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Incentivize to energize

Making inroads into private sector distributed renewable energy generation

by Christina Abi Haidar

Through its Nationally Determined Contribution (NDC), approved by Parliament under Law 115 dated 2019, Lebanon has committed to achieving a 30 percent reduction in greenhouse gas emissions by 2030. Moreover, the policy paper for the electricity sector issued by the Ministry of Energy and Water (MoEW) and approved by the Council of Ministers on April 8, 2019, aims to secure 30 percent of Lebanon’s total electricity consumption from renewable energy (RE) sources by 2030. Achieving these lofty goals seems very unlikely, unless the private sector is incentivized to participate in the generation of such energy.

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The electricity sector already had to grapple with a difficult financial situation and the high costs of maintaining its production and distribution networks, so it was among the first services to suffer from the collapse of the economy alongside the banking sector. In turn, it directly affected a host of other sectors that rely on electricity, from industry to agriculture, hospitality, media, and banking again. Lebanon’s crippling energy crisis is made worse by its dependency on fuel imports which are threatened by the shortage of US dollar currency. Rolling blackouts that for many years used to last for three to six hours per day, as of May of this year would leave entire areas with no more than two hours of state power a day. The Lebanese increasingly depend on private generator operators that also struggle to secure supplies amid the crash of the national currency and removal of subsidies.

The electricity sector breakdown can be attributed to a number of reasons, including a series of seemingly deliberate attempts at weakening the state utility Electricité du Liban (EDL) through apparent mismanagement and corruption. Decree 16878 dated 1964 conferred both administrative and financial autonomy to EDL, giving the public establishment monopoly over the electricity sector by being solely responsible for the generation, transmission, and distribution of electrical energy in Lebanon. This autonomy has been challenged and undermined by political actors since the end of the civil war, weakening the public institution and establishing full dominance by the MoEW, the tutelage authority presiding over it, in addition to delaying key reforms for its rehabilitation.

EDL’s situation already had worsened with the August 4 Beirut Port explosion that destroyed its headquarters’ administrative assets, meter laboratory, vehicles and warehouses, National Control Center, distribution substations, distribution lines, a data center for the billing system, and other assets, estimated at between $40 and $50 million. Only a few substations within the blast radius received minor repairs, but no clear plan has been put forward to rebuild its headquarters or replace  infrastructure assets and equipment, all of which require high expenditure that is not currently available, nor has it been for years.

As a result of all the above, power supply has deteriorated to critically low levels and fails to meet national needs. Rural areas are particularly impacted by the lack of access to electricity. EDL has become operationally bankrupt and constitutes a drain on the government’s fiscal resources. This has also affected other power utilities that purchase electricity from EDL, including Electricité de Zahle. In addition to the fact that billing collection is mismanaged, tariffs are too low to cover power generation and delivery costs and the number of defaults on payments or cancelled subscriptions is increasing as fewer households and businesses can still afford even these low tariffs. Power is also widely stolen, compounding the utility’s losses. Finally, Lebanon is among the very few countries that still rely on heavy fuel for power generation, a material that is environmentally unfriendly and carries serious implications for the health of the population due to its high level of emissions that exceed  globally accepted standards.

Failure to resolve the monopoly

The centralized nature of the electricity sector, along with all the problems it suffers from, has become an obstacle to its reform and, most importantly, to allowing investments in RE generation. While privately-owned generators so far continue to ration electricity to households and businesses, their dependence on fossil fuel casts doubts about their ability to maintain operations, or retain a base of subscribers able to afford their fees.

The conversation is logically shifting towards renewables, although it is not a new idea in Lebanon by any means. In 2010, 6.1 percent of Lebanon’s electricity generation relied on hydroelectricity through concessions awarded as far back as the French mandate. RE power is generally considered a reliable clean source of electricity with significant economic, environmental, and social benefits to Lebanon’s economy: a) It reduces our reliance and/or dependence on fuel imports; b) it assists in the balancing of our national budget through the reduction of fuel import expenditures; c) it creates more employment opportunities as renewable energy is able to offer more local employment opportunities per unit size installed when compared to conventional power sources; and d) it improves the health of Lebanese citizens and the resilience of Lebanese natural ecosystems from reduced air pollution and the reduction of greenhouse gas emissions.

The failure to ensure a reliable supply of electricity has led the Lebanese people to resort to alternative individual solutions as they are legally eligible to use renewable energy resources for their own consumption (See Energy Special Report Overview). The existing legal framework encourages this mainly through Article 4 of Decree 16878 that allows producing RE power “for their own consumption and to cover their personal needs only.” Also tapping into Article 4, an Administrative Curriculum (memorandum), based on a Decision of EDL’s BoD (No. 318-32/2011, titled “net metering”), approved a mechanism whereby consumers can inject surplus RE power generated on their premises (and for the primary objectives of fulfilling their own needs for power) into EDL’s grid and be credited, in return, against their consumption of power from EDL. The net-metering mechanism is certified by the MoEW (as the tutelage authority over EDL) and approved by the Ministry of Finance (MoF) (since it has a financial deduction effect) on an annual basis. The approval is subject to annual renewal by both ministries.  Moreover Article 26 of the “Regulation of the Electricity Sector” Law no. 462 dated 2002 states that the production intended for private use with power less than 1.5 MW shall not be subject to the authorization.

One of several failed attempts by the Government of Lebanon to restructure the electricity sector and improve its performance on all levels, began with the ratification of Law no. 462  dated 2002. This law aims to establish the Electricity Regulatory Authority (ERA), restructure the electricity sector, and unbundle the energy activities that are currently monopolized by EDL through private sector participation in the distribution and generation. To date, the implementation of Law no. 462 remains elusive, mainly when it comes to the appointment of the ERA, a crucial step to pave the way for private sector involvement. Since 2012, the MoEW, in charge of implementing the law, has proposed amending it to limit the ERA’s independence and maintain the ministry’s control over it.

Because of continuing political interference, other attempts at involving the private sector in producing electricity from renewable sources also met with failure. These projects were categorized as private-public, achieving legal coverage directly through the Council of Ministers (read “political favors”) instead of through an independent regulatory body supposed to oversee technical feasibility and competence. Only a single RE project, consisting of a wind farm, was planned through this private-public model, but it never kicked off due to several reasons, among which the issuance of the licenses in 2017 before bankability acquisition (See Salah M. Tabbara’s article). If the ERA had been in place, no licenses would have been issued unless a competitive portfolio tender, part of the due diligence of the bankability assessment, was completed. The current economic crisis further put an end to any progress on this project.

Laying down the draft

Since there is a lack of a clear legal framework that can provide certainty and incentivize the private sector to invest in RE power, it is necessary to establish a general law that gives all Lebanese economic sectors the opportunity to at least partially reduce their demand on the national power grid, paving the way for further penetration of distributed renewable energy systems equal to or less than 10 MWp.

With the technical, legal and financial support of the European Bank for Reconstruction and Development, the Distributed Renewable Energy (DRE) law was drafted, closely involving the MoEW, EDL, and the Lebanese Center for Energy Conservation (LCEC). A steering committee was established in that regard and included representatives from all the mentioned stakeholders. After two years of work and close follow up, the draft law was sent at the end of October 2021 by EDL to the MoEW in order to be circulated to the Parliament through the Council of Ministers.

The DRE draft law complements Law no. 462/2002, covering all technical aspects of distributed renewable energy generation while ensuring no overlapping. It allows and regulates the net-metering process in all its forms and formats in a more permanent way. As per EDL Board Decision no. 318-32/2011, only single owner net metering (one owner, one meter) is currently allowed and is subject to annual renewal. The DRE draft law would also allow meter aggregation for single or multiple owners of multiple meters, even in geographically disconnected areas.

The draft law also allows peer-to-peer distributed RE trading through direct power purchase agreements (PPAs) for up to 10 MW. Through “on-site” direct PPAs, customers can purchase power directly from RE generators who, in turn, can divert excess electricity into the grid through the net metering arrangement. The principle is the same for “off-site” direct PPAs, with the added difference that remotely located generators will need to pay the utility for using its transmission and distribution network through which they deliver RE power to customers.

The law also makes provisions for the creation of a renewable energy department at the utility, until the ultimate goal of establishing the ERA comes to fruition.

Realistically, increasing the generation of electricity from RE sources cannot fully replace fossil fuel power generation, but it is a vital backup for the electricity sector, especially now. Individual RE systems are a positive trend but implementing community solutions would constitute a more solid base from which to answer Lebanon’s energy needs. Ratifying the DRE at the soonest would incentivize private sector involvement in not only the generation, but also the distribution of electricity from RE sources. The private sector would shoulder some of the financial and logistic burdens of the national grid, namely when it comes to underserved or remote areas, and begin to end blackouts. It would also help generate revenue for EDL and pave the way to reform, staring with the establishment of the ERA. The combination of all these factors would give a serious boon to Lebanon’s efforts to reach its national RE commitments and improve quality of life in terms of better service and health by reducing emissions.

 

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Christina Abi Haidar

An attorney at law - governance and energy legal expert, and a legal consultant on the draft Distributed Renewable Energy law
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