Commercializing Clean Energy

Venture Magazine Commercializing Clean Energy MASE Energy

Post originally published by Venture Magazine.

The environmental argument for the greater use of renewable energy is solid, but can anyone really make money from it in Jordan?

With the endorsement of the Renewable Energy and Energy Efficiency Law last year, Jordan cleared a major hurdle in its race to broaden its energy supply away from its crippling reliance on expensive oil and gas imports. The law allows private companies and home owners to produce power using renewable energy sources, and receive payment for piping power back into the grid.

Several local and international companies have so far shown interest in establishing wind and solar plants in Jordan. Examples include Philadelphia Solar, as well as Modern Arabia Solar Energy (MASE),which is partnering with some of the world’s leading renewable energy companies to build its first photovoltaic solar plant.

SELLING SOLAR PLANS

Established five years ago to produce photovoltaic modules that generate electricity from the sun, Philadelphia is the country’s first company to be given the green light to establish a power plant that operates on a commercial basis through a direct proposal.

Located in Mafraq, the plant is set to generate around 10-megawatts per hour, as long as solar radiation is available. Radiation hours per year at its location are 1,700 hours, minus the nights and the cloudy days in the winter.

“Hopefully we will start the building process in two months, right after we sign the power purchase agreement and the financing agreement with the bank. Then we can start ordering the material,” said Philadelphia Solar CEO Abdulrahman Shehadeh, as he pointed at the project’s design maps laid out on a meeting table. The company will apply for a $22.6 million loan from the Arab Bank, which will cover up to 80 percent of the project’s total cost. The plant’s construction process will take up to six months to complete. 

Shehadeh believes building a PV solar plant will be a sound investment, and will create hundreds of jobs for Jordanians. “Once we settle the loan we can start generating income in seven to eight years. I think it’s very feasible,” he said, adding that his company already exports PV modules to 24 countries including the UK, Germany, Italy, Cyprus, and Saudi Arabia.

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MASE’s Director of Operations Tareq Khalifeh agreed that generating renewable energy on a utility scale was indeed financially worthwhile. He estimates the cost of solar power projects like his to hit $2.3 million per megawatt, and the estimated annual operational and maintenance costs are up to $300,000, including insurance. “It’s very feasible. The pay-back period is typically five to seven years. The Feed-In Tariff is fixed and has been already set, so it will depend a lot on the cost of the modules and what sort of financial support you receive, whether it’s project finance or a direct loan,” he explained. 

Joining MASE in a consortium to build the 10-megawatt facility are Spain’s Ennera Energy and Mobility, and South Korea’s Hanwha Solar. The facility will be located within the Maan Development Area (MDA) in the city of Maan, which was chosen by the government for being one of the locations that receive the highest solar radiation in the world, with levels up to 2,200 kWh per square meter. 

The consortium was one of the entities that have signed an MOU with the Ministry of Energy and Mineral Resources. MASE also signed other MOUs with the land owner of the MDA in July 2011 and the National electric Power Company (NEPCO) in June 2012. “If all goes well we expect to sign the power purchase agreement in September, and taking the construction time into consideration, we can probably start production by April 2014,” Khalifeh said.

HIGHER LEVEL PLANNING

The new law stipulates that in coordination with companies like MASE, which are deemed Bulk Supply Licensees, the ministry may issue tenders or attract proposals on a competitive basis for the development of designated sites to generate electrical power. The legislation also states that, with the exception of sites that are being developed through a public tender, anyone may submit a direct proposal to the ministry or to whoever has been entrusted by the Council of Ministers in order to develop any site for the purpose of exploiting renewable energy sources.

According to industry sources, over 60 expressions of interest were submitted within the past year to the Ministry of Energy. Out of these, around half passed the qualification criteria, which say the company must be financially sound, and 12 have so far successfully submitted and signed MOUs. They now have permission to begin approaching financial institutions for funding. The qualification criteria also required that each company includes references of past experiences such as previous completed projects and financial track records, but since the majority of Jordanian companies fail to meet this particular requirement, many have opted to partner up with foreign companies.

According to energy experts, the disruption of Egyptian gas supplies to Jordan has made renewable energy a worthwhile investment because until now it had to compete with subsidized energy from Egypt.

Despite these positive developments on the legislation level, developers of power plants still have some hills to climb. Although Khalifeh is particularly excited about the Feed-In Tariff, which was set at 12 piasters (17 cents) per kWh, Shehadeh believes it’s unfair to treat different areas of Jordan equally. “The only thing that I can criticize is that they don’t distinguish between locations. For example in the South, and Maan in particular, radiation hours is 2,200 kWh per square meter, while in Irbid it’s 1,700. So they set the same rate for the kilowatt we generate in the North as in the South. It’s a big mistake,” said Shehadeh.

Yet Khalifeh argues that looking at the tariffs in terms of how they reflect on the feasibility of the project, makes it very feasible. His project is looking at an Internal Rate of Return (IRR) between 10 and 14 percent, which he says is high compared to the global standard. 

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 Khalifeh believes current tariffs were set as an incentive to lure investors to the sector, and chances are they will not last for long. A western expert agreed, saying that to help alleviate the investor concern, the previous Minister of Energy Alaa Batayneh was able to get the Cabinet’s approval to guarantee the MOU holders the ceiling tariff rate. “That’s in place just for this year as a motivation to get the MOU holders moving. He wanted some results. I think it got the MOU holders’ attention.”

The Chairman of the Jordan Green Building Council Mohammad Asfour helped represent the private sector in drafting the law with the Parliament’s energy committee. Although he believes the law was a positive step forward, he said the private sector was not satisfied with some of its aspects, particularly the independence (or lack thereof) of the Renewable Energy and Energy Efficiency Fund whose duties include developing standards for the selection process of projects to be funded and obtaining approval for funding.

“The fund is not independent at all and is based at the ministry. I’m sure red tape will [affect their work] because I’ve worked in the government. It should have a board not a committee and the board should include members from both the private and public sectors, which is not the case,” Asfour told Venture.

Khalifeh pointed to another hurdle, which is the lack of local expertise, especially in the newly introduced renewable sector and mostly in the technical aspects.“Most of the training and education comes from on-site training. So we do plan to train our own engineers once we start developing the plant and we do plan to establish our own operation and maintenance division.”

Although investors were holding their breath during the cabinet change, fearing that Batayneh, who was an avid advocate of renewable energy, would be replaced by a less progressive minister, they were not disappointed when Malek Kabariti succeeded him. The incumbent minister has long been a proponent of renewable energy and a sturdy opponent of nuclear plans.

A SUNNY OUTLOOK 

Experts and many local officials believe that electricity generated using renewable energy is not the answer, but part of the solution. Yet Asfour argues that even if the amount of energy will be small, it’s still a strategic decision in the long run because solar prices are dropping sharply and they will likely become even more feasible in the near future. 

The push to diversify our energy resources has been welcomed by local and international energy experts particularly as it will soon start to make a dent in the country’s electricity bill. But what happens in the future depends on the investors’ appetite after this round, said Khalifeh. “This is a learning phase for the country and for international companies who’ve been involved in renewable energy…they will see how this sector is developing in Jordan. Within the next five years I think there will be an increase in the number of private developers,” he explained.