In spite of progressive regulation, which has increased the proportion of renewable energy that supplies Jordan’s electricity grid in the last decade, the country is exposed to international fuel import costs that could hike the debts of utilities.
The ongoing conflict in Syria and the resulting influx of Syrian refugees, especially between 2012 and 2015, has had a significant impact on Jordan’s energy sector. As of January 2023, there were 661,670 Syrian refugees registered with UNHCR (the UN refugee agency) in Jordan, with 80 per cent residing in host communities and 20 per cent in camps. This rapid growth in population in rural and urban areas has increased pressure on energy infrastructure and demand, especially in the north of the country (the governorates of Mafraq, Irbid, Jerash, Balqa, Madaba and Zarqa). Higher demand for water as a result has also ramped up electricity use, as around 15 per cent of Jordan’s electricity goes to treating and pumping water.
Vulnerability to international fuel prices and policy responses
For the past two decades, the political situation in the Arab region has also affected Jordan’s energy security – limiting and at times stopping the supply of cheap oil from Iraq and gas from Egypt. In 2012, Jordan put in place a policy and regulatory environment conducive to renewable energy. This included a provision for net metering – a billing mechanism that allows consumers who generate their own electricity to use the amount of electricity they produce at any time, instead of only when it is generated – and wheeling. This regulation has enabled Jordan to attract investment in solar and wind power, which accounted for 13 per cent of the country’s electricity generation in 2019, up from 0.7 per cent in 2014, and reached around 26 per cent by 2021 (surpassing an earlier target of 10 per cent).
In 2018, imported fossil fuels accounted for around 93 per cent of the total primary energy supply, compared to 96 per cent in 2012. In spite of introducing significant amounts of domestic renewable energy supply and passive solutions since 2012, fuel imports have continued to rise (with a dip in 2020) as Jordan decreased its oil-fired power generation in favour of gas. Gas imports, in particular, are hard to reduce due to long-term contracts, which stipulate that Jordan must pay for the agreed amount of gas even if the country imports less. Coupled with domestic subsidies, this high level of dependence on imported fossil fuels has made the government budget vulnerable to international fuel price rises – such as those in 2014 and 2022.
In response, the government established new regulations and procedures aimed at increasing the revenue of the National Electric Power Company (NEPCO), which holds the largest international debts of the Jordanian state. This began with restructuring electricity tariffs from 2013 to 2017, and introducing an automatic electricity tariff adjustment mechanism (which raised and lowered costs in line with international fuel prices) to better protect NEPCO from fuel price fluctuations. In turn, this raised bills for public services and buildings, including water utilities, which passed on the hike in electricity cost for pumping to consumers. Furthermore, Jordan’s Energy Strategy 2020–2030 strongly focuses on increasing indigenous sources of energy.
The need to reduce utility deficits
While tariff reforms have helped stabilize utility deficits, accumulated national debt remains high. By the end of 2022, government debt stood at over 111 per cent of GDP as a result of constraints on business – and therefore lower tax and utilities’ revenues – due to the COVID-19 pandemic and higher import bills resulting from Russia’s invasion of Ukraine. Government debt includes that which is held by state-owned NEPCO, the Water Authority of Jordan and water distribution companies. In 2021, NEPCO’s accumulated losses were JOD 5.13 billion ($7.22 billion), while Water Authority of Jordan debt was estimated to be JOD 2.5 billion ($3.52 billion). The World Bank continues to work closely with the government on electricity sector reforms and investment policy to reduce deficits.
In spite of introducing significant amounts of domestic renewable energy supply and passive solutions since 2012, fuel imports have continued to rise (with a dip in 2020) as Jordan decreased its oil-fired power generation in favour of gas.
Large public buildings are charged at high rates for much of their electricity use, and many facilities are in arrears. Buildings such as hospitals and state schools using more than 500 kilowatt hours (kWh) per month pay more than most commercial entities (see Table 1). Energy bills are substantial. For example, total energy costs for the ministries of education and health were JOD 20.3 million ($28.6 million) and JOD 10 million ($14 million), respectively, in 2018. At the same time, urgent spending is required in many other areas, including on salaries, particularly in view of rising inflation. Furthermore, whereas schools were closed for periods of lockdown since 2020, hospitals faced higher diesel and electricity bills due to increased demand as they continued to provide services during the COVID-19 pandemic.
