Renewables are the energy source of the future. Not too many years back it was hard to conceive that the sun’s rays could be harnessed into electricity – those what-will-the-future-look-like Laserdisc videos students were forced to watch when the substitute teacher covered 8th grade Life Science just didn’t seem that realistic. While planet earth may not be the utopian dream thought up then, today renewable energy is more and more the source of power charging our smartphones, lighting our homes and cooling our places of work.
Today the outlook for renewables is promising, linked to international commitments to reduce greenhouse gasses agreed to at the Paris Agreement in December 2015. There, Lebanon committed to reducing gas emissions by up to 15 percent unconditionally and by as much as 30 percent, depending on the provision of international support, both by 2030 (see climate change article). Alongside installing more renewables on the path to achieving emission reduction targets, Lebanon will need to restructure its electricity sector but, as it stands now, there is seemingly no will to reform.
In terms of renewable energy generation Lebanon has made progress. By the end of 2015, Lebanon had installed 9.45 megawatts of solar photovoltaic, according to a September report published by the United Nations Development Programme’s (UNDP) Small Decentralized Renewable Energy Power Generation (DREG) project. The cost of installing solar photovoltaic at factories and commercial facilities has fallen from $5.3 per watt in 2010 to $1.7 per watt in 2015, while operating savings from Lebanon’s photovoltaic installations have risen from $191,000 per year in 2010 to $2 million per year in 2015, according to the DREG report. In terms of climate change, solar installations have a measured carbon reduction, initially removing 351 tons of CO2 in 2010 and increasing to 18,000 tons of CO2 in 2015. The cost of removing one ton of CO2 can thus be calculated at $198, a figure that would dramatically decline were Lebanon able to install utility-scale (20 megawatts or more) solar photovoltaic projects (see The Lebanese solar revolution).
The cost of removing carbon is an important indicator to finance renewables. For international donors it doesn’t matter where in the world the reduction of carbon occurs as long as it’s done at competitive costs – for them. The impact of their funding will be the same globally whether a ton of carbon is no longer emitted in Lebanon or elsewhere.
Despite the obstacles preventing renewables’ scalability, there is local money available to finance installations. Lebanese businesses have the option of subsidized loans for renewables and energy efficiency projects through low interest rate loans distributed by commercial banks – a funding mechanism known as the National Energy Efficiency and Renewable Energy Action (NEEREA). Of the more than $350 million that NEEREA is said to have channeled into renewables and energy efficiency between 2012 and 2015, solar photovoltaic reached only $30.5 million cumulatively since 2010, according to the DREG report. That small chunk put toward solar may be due to the obstacles blocking its scalability and because of the political and financial risks in reforming the electricity sector. But the limited uptake of NEEREA money for solar might suggest that some energy efficiency projects are crowding out more worthy emission reduction investments, Executive has previously reported.
There are legal and technical obstacles preventing the scalability of renewables that will need to be addressed moving forward – namely the lack of a net-metering scheme (a billing mechanism crediting renewable energy providers for feeding electricity into the public grid) and the gap in Electricité du Liban (EDL)-supplied electricity blocking renewables from offsetting carbon emissions from the dirtier electricity produced by private generators that many homes and businesses connect to off-grid. The electricity sector demands reform, but, as it stands now, there is simply no will. Without restructuring, foreign donors will have zero appetite for fixing the grid, and private investors see no upside in pouring money into the bankrupt utility.
But the opportunity for Lebanon to restructure its electricity sector has never been more ripe. The momentum of the climate change agreement and a fall in oil prices provide a unique platform for debate in 2017 on how the country powers itself.
Imagine investing the $2 billion of annual subsidies to EDL into renewables for one year, a dream scenario that the head of the ministry of environment’s climate change team, Vahakn Kabakian, proposed in an interview to Executive earlier this year.
EDL is a huge drain on the state’s coffers because of the significant subsidy at which electricity is generated and sold to the public. Since 1996, the government has helped cover the cost of generation, capping the purchase of fuel by EDL at $25 per barrel, with the treasury covering the difference. EDL also sells electricity at the fixed rate of 75 LL ($0.05) per kilowatt hour to distributors, while subscribers are charged on average only 133 LL ($0.09). “This decision has to be changed – we are simply unable to continue to subsidize the sector in the same way,” Ministry of Finance Director General Alain Bifani told Executive last year. The treasury was transferring some $2 billion per year until oil prices dropped in 2015 – leading to a decrease in subsidies to EDL from $1.4 billion during January to August 2014 to $520 million over the comparable period for 2016, according to ministry of finance figures (see EDL subsidies chart).
But rather than take advantage of the chance for reform it was, in the past year at least, business as usual in Lebanese politics.
[pullquote]EDL is a huge drain on the state’s coffers because of the significant subsidy at which electricity is generated and sold to the public[/pullquote]
Last fall, the Amal Movement and the Future Movement accused former Minister of Energy and Water Gebran Bassil and his Free Patriotic Movement of incompetence in the tendering and implementation of contracts for electricity projects and of misspending some $1.2 billion. In 2010, everything looked good on paper for the electricity sector. Bassil had put forth a master plan that by now would have delivered 24 hours of uninterrupted electricity generated cheaply by clean burning natural gas.
Ghazi Youssef, a Future Movement parliamentarian, accused Bassil in a September 2015 interview with Executive of focusing on the wrong priorities, incompetence and corruption. He says Bassil focused on rehabilitation projects at the Zouk and Jiyeh power plants, calling them low-hanging fruit, when he should have been focused on big picture projects that would significantly upgrade Lebanon’s generating capacity.
Bassil seemingly did bungle a tendered contract to build a 535 megawatt power plant at Deir Ammar worth $660 million by consortium Abenor-Butec, reneging on the contract when the consortium refused to lower the agreed upon price by $160 million. The project was re-tendered and awarded to a consortium led by Cypriot firm J&P, but a dispute over the payment of the project’s $50 million VAT delayed construction.
Accusations aside, Bassil’s plan to install an additional 1,500 megawatts of electricity generating capacity made no progress, largely because the plans to construct new power plants stipulated public-private partnerships – a scheme requiring legislation that every politician seems to support but that has not been passed into law by the parliament. Lebanon currently has 1,500 megawatts of installed capacity, with that number set to rise as new reciprocating generators were scheduled to come online at the Zouk and Jiyeh power plants in 2016 – sources tell Executive that the Zouk installation is complete but not yet switched on.
Demand, however, continues to exceed production capacity by an average of some 800 megawatts, with the gap being filled by private generators. Every month the Ministry of Energy circulates a list suggesting a price at which private generators should offer 5 and 10 amps to subscribers – and the ministry of economy has a hotline for consumers to report price violations – but it is not clear how well the policy is enforced. The business of private generation is a lucrative one which, according to a 2011 ministry of energy study, was worth $1.7 billion per year.
Progress was made in privatizing some of EDL’s activities – those tasks of network operation and maintenance, metering and bill collection. But the revenues collected by the three main contracted distributors, BUTEC, KVA and NEU, are not published, nor are the financial books of EDL. The only indication is from EDL’s contribution to the bill of oil imports, $25 million in 2015, according to BlomInvest Bank.
Bickering at the political level has highlighted opportunities for Lebanon’s private sector to step into the business of electricity generation, some with more success than others.
Bassil’s plan for 24 hour electricity has, obviously, not fully materialized. That has left individual areas to come up with their own plans to produce electricity – starting in Zahle in 2015, with plans announced for Jbeil (Byblos) and Tripoli.
[pullquote]Bickering at the political level has highlighted opportunities for Lebanon’s private sector to stepinto the business of electricity generation[/pullquote]
In 2015, Zahle implemented a local plan to bring some 53,000 subscribers 24 hours of electricity by generating 48 megawatts of power. Assaad Nakad, chairman of Electricité de Zahle (EdZ), has not responded to Executive’s requests to fully understand the plan. Byblos Advanced Energy (BAE) has plans to build a 64 megawatt power plant in Jbeil to serve nearly 28,000 customers, a total investment requiring $68.4 million, Executive reported last December. The project is shovel ready but is awaiting license approval by cabinet. Its principal Mario Chelala said that no progress had been made – “from promises to promises, we are still stuck,” he wrote to Executive in an email in December 2016.
For Tripoli there are two plans to supply the city with 24 hour electricity. Najib Mikati, a former prime minister, established Nour al-Fayhaa, but in announcing the new electricity company in September 2015, he offered few details on how the new entity would generate electricity for the some 600,000 customers in Greater Tripoli. The other plan announced this October, by Tripoli businessman Mohammad Adib and EdZ chairman Nakad, would generate 150 megawatts. Representatives for the plans did not respond to Executive’s inquiries to understand the technical details.
Lebanese would welcome 24 hour electricity; in most countries what is a basic public service is in Lebanon a luxury for those who can afford two utility bills. The private sector initiatives are certainly welcome and are not to be discarded if the plans achieve what they promise – around the clock power for homes and businesses. But it may be too much to ask for private sector plans to incorporate renewables in their electricity generation schemes, especially given the legal, technical and political obstacles they face.