Renewable Energy in Lebanon: Can the Country Embrace its Resources Sustainably?

Renewable Energy in Lebanon: Can the Country Embrace its Resources Sustainably?

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Lebanon is blessed with an abundance of water, wind and sun. Yet so far this potential is so far nearly not explored while citizens even in the center of Beirut face daily power cuts of at least three hours. So how could tapping the country’s renewables be an asset for the Government of Lebanon to provide stable electric services throughout the country? . By exploring clean energies, the relevant authorities could hit two birds with one stone in terms of environmental and economic benefits.  Moving towards clean energy would at the same time reduce their dependency on fossil fuels. This transition can also lead to political independence by protecting Lebanon from the impact of changing trends in energy markets.

We are now witnessing initial breakthroughs in the field with the recent allocation of power purchase agreements (PPAs) to three wind farms in Akkar (Riachi, 2018). However, private investors and other stakeholders still face harsh obstacles in the implementation of renewable energy projects. This study will elaborate on the prospect and the hurdles in the shift to hydraulic, wind and solar energy.

 

Renewable Energy - Wyoming Foot Creek — Image Credits

A Closer Look at Lebanon’s Energy SourcesEDL’s deficit of around $800 million a year requires urgent remedial (Nakad, El Khoury, Arnaout, 2018). Hence, the exploration of renewable energy sources such as wind and solar energy are possible alternatives for the agency. In this section, we will explore the feasibility of integrating sustainable resources to the energy mix through public and private sector partnership.

Figure 1: Cost-analysis of clean energy sources compared to EDL — Image Credits
With the Current: Hydro Power
Firstly, hydropower is the most established renewable energy resource in Lebanon and contributes to around 4.5% of the energy mix with a nominal capacity of 280 MW (MEW, 2018). Lebanon is currently looking to expand hydropower with the recent call to “build and operate hydroelectric plant” (MEW, 2018). However, Dr. Kinab, an engineering professor at the Lebanese University and renewable energy expert, explains hydraulic energy production has largely been inconsistent due to intermittent rainfalls and poor maintenance.

In this analysis, the levelised cost of electricity (LCOE) is used as it measures break-even point (Energy Education, 2018). The LCOE of hydropower is estimated to be around $9c per KWH (El Fadel, Hammond, Harajli, Jones, Kabakian, Jones, 2009). The long term viability is confirmed as the levelised cost is inferior to the projected selling price of $12c per KWH to EDL (MEW, 2018).

Wind Energy
Wind energy is an untapped resource in Lebanon with extremely restricted production (Kinab, El Khoury, 2012). According to the Wind Atlas published in 2010, Lebanon has the potential to produce approximately 5,400 MW of wind energy (UNDP, 2010). The recently approved tender by the Ministry of Energy and Water (MEW) of 200MW in Akkar is promising for all parties involved. In fact, Electricite du Liban (EDL), the national utility agency, will sell power at a gain and provide stable electric current for around 145,000 households (Riachi, 2018).

In favorable weather situations, we find the LCOE to be around $7.8c per kilowatt hour (KWH) (Kassis, 2013).  Akkar’s wind farms will sell the KWH for $10.75c which gives them a margin of profit to recover their initial investment (Riachi, 2018). Since the market price is higher than the levelised cost, we infer the profitability of the project. This instance proves the viability of potential wind farms in Lebanon with EDL as prime customer.

Solar Power
Solar energy is also a valuable resource in Lebanon. With around 3000 hours of sunshine, the addition of this energy source to the national grid could greatly contribute to the growth of clean energy in Lebanon (Kinab, El Khoury, 2012). Solar energy currently represents around .26% of the country’s energy mix (UNDP, 2017). To grow this energy source, the MEW is launching two separate bids for solar farms with total production capacity of around 450 MW (MEW, 2018).

According to Dr. Harajli, project manager of CEDRO at the UNDP, the cost of generation of solar energy could reach as low as $6c per KWH in the upcoming bids. This could also contribute to considerable savings in oil expenditures. Given EDL’s average production cost of about $17c per KWH, solar energy is a sustainable alternative for Lebanon with savings of up to $11c per KWH (Bassil, 2010).

The Way Forward – Navigating the Obstacles

In a nutshell, the MEW and the LCEC are encouraging private companies to feasibly produce clean energy at a lower cost than conventional power plants. It is imperative to emphasize that the series of PPAs the MEW launched in wind, solar and hydraulic energy do not require any capital investment by the government who will solely purchase electricity to incorporate it in the grid (MEW, 2018). Mr. Allaya, technical manager of distribution at EDL, endorses these initiatives “as they create jobs and reduce CO2 emissions”.

Lebanon currently suffers from a deficit between supply and demand which stands at around 1,500MW (Deschamps, 2018). Unfortunately, a series of political hurdles have deprived the Lebanese people from enjoying from a steady provision of power. Dr. Harajli deems it to boil down to “the political and sectarian intricacies of the power sector”.

The strong political influence of generators owners poses a threat to the consistent supply of electricity. The generator’s market size amounts to around $1.5 billion to $2 billion which highlights the magnitude of the business (Dziadosz, 2018). The strong relationships the owners built with key governmental officials are a major hindrance to the growth of conventional and renewable energy production.

The GoL needs to revamp its functional process to provide additional incentives to the private sector in the development of renewable energy (Colthorpe, 2018). In fact, Dr. Harajli considers the political disagreements within the Council of Ministers (CoM) as a burden to a stronger support for clean energy. Similarly, Dr. Kinab argues the large-scale production of renewable energy on a national level requires a robust political support.

Certain progress was achieved with the planned erection of wind farms in Akkar. Nonetheless, Lebanese citizens will continue to assume the consequences of the sector’s inefficiency in the absence of a stronger political will to encourage sustainable energy.

The poor management of the national grid impedes the growth of renewable energy. In effect, EDL is severely understaffed in functional areas which affects the running of the organization. Furthermore, Mr. Allaya, pointed out that the grid suffers from technical losses and non-technical losses which prevent it from “digesting the bulk of renewable energy generation”.

Similarly, Dr. Harajli affirms the ambitious launch of several PPAs by the MEW do not account for crucial improvements needed in the operation of the grid. He drew attention on the take-or-pay clauses which entail EDL will still have to assume payment in the instance the grid cannot absorb the power supplied.

Given the favorable meteorological conditions, it is clear that the problem lies within the inefficient governmental management of the energy sector. This is translated by ineffective pricing policies and allocation of subsidies to EDL. Dr. Harajli stressed the agency’s monopoly over the market makes it difficult for private providers to compete and encumbers the quality of services. In fact, the extremely affordable pricing of electricity from governmental subsidies renders the emergence of other energy sources unfeasible (Kinab, El Khoury, 2012).

The Legal and Political Framework for Renewables in Lebanon

In 2002, the GoL issued Law 462 which stipulates that IPP can participate in the production of electricity through licenses awarded by an Energy Regulatory Authority (ERA) (MEW, 2002). While Lebanon ratified legal and policy frameworks to grow renewable energy, Mr. Allaya asserts “we need stronger implementation mechanisms to attract investors”.

Dr. Harajli portrayed the legal mechanism the MEW employed in PPAs: “as Law 462 is not fully implemented and no ERA was formed, the CoM and the Parliament amended the statute as Law 288 and Law 54”. In order to continue its line of work in renewable energy, the MEW is currently asking for an extension of the law whilst giving the private sector exclusivity in the production of renewable energy.

In the wake of its application, Mr. Allaya explains: “the licensing prerogative is currently managed by the Ministry of Finance and the Ministry of Energy and Water who launch bids upon approval by the CoM”. Thus, administrative reforms are necessary for a more efficient licensing process and dynamic power sector. The absence of a regulatory body to manage counterparty and political risks resulted in high equity and debt costs for investors (UNDP, 2017).

Besides, the recent adoption of the Energy Conservation Law by the CoM propels the LCEC as the national energy agency to assume several functions (NEEAP, 2016). In fact, Dr. Kinab highlighted the important role of the agency in promoting the transition to sustainable energy.

The GoL promised to include 12% of renewables in its energy mix by 2020 in 2009 (MEW, 2018). Subsequently, the CoM adopted action plans in 2011 and 2016 in order to set a roadmap to grow renewables (NEEAP, 2011, 2016). This was followed by the adoption of net metering measures in 2011 by EDL which enables the back and forth transfer of clean energy from the national grid to participating subscribers (Berjawi, Najem, Four, Abdallah, Ahmad, 2017). In effect, in the case of a power surplus, the grid absorbs the surplus of power. Similarly, in the case of a shortage of power, EDL injects power back to the users.

Net metering is an important step in the promotion of clean energy. In fact, it can generate savings for subscribers on their renewable energy surplus transferred to the grid (Berjawi, Najem, Four, Abdallah, Ahmad, 2017). However, this initiative is partially operational as described by Mr. Allaya: “it requires the continuous availability of the grid to synchronize the transfer of excess production”.

The LCEC laid the groundwork for affordable funding for clean energy projects in Lebanon in collaboration with the Banque du Liban (BDL). This led to the birth of a financing platform called the “National Energy Efficiency and Renewable Energy Action” (NEEREA) (LCEC, 2018). The financial mechanism aims to support energy efficiency and renewable energy throughout Lebanon.

Mr. Stephan, who works in green financing at Kafalat Energy, pointed out clean energy projects can qualify for loans at an interest rate of 2.5%. The advantageous financing offered by the GoL supports economic viability through faster paybacks period. However, the lack of political continuity and ongoing disagreements within the Council of Ministers prevents the significant progress achieved by NEEREA and the PPAs (Berjawi, 2017).

In order to effectively incorporate renewables to the energy mix, all interviewees repeatedly stressed important enhancements must be made to the grid and EDL’s operations.

Mr. Allaya depicted the situation at EDL: “The institution has a deficit covered every year by the GoL with transfers of up to $2 billion”. In fact, the subsidized price of electricity leads to considerable annual losses. EDL’s average cost of production per KWH is of $17.14c while it is sold at around $9.4c (Dagher, Ruble, 2011). Hence, along with Dr. Harajli, Mr. Allaya commended an increase in retail prices. EDL could then channel funds to upgrade its capacity to incorporate renewable energy to the grid.

A pricing revision will enable the utility agency to progressively cover its deficit and gradually dissolve the generator’s market (Ruble, Nader, 2011). Nonetheless, Mr. Osseiran, the generation advisor of the Ministry of Energy and Water, pinpointed “EDL falls under the authority of the government as a public institution. Consequently, this policy requires the backing of the Council of Ministers which is currently unwilling to implement it”.

Thus, EDL is a bottleneck and reforms must imperatively be put in place to decongest the power sector. Dr. Harajli suggests instilling a private and accountable management to optimize productivity and improve the grid. Under the current administration, it is difficult to hold any individual responsible due to political interferences. The corporatization of EDL would enable the agency to independently develop a solid infrastructure and reasonable pricing policies. However, Mr. Allaya underlines “the privatization of EDL necessitates the institution to be financially sustainable hence the importance of increasing tariffs”.

As prices from other energy sources become more competitive, EDL will be able to purchase power from local providers to better accommodate renewable energy. The PPA in Akkar is a prime example on the feasibility of such an initiative. The GoL currently produces and sells power at a loss. Conversely, EDL will purchase the KWH at $10.75c from Akkar’s wind farms to later sell it for a profit at $12.75c (Riachi, 2018).

  1. Application of Law 462

The application of Law 462 and the creation of an ERA is an important step in the reform of the power sector. Dr. Harajli states that “the establishment of this law aimed to unbundle the power sector with the involvement of private producers and an authority to regulate the market”. The regulatory body would be responsible of licensing with no interference from the MEW in order to encourage a decentralized generation of power within the boundaries of the law.

Mr. Osseiran, from the MEW, advocates for the inception of an ERA in the near future with the push by the MEW and LCEC to grow renewable energy. The advisor to the minister states: “the presence of a third party would facilitate the coordination of the different PPA’s in the spectrum of their integration to the national grid”.

Thus, the full implementation of Law 462 will help Lebanon move away from a centralized distribution of power. Mr. Stephan endorses this policy as it reverses the dynamics of the power sector. In effect, private producers wishing to supply clean energy would now directly apply for licenses at a regulatory authority.

  1. Feed-in-tariff and Private Production

Due to the high expenditures associated with the consumption of electricity, stakeholders from the private sector are looking into the prospect of clean energy. In effect, Dr. Harajli and Mr. Stephan affirmed that there is potential for companies from the industrial and agricultural sectors to hybridize solar energy with fuel generators in times of shortages.

As a matter of fact, financial savings from the installation of solar panels amounted to $16.2M in 2016 which cements the position of solar energy as a cost-effective alternative to diesel generators (UNDP, 2017). However, Mr. Stephan points out: “the financial viability of green energy can be further reinforced with the implementation of measures such as feed-in-tariff”. In effect, it would enable IPP to sell the totality of their excess production to EDL and have shorter payback periods. Nevertheless, Mr. Stephan elaborates by stating “feed-in-tariff is only viable if we have a consistent supply of electricity as energy producers can only export power to the grid when it is online”.

The combination of Law 462 and progressive policies underline the viability of private power generation. In effect, it paves the way for EDL to enact feed-in-tariffs in order to incentivize households and businesses to install small renewable energy facilities. However, Mr. Stephan and Mr. Allaya boldly underline that the effective growth of clean energy is contingent on a reliable and stable grid which provides power to its users at all times.

Conclusion

To conclude, renewable energy is a feasible power source given Lebanon’s geographical and meteorological landscape. It still needs to clear the political hurdle in order for more projects like Akkar’s wind farms to see the light. In effect, green energy will truly take off when EDL provides consistent power to all its subscribers. Dr. Kinab confirms this as “the price of electricity will not go up unless EDL insures 24/7 service for its users”. Hence, the fate of alternative sources of energy are directly related to the production of conventional power. While clean energy cannot completely alleviate Lebanon’s electricity troubles, it can contribute to the growth of the economy and decrease pollution levels. List of symbols and units

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BDL: Banque du Liban

CoM: Council of Ministers

EDL: Electricite du Liban

ERA: Energy Regulatory Authority

GoL: Government of Lebanon

IPP: Independent power producers

KWH: Kilowatt hour

LCEC: Lebanese Center for Energy Conservation

LCOE: Levelised cost of electricity

NEEREA: National Energy Efficiency and Renewable Energy Action

NEEAP: National Energy Efficiency Action Plan

LCEC: Lebanese Center for Energy Conservation

MW: Megawatt

MEW: Ministry of Energy and Water

PPA: Power purchase agreement

UNDP: United Nations Development Programme

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