The supply of growth figures is so poor in Lebanon these days that any economic increase – one that is not a horrid leap in poverty, hunger, unemployment, and inflation – is more than newsworthy. Real, positive growth today is simply sensational. Even if there are hidden ambiguities and foreseeable near-term risks.
In this regard of sheer growth, one fresh green shoot in the economy that promises to be spectacular in the current year, is the number of new solar photovoltaic (PV) projects – albeit with the caveat that it is too early to assess the solar PV sector’s growth rate for 2021. However, the signs of a major increase are unmistakable and supported by the fact that already the 2020 annus horribilis of pandemic lockdowns and economic meltdown saw a significant increase in aggregate solar electricity capacity, which contributed positively to the country’s needed transition to renewable energy (RE). “Despite everything, in 2020 the Lebanese market [for photovoltaic power] witnessed an increase of 14 MW. At the end of 2020, we had overall 89.84 MW of distributed solar PV,” says Rani Achkar, the executive director at the Lebanese Center for Energy Conservation (LCEC).
To sharpen this picture, the current growth is taking place on the level of systems that are being installed by Lebanese households. Noting this specificity, the increase in the number of installed small off-grid PV systems since the outbreak of Lebanon’s multi-tiered crises in 2019, and the expansion of the supplier base offering such systems, make for two rare numbers of, possibly exponential, year-on-year growth by end of December.
And although similarly strong growth figures do not apply to the sector of renewable energy at large and although there has been a weakening of the market for industry or utility-scale solar PV projects, the growth in the residential PV sector could fuel economic optimism renewably over the expected tough years from now to the end of the 2020s. Domestically, it could significantly contribute to the RE resolution of the crippling national electricity problem. In terms of signals to external stakeholders – meaning potential donors, investors and financiers – Lebanon’s positive solar impulses moreover come at an opportune time when the whole world is caught up in the need to speed up its RE transition.
This is to note that, with climate action getting more urgent by each month of insufficient mitigation of fossil fuel risks, the RE theme this year tops the global agenda two times: once in form of a High Level Dialog on Energy (HLEDE) at the UN General Assembly in September and then – in the main climate event of 2021 – at the COP 26 summit in Glasgow. As far as global scenarios go, climate risk and the underachievement of the Paris climate goals presently appear on course to supplant the pandemic fears and COVID-19 infodemic as the chief worries.
Assessing the lure and the risk
All in all, the theme of renewable energy is hotter than the sun on a Lebanese beach in August, and this makes the new local vigor in adoption of RE and specifically solar PV, all the more enticing. Irrespective of its national drivers. Of course, from the in-country perspective, the reason for the local solar demand boom is as self-evident as the human need for electricity: since this spring’s epochal and near universal collapse of national supplies by the electricity utility Electricité du Liban (EDL) and the simultaneous onset of serial diesel price shocks and subscription fee hikes in the country’s informal secondary electricity supply scene of private diesel generators, households have been scrambling to find power and energy safety, notably not heeding the sustainability and climate importance of the solutions they acquired.
But how large, how economically durable, and how sustainable then is this hunger for RE? From a first proxy assessment of the size of consumer demand on a proxy number of weekly phone inquiries and requests for advice to the LCEC, the popular will to be solar looks strong, but so does the uncertainty. When comparing people’s PV inquiries to LCEC in 2021 to 2018, which multiplied from one phone call a week back then to an average five phone calls a day this year, Achkar alludes to a 25-fold jump in customer interest seen by the country’s public sector RE institution, before clarifying that the leap up “will be in number of projects. Most of the new installations will be small residential installations. In terms of installed capacity, the [2021 numbers] may not reflect the huge increase in project numbers.”
Judging from the number of new market entrants on the supply side, the increase also is “huge,” says Walid Baba, president of non-profit association Lebanese Solar Energy Society (LSES). According to surveys, the first of which he had undertaken in 2001, company numbers that entailed importers and all sorts of services providers in solar technologies, grew from 26 companies in 2001 to over 100 at the end of the 2010s. “In the crisis, another 100 can be added. So in one year, more companies came to market than in the previous 20,” Baba tells Executive.
Further anecdotal evidence to corroborate this boom on both the retail demand and supply side of solar PV systems is easy to find from private sector companies. Leaders of the small solar industry tell the story. For Rabih Osta, vice president of Phoenix Group (member of INDEVCO Group), the LCEC can call itself lucky to receive a mere 25 calls per week. “We receive 500 calls a day,” he tells Executive about the demand storm experienced by staff at group unit Phoenix Energy.
Renewable energy company Ecosys, an ITG Group unit and another of the industry majors, signed contracts for about 100 residential solar solutions over approximately two months in the third quarter of 2021, discloses George Geha, chairman and general manager of Ecosys. By contrast, between the company’s incorporation in 2008 and end of last year (notably a period in which the company was focused on supplying larger systems to the Lebanese corporate markets) the total count of its residential market contracts was in the single digits – between five and ten.
At independent solar PV solutions provider Novaenergia, managing director Joe Hawi confirms that “there is a lot of noise” about demand and supply of residential solutions. “The market went from low activity to hyper activity in a matter of days, after the generator cuts in this spring,” he says, qualifying the overall demand picture by adding, “The market evolved into [three] segments, those who can afford something good and those who cannot, plus those who could [buy quality] but would not.”
The list of testimonials and anecdotal evidences goes on, to the point that the solar PV fever seeps from corner shops. Noticing, on an unrelated business visit to my neighborhood OMT agent, a fairly large box sitting on the floor besides his display case of his usual product range, smartphones, I ask Mohammad, the shop’s operator, “Oh, you have got yourself an inverter now?” He proudly responds, “Not just an inverter; I just got a container shipment in that is full of all components, inverters, batteries and photovoltaic panels. They are next door and I have started a new business selling solar PV systems.”
He adds that he is advertising on Facebook and has immense interest from electricity-starved people, but concedes, “People are asking many questions about price and when hearing about the cost of getting solar, most are no longer interested.”
From an economic perspective, this entire scenario of course fits the definition of a positive demand shock in a textbook way. The implication is that short-term distortions and mid-term repercussions – vulgo, supply shortages and price increases that are followed by unsustainable investment moves and creation of oversupply – are highly probable or, in the case of price distortions, already in full swing.
As example for the latter, Hawi says he has seen offers in the market where importers were upping the wholesale prices of deep cycle batteries at the lower end of the quality range in the neighborhood of 30 percent, and installers added another markup – for batteries that the East Asian manufacturers would sell internationally at unchanged dollar prices. In Hawi’s view, the upward price distortions are highest in the lower quality segments where incidental demand is currently at peak and supply tight because of the unexpectedness of the demand surge.
There are expectations that the local supply squeeze will relax in the first quarter of next year, but compounding the impact of the local demand shock in the near term also could be factors such as increased international shipping costs and global supply chain bottlenecks.
For another contributing element, Ecosys’ Geha points to the fact that the residential market’s structure of many small individual projects puts quality suppliers in a bind because they need to achieve higher margins per system due to their long-term warranty obligations and maintenance commitments. Like his industrialist peers that have developed the sector, Geha expects a negative impact on the reputation of solar PV markets from the current madness but does not believe it will damage Ecosys itself. “I am not afraid of that because the Lebanese market is small and there is a differentiation between one [supplier of solar systems] and the other. People will pinpoint that one is good and other bad, and there will be a filtering,” he says.
Repercussions from the current market chaos will still be felt after years, exclaims Phoenix Group’s Osta. “There are a lot of leads and deals, but it is chaos that is going on. And people who install under-capacious system today will, after nine months or one year, experience many problems with their systems either in terms of performance and lifetime, or safety and security. Consequently, people who are not knowledgeable in renewable energy will start seeing it as something that is not recommended. I cannot comprehend how [some vendors] are promoting systems only based on amps, without [explaining] autonomy, and other factors,” he says.
THE URGENT NEED FOR STANDARDS
That the newcomers in the industry represent a factor of new uncertainty is also not a fact lost on LCEC Executive Director Achkar, although he paints a differentiated picture of the incoming suppliers. “We are seeing a lot of new companies with good ethics and good sizing of the systems,” he says. Those companies’ offers, as far as examined by LCEC experts upon client request, explain in a clear way what clients will be purchasing, Achkar adds, but acknowledges that LCEC also has seen offers that were “very ambiguous.” Other offers were clear in technical data “but with misdirection in the phrasing of the offers,” he says. According to him, such phrasing might make people rely on ampere-based solar PV system descriptions which include no information on storage. Such systems subsequently will not meet people’s unrealistic expectations. “There is some misdirection of the users,” he concedes.
Conversations on standard setting and technical supervision of solar PV vendors have, according to Achkar, been initiated with the Order of Engineers in Lebanon but it does not sound as if a quality check process of provider qualifications would be forthcoming soon. In the opinion of the old-established industry players, higher standards would in any case arrive too late to inform the current demand.
Baba and Hawi say that the problems of missing standards and unsound operators have existed for a long time. According to Hawi, the latter has actually been present since he entered the sphere of RE in 2010 but it was subdued because most consumers were not ready for solar and financing by local lenders was discriminatory on the technical prerequisites and quality of financing deals in the sense that the banks preferred to award subsidized solar PV loans to well-off clients who did not really need such loans. “We saw the number of solar companies increase with time. There being no real regulatory authorities in Lebanon to mandate any technical or quality control, there were moments when we felt that some people cut corners but in general, it was a small and competitive market,” he describes the sector’s growth throughout the 2010s.
He further opines that the factors driving the market in the early years were far from the current despairs. In the early to mid-2010s, the strongest pro-PV impulses could be attributed to green lending subsidized by the Lebanese central bank, Banque du Liban (BDL), and offered under the name National Energy Efficiency and Renewable Energy (NEEREA) loans; were furthermore correlated with fluctuating oil markets; but were helped the most by international development actors. “Market catalysts were UNDP, government tenders, NEEREA loans and in very rare cases, cash upfront clients. One interesting thing was that fuel prices were very high in 2013 and 14, and this was reflected in the market,” he recalls.
In terms of the effects of the current boom, he foresees more positive than negative outcomes. “The current situation is positive in general, because as dark as it looks when it comes to quality and design, people are purchasing their education on the topic.”
Accounting for the wide variety of views and current experiences, however, it seems at this point that not only did the more than two decades long experiment in anarchic capitalism in Lebanon’s conventional power sector failed most painfully but also that the conversion of the anarchic capitalist failure into an alternative and orderly development path did not take place. In too many ways, the people’s scramble for electricity solutions from either new and untested solar PV vendors and the continued and necessary – for many Lebanese inescapable – existence of a systemically corrupt private power generation sector that in popular perceptions has the markings of a “generator mafia,” looks today like a renewable anarchy.
Not the most efficient route
The upsides of the growing solar awareness and household demand in recent months notwithstanding, RE stakeholders interviewed by Executive for this story from the public, private, and third sector question or deny outright that the boom in the sub-sector of residential PV will either last beyond the coming few years or suffice to build the RE industry up to its full potential and the national needs.
Geha says the sudden growth of the residential market was expected by the company but happened without plan. Nonetheless, he expects the addressable residential market to have grown to about 100,000 households over the coming five years, or encompassing 10,000 to 20,000 potential installations annually. On the downside of the current situation, Geha sees bargain-seeking users of as misserved and possibly endangered by suppliers who cut corners, perhaps even in such basic infrastructure issues like the mounting of the support beams needed for rooftop PV panels, and says he imagines with horror what would happen if a panel were to be ripped from a Beirut residential high rise rooftop in the upcoming rain and wind season and were to crash in the street below.
Viewed from the system efficiency angle, the emerging sphere composed of small, off-grid systems and de-facto tiny and private solar islands is by Osta’s analysis the most unsuited for satisfying national RE interests in the longer term. “The most expensive way how solar power can be generated is to get solar with storage battery at a very small scale,” he laments.
Pointing out that this observation applies only to the rush of small-scale projects, he explains that a prudent path of migration to efficient RE would firstly be through utility-scale projects up to the gigawatt level, and a second-best path could be taken by way of motivating commercial and industrial entities to install solar PV at their scale. The latter would be a strong option on basis of laws and regulations that open the national electricity market for wheeling (transporting electricity via the grid to agreed destinations for a fee) and for feeding the electricity into the grid and selling it to the state utility (see Christina Abi Haidar’s article).
Following these two prime options of realizing utility-scale mega projects and incentivizing industry-scale PV projects, “the third best way would have been by working towards the replacement of heavy fuel oil with gas in the power plants, and the least optimized one is on the individual level with one, two, or three kW on the top of the house in combination with a storage battery, especially given the fact that in most of the cases, the storage battery is not up to level and quality that is required,” he elaborates.
The industrial stakeholders and two United Nations Development Programme (UNDP) affiliated experts are in agreement that the root of the renewable anarchy of 2021 is the fact that installing PV was not a financial, economic, ecological, or climate choice but forced by the people’s emergency need to find any sort of electricity.
UNDP Cedro’s Harajli notes that the overall RE development (during more than a decade where Lebanon was faced with one problem aft the other) has not been as cyclical and circular as desirable and that the disequitable process of the RE transition was not at all made smoother by the fact that people’s latest electricity choices have been dictated by necessity. “People and government have no choice, they cannot continue as usual,” Harajli tells Executive.
His UNDP colleague Vahakn Kabakian, climate change advisor attached to the Ministry of Environment, adds that 15 years of Lebanon’s government trying to make people buy into solar somehow did not result in a significant shift into PV on the residential level. “The investments in small solar that we are seeing today are not the result of government policy but a result of government collapse,” he puts the discrepancy between the government’s success in advocating solar acceptance and the people’s decisions for solar to the point.
No one who graciously conversed with Executive in some seven hours of recorded interviews for this Energy Special Report and no expert contributor to the report ever suggested that the forward path to RE can best be trodden without concerted strategy and with a government in collapse.
Dangling on the government cliff
Here then comes the habitual and thus anticlimactic cliffhanger in Lebanese government-related stories. The cliffhanger of great promises and intricate strategy plans.
The plans exist (delve into the next act of Solarius for more) and are centered on Lebanon’s commitment to climate goals and Nationally Determined Contributions (NDCs) to achieve 30 percent RE capacity by 2030. “In the updated NDC, there is an official environmental commitment of Lebanon to pursue renewable electricity, renewable heat, and energy efficiency,” Achkar confirms.
To say it directly and remove the suspense over the expected responses from interviewed RE stakeholders, the commitments to installation of 30 percent RE capacity over the coming nine years, including 4,000 MW in large RE projects in the latter part of the period, were described as music to their ears by members of the solar industry but also received with shrugs of uncertainty.
“The will alone will not make the projects happen. The will is a first step. You have a will, then a plan, then the financing of the plan, and then the right methodology to execute such utility scale projects,” Osta says while Geha comments, “To be really able to grow and talk about targets and plans, there is a resolution to the Lebanese status [needed], signed with the IMF. Then things will move quickly.”