By Omar Obeidat – Aug 24,2016

AMMAN – The Jordan Strategy Forum (JSF) has released a position paper on alternatives to increasing the electricity tariffs in Jordan, recommending three scenarios that, it said, “if adopted would boost the economic growth and reduce the Kingdom’s imports of energy.”

In its 11-page report, made available to The Jordan Times on Wednesday, JSF said there are many out-of-the-box solutions to overcome the crisis caused by energy prices that would at the same time avoid increasing electricity prices and support economic growth.

The report said that the fluctuation of oil prices and Jordan’s dependency on unstable foreign energy resources (97 per cent in 2014) have directly impacted the electricity prices for both the public and private sectors.

According to JSF, the energy prices became a serious drain on the general budget, which led to increasing national debt. In 2014, the energy bill reached around JD4.48 billion, constituting nearly 17.3 per cent of the gross domestic product.

The National Electric Power Company’s (NEPCO) debt exceeded JD4.5 billion in that year due to electricity prices subsidies, said the report, adding the increase had impacted the private sector and increased the operating expenses for most of the companies in different sectors, which led to a decrease in the profits and feasibility of many projects, and resulted in closing some of these companies and laying their employees off.

Opportunity scenarios

This JSF report suggested three scenarios that can be applied simultaneously or separately, as they are considered more sustainable alternatives whether for the Jordanian economy as a whole or for specific economic sectors.

First Scenario: Big consumers go green

Reducing the losses borne by large consumers (banks, telecom companies and mining companies) shifting towards renewable energy systems.

This scenario, the JSF said, addresses the losses that NEPCO would suffer as large consumers move towards renewable energy systems, as it suggests that the government facilitates the adoption of such systems by large consumers, and replaces the direct subsidy provided by these consumers with a surplus of produced electricity.

The additional electricity provided by such firms can be directed towards subsidising smaller consumer segments.

This is in addition to charging large consumers for electricity storage fees that the government would then utilise to build storage stations for electricity produced from renewable energy systems.

The paper said that generating the electricity consumed by banks, telecom companies and mining companies costs the government, represented by NEPCO, around JD74 million per year, adding that this amount of electricity, however, is then sold to these firms for approximately JD181 million per year.

Accordingly, government’s profit from selling electricity to these firms reaches JD107 million per year. It is postulated, however, that if electricity tariff for these consumers remains at these levels, then most of the firms in these sectors would move out of the electricity grid and depend solely on generating what they consume from renewable energy systems, which would result in the government potentially losing the entire profit it makes by selling electricity to these consumers (JD107 million).

Hence, forum suggests that amendments be made to the regulations governing electricity generation from renewable energy sources so that firms subsidising the tariff and categorised under the large consumers segment are requested to produce more than their average annual consumption.

Second Scenario:
No subsidies to top layer of consumers

The report said that charging households that consume more than 600Kwh per month the entire cost of electricity for all of their consumption, including that under 600Kwh, indicating that this measure would ensure that subsidies are only granted to smaller households that are in need of assistance.

According to the analytical study conducted by JSF, subsidising the electricity tariff of those households that consume more than 600Kwh per month costs the government an average of JD40 million per year. These consumers are considered privileged and are probably able to pay the full cost of their electricity consumption, as their electricity bill already exceeds JD50 per month.

Accordingly, JSF suggests that all households whose consumption exceeds 600Kwh per month must pay the full cost of their electricity consumption under this threshold. In other words, the recommendation is to apply the currently adopted water tariff model to the electricity tariff. This means that all these households would have to pay an additional JD22 per month to their electricity bills. As calculated by JSF, this recommendation would affect 152,000 households out of around 1,537,500 households, or 10% of household consumers in Jordan.

Third Scenario:
Assist and wean

Directing the subsidies granted to agricultural consumers and hotels towards generating electricity from renewable energy systems rather than subsidising the cost of supplying them with electricity generated from conventional resources.

In other words, the idea is to replace the subsidies provided to certain large consumers like hotels and agriculture consumers with subsidies directed towards paying off the costs of renewable energy systems.

The government subsidises the electricity bills of agricultural consumers and hotels with around JD41 million per year as it sells these consumers electricity below the cost price.

In this regard, JSF suggests that the government is better off by directing these subsidies towards helping these consumers set up and pay the costs of solar energy systems so that they are able to become self-sufficient in generating electricity. Under the current electricity tariff, the government subsidises each Kwh consumed by agricultural consumers with 50 fils.

JSF’s recommendation under this scenario postulates that the government subsidise each Kwh generated from renewable energy systems with 50 fils over the span of 5 years, during which agricultural consumers would pay off the cost of the renewable energy systems (and this can be applied to hotels as well although at different rates).

Through this measure, the study said, the government would pay the subsidy it currently provides these consumers with for 5 years, which is the time needed to pay off the cost of the renewable energy systems needed in collaboration with these segments of consumers. After the 5 years, however, these consumers will be self-generating the electricity they need at a very nominal cost for them and the government.