Home OpinionAnalysis Global obligations, big goals, and missing parts

Global obligations, big goals, and missing parts

Sketching the landscape of Lebanon’s booming solar energy market

by Thomas Schellen

The Lebanese government at time of this writing has at its disposal several tools, albeit non-financial, that are ready for deployment in the migration to renewable energy (RE). Two are national law projects: the yet-to-be-applied electricity law No. 462 dated 2002 and a new draft for a distributed renewable energy law (DRE law, see story by Christina Abi Haidar). According to independently made remarks by Hassan Harajli, head of the United Nations Development Programme (UNDP) Cedro project, and Rani Achkar, executive director of the Lebanese Center for Energy Conservation (LCEC), Law No. 462 is in need of, however rapidly doable, updating and activation; the DRE law is in Harajli’s words “extremely important” for solar photovoltaics (PV) on the industry scale. 

The top two other relevant tools in the official Lebanese kit are the updated National Renewable Energy Action Plan (NREAP), which according to Achkar was last month in the final stage of being readied for circulation among stakeholders in RE strategizing, and the updated Nationally Determined Contributions (NDCs), the climate commitments which Lebanon has taken at the end of October to the United Nations’ COP 26 summit in Glasgow. 

At the heart of these plans and commitments is the target of boosting sustainable electricity generation and achieving 30 percent RE capacity by 2030, meaning capacity that would satisfy the, under pre-crisis calculations for 2030 expected, demand to almost one third. Details on the shares of different technologies for reaching this overall target are laid out in the related 2020 Renewable Energy Outlook for Lebanon that was prepared in a collaboration of the Ministry of Energy and Water (MoEW), the LCEC, and the International Renewable Energy Agency (IRENA), Achkar tells Executive. 

The major technology-specific target data stated in the IRENA publication reflect the sunny disposition of Lebanon in proposing about two thirds of renewable power to come from solar sources in form of 2,500 MW of centralized (utility-scale) and 500 MW of decentralized solar PV, a small share of concentrated solar power (CSP, a solar thermal technology not to be confused with centralized solar PV), 1,000 MW of wind, and 601 MW of hydro.

The new edition of the NDCs has already earlier this year been submitted to the United Nations Framework Convention on Climate Change (UNFCCC), and reportedly Lebanon was the first country in the region to fulfill this step. “This paper includes a conditional element of 30 percent renewable electricity by 2030, in addition to objectives for renewable thermal energy, heating and a target for energy efficiency,” Achkar elaborates. He explains that the term “conditional” in this context means that the targets are contingent on obtaining international support. “Without international support, targets are lower,” he adds.

Details, seriously 

According to Achkar, the near push in this quest for RE shall be realized in the form of more than 500 MW in installed decentralized solar PV, and the leap to more than 4,000 additional MW in RE will come, on the utility scale, between 2025 and 2030. With these lofty targets also having been officially stated at the recent HLDE event by brand new MoEW, Walid Fayyad, and perhaps a little emboldened by the flabbergasting growth in the number of domestic new solar PV installations this year (see Energy Special Report Overview), the eyes of the LCEC appear committed to looking in one direction, which is straight ahead. 

Achkar appears undeterred by failures of recent years to realize either a long-envisioned wind farm project in North Lebanon’s wind-kissed Akkar region, the lengthy technical and administrative preparation of which he describes as a practically inevitable learning process, or to launch a utility-scale set of solar PV projects across different districts that were designed to provide a total of 180 MW from 12 solar PV farms. 

According to George Geha, general manager of RE enterprise Ecosys, the company was among the winners of the tender because it offered the best bid for a project in the Bekaa thanks to intense bid preparations and a design that used a tracking system for the solar panels. Despite all the effort, the win was incomplete. “The tender outcome was announced with us as winning bidder but we did not sign any contract because we were in the last phase of negotiations when the [financial] crisis came. This type of project needs international financing but there is no more banking sector and no international financial institutions that are willing to lend money to this country and to Lebanese organizations,” he says. 

This alludes to the first of three serious hurdles that have to be overcome if the Lebanese RE aspiration is to be achieved in full or large parts. These three hurdles are access to finance, resistance to change, and the need for new behaviors. Note, none of these hurdles is exclusively political. 

Resistance to change has a massive political component. At the bottom line, however, resistance to change and the need for new behaviors apply to all who constitute Lebanon, homemakers, housekeepers, business leaders, garbage tycoons, publishers, journalists, activists, academics, farmers, cooks, clerks, clerics, military personnel, security guards, bakers, brewers and butchers, athletes, artists, dancers, sports promoters, official tour guides, taxi drivers, delivery heroes or villains, peddlers in the most informal economy sectors, investors, lawyers and politicians all included. 

Finance, finance, and finance

Access to finance and investments is the most obvious need and most evident barrier in the path of anything requiring capital expenditure in Lebanon today. 

Due to the high initial capital expenditure for solar PV systems, the first significant tools of incentivization anywhere have been subsidies of the generated electricity and attractive loans. This was especially true before the 2010s, at a time when costs of photovoltaic panels were above $0.5 per installed kilowatt hour. 

The cost has come down radically and is below 10 cents and might be scratching $0.05 in utility-scale installations, which also for households means amortization periods that are cut to a fraction of their previous duration. 

Nonetheless, self-finance of a small solar PV unit out of savings is rare for households and upfront payment for an industry-scale or utility-scale project either impossible or financially nonsensical for these installations where professional finance and long-term power-purchase agreements (PPA) are the norm. Thus the disproportionate importance of loan finance. 

In Lebanon’s conservative financial environment of the 2000’s with its predominance of collateralized bank lending, central-bank supported loan instruments known as NEEREA (National Energy Efficiency and Renewable Energy Action) loans played an important role in widening the solar market from a narrow focus on solar water heaters and invigorated the nascent market for solar PV. Consequently, as these lending channels started to dry up from 2018 and then became defunct, the following period actually saw a gradual demise of demand reflected in lower PV capacity increase rates already in 2019. 

The importance of subsidized lending of a productive and green variety appears to be reflected in the latest Solar PV Status Report for Lebanon which, irrespective of other externalities and the subsequent severe economic disruptions, shows annual rates of increase in installed capacity varying from 139 and 151 percent in 2013 and 2014 to 43 and 38 percent in 2011 and 2019, respectively the years when the loans were new and vanishing. Seeing a fluctuation of more than 110 percentage points between the highest and lowest annual growth rates in a single decade might be read as the mark of an industry that is extremely sensitive to extraneous factors.

At solar PV company Novaenergia, the business growth of the mid to late 2010s, as at other sector companies, was indeed fluctuating. However, as managing director Joe Hawi recalls, there was overall strong business up to 2017 which in 2018 was shaken by indirect signals – but not clear messages – from the financial sector. “In 2018 we had signed a few contracts but received word that there was no financing for them. There was no clear signal, just calls asking for more time. Then the NEEREA loans were stalling. That was a bit of a shock, because as a company with an operating overhead it is not nice to hear that your projected revenue is disappearing for no reason,” Hawi tells Executive. 

RE players Ecosys and Phoenix Energy confirm that the liquidity crisis of 2019 brought numerous financing mechanisms to a painful halt, from NEEREA loans to private funding. “Due to the crisis, all these financing incentives stopped. This meant a major drop of solar business in the short term and it is no secret that the number of new [industrial and commercial] projects dropped tremendously between the third quarter of 2019 and the end of last year,” explains George Geha, chairman and general manager of Ecosys. 

According to him the demise of business in 2020 must also be partly attributed to the coronavirus crisis but the absence of financing was a key factor why expected demand for commercial projects in the past two years did not materialize, given the high capital expenditure required. While Ecosys could cover its overheads because of its earnings from projects outside of Lebanon, Geha adds he has seen too many local solar companies close down in the past two years. He is hardly cheerful about the access to finance getting better in the short term. “The biggest barrier is the Lebanese bankruptcy. No one is willing to give loans to a single bank in Lebanon until then,” he says.  

At the Phoenix Energy enterprise about 25 kilometers north of Beirut, general manager Simon Gerges likewise says that the company has in the past two years sustained itself mainly from its income generated in projects outside of Lebanon. He also sees no viability today in negotiating for foreign funding except possibly with the global community and International Financial Institutions (IFIs) on the strategic macro level. “Even for investors who are very interested in financing renewable energy, Lebanon is a high risk country that I don’t think they can approach. We actually had very nice projects that foreign investors wanted to invest in. Because private PPAs are not allowed in Lebanon, we were preparing for leasing options in PPA. These approaches are stopped for the time being,” Gerges tells Executive.   

After he was confronted with troubling signals on the availability of loans in Lebanon in 2018, Novaenergia’s Hawi has actually ventured into innovative financing of solar PV together with Looop, a partner company from the solar industry in Japan. Looop is a young company with a wide range of manufacturing and operational activities in Japan and overseas, a RE venture that has five funding rounds under its belt and according to its website has a capital in the range of $20 million. Discussions with the Japanese corporation were according to Hawi aided by the fact that Looop wanted to diversify further and saw Lebanon as a country that has no choice but to develop RE. 

The outcome was a joint venture named Looop Nova which Hawi, its managing director, describes as a “Japanese-Lebanese entity with the sole purpose of developing and financing business-to-business solar power purchase agreements in the Lebanese market.” To comply with the stipulations of the Lebanese law that do not allow peer-to-peer power purchase agreements, Looop Nova engineered leasing agreements with corporate Lebanese clients, thereunder installing solar PV at the client sites of business. 

This joint venture was immediately successful, which was reflected in 2019 revenue for Hawi’s enterprise that was better than the revenue Novaenergia is achieving in 2021, despite the residential demand boom this year. The lesson of the venture into a new financing dimension for Hawi was unmistakable. “We really made a paradigm shift and I can tell you that once there is financing for the Lebanese market, all the noise that is happening today will be dwarfed by the market’s appetite,” he tells Executive. 

Notwithstanding that the financial base of Looop Nova, deposited at a Lebanese bank, was massively impacted by the banking sector’s infamous shutdown of access to deposits, Hawi remains upbeat about the financing road and says he is in communication with IFIs, discussing the potential for foreign RE funding.    

Besides restrictions on access to finance, financial viability questions finally also stand in the way of new PV investment decisions by Lebanese industrialists, Gerges says, pointing to the price of solar versus the still low price of grid electricity. Even as diesel generator power is getting more and more expensive, tariffs for grid electricity are not yet on a clear path of adjustment and this is a barrier for an industrialist who has to decide whether to invest in renewable energy right at this difficult time. 

“The uncertainty about future costs of electricity is enormous. If in one year there were to be again 12 or 14 hours of electricity [from the grid], all the calculations [about viability of investing in PV] will be ruined,” Gerges says. This, however, to him does not change the Lebanese RE industry’s prospects in the long run. “We all agree that renewable energy will continue to grow on the long term,” he emphasizes.  

In the perspective of LCEC’s Achkar, there were some factors that helped in the stimulation of solar PV demand in 2020, a time when conventional power supply was still significant but growing concerns for future energy safety were on people’s minds. “People had the fears of higher electricity prices and at the same time their Lebanese lira savings were losing value, so they had to invest in something that they were sure of,” he lays out what he sees as the explanation why still some sizable new solar PV projects were emerging between the end of 2018, the time when support from financing mechanisms at the central bank become elusive, and the end of 2020. 

Achkar acknowledges, however, that there is no real access to finance that inquirers can be directed to this year. He reveals that not only has LCEC recently been in continual contacts with IFIs but that also banks have been reaching out to LCEC in search of support: they were looking around the world for programs offering liquidity that would allow these banks to finance solar PV projects. 

“Even banks are prioritizing investments in solar PV but they currently don’t have the means to,” Achkar tells Executive while indicating, similar to the vast majority of stakeholders in Lebanon’s RE sector (and stakeholders in anything in this country), that his hope for recovery of access to finance for RE and the implementation of the RE transition as top item on the national agenda, rests on the new government and reforms.  

Whereas the urgently needed agreement with the International Monetary Fund (IMF) thus is generally regarded as the sine qua non condition for stability-enhancing development of Lebanon that liberates access to finance and will claw back investors’ trust, the urgency of making progress in the RE transition recently also appears to be expressed in outside-the-box thinking. This calls for fast-tracking finance tools of crowdfunding, use of IMF Special Drawing Rights (SDRs) and green bonds designed in collaboration with the Lebanese diaspora. 

Climate proofing of development plans in Lebanon was another but less daring tool for attracting RE-focused investment into the country. At a UNDP webinar exploring climate issues and Lebanon’s NDCs in October just ahead of the COP 26 summit, Jihan Seoud, manager of the UNDP Lebanon office’s program on energy and environment proposed that adding climate risk mitigation measures to a broad range of projects in the development agenda such as the Lebanon Economic Vision of McKinsey could attract greater investments overall and eventually unlock billions of additional private sector investor dollars. 

“No lender will now give any loan to any [RE] project. So perhaps the government can be the first lender. If it uses SDR money to lend to [RE project] developers, the government can return this money to itself two years after a wind farm or PV farm starts generating, [provided that] it has done tariff adjustments and all that. This is the only way I see. Otherwise, we have to wait for a IMF program,” Harajli opined.

However, even when disregarding questions over the present value of old consulting plans, or of size and time needed for development of crowd finance channels, and legal frameworks for crowd investing, or of the conditionality of conversion of SDRs and using this debt tool (not to mention competition with other urgent social needs for using those scarce SDRs), the Godzilla issue of restoring international investor confidence cannot be assumed to solve itself in just a few months or years. 

In this sense, World Bank Group regional director Saroj Kumar Jha, a participant in the UNDP webinar, threw cold water on dreams of soon mobilizing new green finance for Lebanon: “Trust me, no investor is coming to this country until you take a large number of macro fiscal stabilization measures. The country is not conducive to any investor. Why would they come here?” 

As part of what he called his reality check on the situation, he emphasized that integration of climate change action in people’s agendas cannot be achieved by NDC updates, airy climate goals, policy notes, academic papers (or, unmentioned by Jha, economic magazine stories). In a country characterized by divergence of people and state, where there is no trust in the government or institutions, a national dialog with the people on climate issues and internalization of climate action into the people’s economic aspirations are more pertinent, he suggested, adding: “Our thinking has to be absolutely unconventional and very uniquely tailored to the Lebanese situation.” 

Stating a view that it will be very painful and take many years to stabilize the financial sector and move to growth, Jha nevertheless pointed to opportunities for Lebanon such as working with partner sovereigns who team up with investors for creation of exclaves where green investments would be completely ring-fenced and fully de-risked. Another idea would be to tap into diaspora expertise and means by setting up a diaspora green bond in a tripartite compact between the government, the diaspora, and a qualified financial advisor as facilitator.  But as first order of importance for a viable climate agenda in Lennon, Jha opined that the agenda must become the people’s agenda, that the people make climate their aspiration, and change their behaviors. 

Resistance to change 

Resistance to change is known to business organizations as risk and often experienced as highly detrimental by any entrepreneur and any team leader in any industry and third sector endeavor. It is a fact of life and its impacts on economic activities are feared by executives, ironically even by those decision makers that work in corporations and industries which themselves are very strongly resisting change, for example by shifting away from relying on coal for electricity generation. 

It can’t surprise that resistance to change is a feature of politics. News from any government in Lebanon – whether active, tired and about to resign, caretaker, or brand new – contains elements of a lesson on resistance to change and that behavior’s detriments and opportunity costs. 

Not accepting evident need for reform and insisting on “business as usual” has during at least the last ten, formed or even attempted, cabinets in Beirut meant that no effort was spared in not shaking the status quo and seeking change. Privileges, self-interests, and clienteles, none of which is appearing to be an endangered species in Lebanon, were defended with the same ardor as the most aggressive environmentalist might guard the habitat of the last living sea turtle. 

Knowledge of this past political trajectory, which meant that many important law drafts have fallen by the wayside, is not supportive of trust that the key laws for RE enablement will pass smoothly. Nor can it be assumed that the urgency, of the people’s increasingly desperate needs for safe, affordable, and sustainable energy from renewable sources such as wind, solar, and water, will ever be strong enough to overcome the resistance to change in the Lebanese political establishment. 

It is by the way no comfort but a highly worrying fact that Lebanese political actors are no outliers when it comes to long-standing resistance to necessary change. This global truth is at time of this writing being cemented as a further brick in the wall of climate degradation, with the COP 26 summit in Glasgow witnessing a continuation of resistance to change that was similarly observed in the contexts of the Kyoto Protocol’s adoption in 1997, the Copenhagen Climate Summit of 2009, and the 2015 COP 21 Summit that led to the Paris Agenda. One can further dig into the past to the UN’s 1992 Rio Earth Summit with its signing of the Framework Convention on Climate Change (UNFCC) and the 1972 “Club of Rome” shock message on the Limits of Growth and the perils of humanity’s “business as usual” path of industrial economic behavior. If one is so inclined, one might even find resistance to change evidence in every age tracing back through the industrial and pre-industrial past. 

Back in the present, even as it has become clearer and more compelling with every decade over the last 50 years that it is in the long-term best interest of large and small corporations and large and small nations alike to mitigate and remove climate risks, self-interests and irrational resistance to change, what the world has so far gleaned from climate summits has been hot air and perhaps a location list for a better James Bond movie. 

Behavior change

Behavior change born out of increased climate awareness and acceptance of responsibility for our world has two RE dimensions, one of energy preservation and one of building up renewable energy sources. And it seems to begin not just with awareness but with shocked awareness. “You cannot believe with what inefficiencies we Lebanese people across all sectors have been living. We have been living fat lives where each house has two or three cars and people keep three air-conditioners turned on at night. The crisis today is shaking the roots out of this system,” exclaims the usually stoic Harajli almost emotionally at one point in his conversation with Executive. 

And there is immense room for improving both production of RE from solar and wind (see above) and also room for better energy efficiency in Lebanon – and apparently some increasing awareness and budding new behaviors (see stories on mobility, composting, and waste avoidance). 

However, efficiency moves and behavior change are in order not only on the level of the too many Lebanese households that run AC units on wasteful and unhealthy settings and own upward of three cars, at least one of them a gas-guzzling SUV or muscle car. These private fancies are symbols of wasteful practices in industry and economic activities that exists in all political sects and among adherents to the various communities in Lebanon. 

Bassem Taki, a veteran engineer with 21 years of concentration on RE and energy efficiency tells Executive of commercial and industrial projects, including major retail sites, where reductions of up to 50 percent of electricity consumption were achieved by his team. It is a very important question how far electricity consumption could be lowered by better energy management but there is no standard answer because of power systems’ many components from generation to end users, he says. 

However, the most important component to the entire electricity net at this moment in the 21st century is the human mind. It is the mindset. As Taki tells the energy story, energy conservation gains are perfectly feasible in technical and economic terms but for the improvement of the energy safety it is necessary to increase awareness and knowledge on photovoltaic and other RE alongside with instruction on efficiency. Even to reduce a small load in electricity systems, changing user mentalities is needed through education and lectures, plus concrete incentives. 

“I find that around 20 to 25 percent of persons who attend my lectures [on methods for improving energy efficiency] will say, ‘yes, you are right’. But how many people will apply the lectures? Less than 20 percent of those who say yes. My opinion is that if you set a rule [of incentives] that give people a concrete benefit and then tell them, ‘do this and stop doing that’, you can convince people to do it,” Taki explains.

Taki maintains that a mentality change towards energy savings in Lebanon has to be induced from many points. “Energy saving starts with the knowledge and mentality of the people. Starting from the university, from the church, the mosque, all people should talk about this,” he advocates.  

But changes can start with small responses to large threats such as the collapse of livelihoods and energy safety in the entire nation. There are grassroots efforts going on in Lebanon as the global leaders speak in Glasgow (and before and after). Studies on energy efficiency enhancement potentials in small businesses and enterprises have shown that half of 86 sampled SMEs are in urgent need of improving their energy efficiency, says Walid Baba, president of the Lebanese Solar Energy Society (LSES). In an ongoing pilot project for the development of Energy Services Companies (ESCOs) as contributors to clean energy transition, LSES is collaborating with a European non-profit on the creation of a net of ESCOs that will endeavor to implement energy audits and efficiency projects with client SMEs, ESCOs thus acting as multipliers of energy awareness, RE usage, and energy efficiency at SME level. “The [energy] crisis exists and is very dangerous. But let’s think positively. We have to build the pyramid from down to up. Today LSES is trying to participate in the building of this slab [at the bottom of the pyramid],” Baba says. 

Where does this litany of depressing and inspiring signals leave the country? Macro-financial stability and easy access to finance is a long way off, even as Lebanon hopefully is about to undertake the first negotiation step on a long journey of rebuilding its international financial credibility. Resistance to change we will not ever get rid of, not in ourselves, not in our economic entities, in our activist community, or in any global or local political context. 

In historic lessons of behavior change, it has been catastrophes, fires, pestilence, wars, and earthquakes that have at least sometimes led to behavior changes of a measurable duration and intensity. The best news then, ironically: Energy behavior change is now a survival issue in Lebanon. A global target or a policy paper or even the best designed public sector campaign will not suddenly translate into energy safety. A plethora of small practical improvements, mentality checks and individuated mindset changes are the solutions on tab. They can be used and expanded. 

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Thomas Schellen

Thomas Schellen is Executive's editor-at-large. He has been reporting on Middle Eastern business and economy for over 20 years. Send mail

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