Jordan Assessment Report

Transcription

1 Ms Nicola Ehlermann-Cache Head of the MENA Investment Programme OECD Global Relations Secretariat MENA-OECD INVESTMENT PROGRAMME With the financial assistance of the European Union JORDAN ASSESSMENT REPORT: OPTIMISING THE INCENTIVES FRAMEWORK FOR RENEWABLE POWER INFRASTRUCTURE Jordan, and the wider Middle East and North Africa region, boast some of the world s best resource endowment for the deployment of renewable power. Yet in a context of volatile oil prices and fast-rising energy needs, the enhanced risk perceptions and costs associated with renewable energy projects, heightened by imperfect market conditions and economically-distorting energy policies, hamper private sector participation in this sector. This report intends to respond to this situation with a focus on Jordan s incentives framework for renewable energy infrastructure. Prepared at the request of the Jordanian Ministry of Environment, and in collaboration with the Jordanian Ministry of Energy and Mineral Resources, it provides an in-depth analysis of Jordan s efforts to promote private investment in renewable energy infrastructure in light of the country s energy needs, fragile sources of supply and macroeconomic environment. The consultation process was finalised during a Public-Private Dialogue organised on 26 October 2014 in Amman which brought together government officials, private sector operators, financiers, experts and IFI representatives in a policy dialogue focusing on the key findings and recommendations from the report. PRIVATE SECTOR DEVELOPMENT Project Insights Jordan Assessment Report Optimising the Incentives Framework for Renewable Power Infrastructure Executive Summary

2 DISCLAIMER The opinions expressed and arguments employed herein do not necessarily reflect the official views of the OECD or of the governments of its member countries or those of the European Union. This document and any map included herein are without prejudice to the status of or sovereignty over any territory, to the delimitation of international frontiers and boundaries and to the name of any territory, city or area. With the financial assistance of the European Union

3 EXECUTIVE SUMMARY Jordan relies almost exclusively on imported fossil-fuels to meet its increasing electricity needs, which has led to a five-fold rise in the cost of electricity and, thus heavily subsidised consumer prices. This fiscally and environmentally unsustainable situation has led to losses from supplying electricity equal to more than 5% of GDP. Developing renewable energy 1 can enhance energy security, improve access to affordable energy, create jobs and mitigate climate change. The government of Jordan has recognised the importance of renewables and launched the 2007 Master Strategy of the Energy Sector with an ambitious target of generating 7% of total primary energy supply from renewables by 2015 and 10% by In view of these targets, the Renewable Energy and Energy Efficiency Law (REEEL), was adopted in 2012, to incentivise private sector investment in renewable energy. This study reviews this incentive structure from a regulatory, financial and fiscal perspective. The incentive structure has been successful in attracting investment in renewable power putting the country on track to meet its 2015 target. However, optimising the incentives is necessary in order to meet the 2020 target, as this will require a further gigawatt of renewable power capacity. The OECD has identified a number of gaps in the incentive framework and developed proposals for policy makers. ISMED s work in the MENA region suggests that the key findings and policy proposals arising from this study can be instructive region-wide wherever private investment and participation in infrastructure is sought. Many of the themes evident in Jordan s renewable energy sector are explored in the upcoming OECD publication, Public-Private Partnerships in the Middle East and North Africa: A Handbook for Policy Makers, which examines barriers facing PPP projects in the MENA region and steps that could be taken to address these barriers. For example, transparency of the tariff regime, its stability and the process by which winning bids are selected, is vital regardless of sector or country. The need for well-articulated strategies that take an integrated approach to the entire sector and how any individual project will fit into the sector is also vital and applicable region and sector wide. This illustrates that while there will be factors specific to sectors and countries, some of the fundamentals of attracting private sector investment in infrastructure are common regardless of location or context. Key challenges which may hinder Jordan from meeting its targets include: Despite the ambitions expressed in the 2007 Energy Strategy, the positioning of renewables relative to nuclear energy is unclear for some stakeholders. Concerns have been raised over how the incentive framework for renewable energy will evolve as the sector matures. 1. Renewable energy is defined as energy derived from natural processes (for example sunlight and wind) that replenish at a faster rate than they are consumed. Solar, wind, geothermal, hydro and some forms of biomass are common sources of renewable energy (IEA, 2014). Solar and wind have the greatest potential in Jordan and so are the focus of this study. 1

4 There may be insufficient capability on the existing grid to accept and balance renewable sources. This is especially so in the south where some of the most promising renewable resources are located. The National Electric Power Company (NEPCO) and other distributors may not receive sufficient incentive to connect renewables to the grid. The variable nature of renewable energy can create costs for distributors, and this may not be properly accounted for in current distribution tariffs. Viable tariffs are currently being offered and this is attracting investment, especially in solar photovoltaic (PV) and wind. However, concerns have been raised with regard to the transparency of tariff setting and criteria for selecting bids in a direct round when there are more qualifying bids than capacity. The lone fiscal incentive offered, an exemption from sales tax and customs duties for relevant renewable energy equipment, is not being applied in a consistent manner. Public monitoring and evaluation of the current incentive scheme for renewable energy is very limited. Policy proposals to address these challenges include: An update of the 2007 Master Strategy of the Energy Sector to affirm the political commitment to renewables. A strategy for the renewable incentive framework could also be developed and published, describing the principles of, and limits to, government support. If not already in progress, a study should be undertaken on the ability of the grid to balance variable renewables and a non-technical summary of findings should be distributed widely. The "green corridor" transmission investment could be accelerated so that phases beyond the first phase, currently in progress, are delivered in time for planned generation capacity additions. While the required investment would be substantial, this infrastructure is crucial if Jordan is to exploit the renewable potential of the south. The Energy and Minerals Regulatory Commission could ensure that NEPCO and the other distribution companies receive sufficient incentive to connect renewables to the grid. The Ministry of Energy and Mineral Resources should publish the criteria by which one qualifying bid is selected over another when there are more qualifying bids than capacity to be procured in a direct proposal round. The outcome of the evaluation process should be published (with commercially sensitive information deleted) and feedback provided to bidders. Efforts should be made for a more consistent application of the tax incentive for renewables equipment and outcomes monitored to ensure that developers are confident they will receive it. Monitoring efforts should include an evaluation of the fiscal cost in relation to benefits arising from lower developer costs. If the incentive continues not to be used, or is found not to be cost effective, or not to be relevant in investment decisions, consideration should be given to its elimination. 2

5 A programme to monitor and evaluate the incentive framework could be designed and implemented, or any current monitoring programme within government could be made public. This would allow an assessment of the impact of the framework on current renewable developments and help ensure that the framework evolves in the most effective manner. One of the objectives of ISMED is to construct broader policy recommendations and guidance to facilitate private-sector investment in infrastructure on the basis of an in-depth analysis of a specific sector or project. While the findings and the proposals above have been developed with regard to Jordan and its renewable energy sector, there are a number of wider policy implications. These include the importance of and perception of political commitment, the requirement for strong legal frameworks to support private investment, the need for transparency of processes and the important role of the private-sector perspective and public-private dialogue. While Jordan s policy support for renewable power is, in many ways, an example of good practice for the region, and the country is on track to meet its 2015 renewables objective; the policy proposals outlined above could assist in refining and improving the incentive framework in support of the goal of generating 10% of energy supply from renewable sources by The OECD looks forward to further cooperation in support of Jordan s renewable energy goals. 3