

The Pitfalls

There have been plenty of bureaucratic pitfalls, including failure to implement specific legislation in some cases, which has caused procurement delays.

But what we're most concerned about is the lack of due diligence investigations into local and regional partners teaming up with foreign investors.

For the more plugged-in analysts on the ground in Jordan, the pitfalls will be clear: The vultures who prey on foreign investors have come out in full force in the renewable energy sector. Their biggest game is to swoop in as real estate brokers to sell land to foreign investors looking to get into renewable energy. These illegitimate brokers are using foreign investors as instruments for securing bank loans or outright swindling foreign investors who don't know any better.

Knowing your potential future partners is not only crucial, it is possibly the key element that will determine success or failure. Potential partners and third-party brokers should be thoroughly investigated for overall reputation, criminal activities, ties to criminal or dubious figures across the region, money-laundering and terrorism funding-or foreign investors could find themselves not only cheated, but facing severe damage to their reputations and in violation of the foreign corrupt practices acts in the United States and Western Europe.