Focus: FOCUS Electricity sector reform plan

Not Easy Being Green

Sep. 8, 2019

The government has passed a number of energy sector reforms to put an end to the chronic power cuts that are hindering economic activity in the country.

citizens of Lebanon have lived with routine power cuts since the beginning of the civil war in 1975. In 2018, energy interruptions hit the capital city, Beirut, for an average of three hours a day, while other regions experienced blackouts for up to 12 hours a day, creating chronic problems for the deeply indebted nation.

Seeking to address the issue, the government approved an electricity sector reform plan in April 2019 that will boost generation capacity while reducing outdated state energy subsidies that have created one of the world's largest public debt burdens. While unveiling the plan, Prime Minister Saad al-Hariri said his administration aims to press ahead with the long-delayed reforms, promising to install more renewable energy plants to create a cleaner, more reliable and more sustainable national energy sector.

"This plan satisfies the Lebanese people because it will bring them electricity 24/7," al-Hariri said at a press conference after the plan was passed on April 8, 2019. "It will also reduce the budget deficit."
National power plants currently have an average capacity of just over 2,000MW, while peak demand often reaches 3,400MW. The country of more than 6 million people has long grappled with energy issues, which have been compounded by a combination of dated state subsidies based on oil prices from the 1990s, as well as widespread private diesel generator use, which has left many citizens paying two energy bills a month.

According to government figures, net transfers to the state power utility Electricité du Liban (EDL) amount to USD1-1.5 billion a year, mostly to cover fuel oil expenses for highly polluting power generation plants that currently provide much of the nation's energy needs. The IMF found the accumulated cost of such subsidies amounted to about 40% of Lebanon's total budget deficit in 2016.

The staggering public debt stems from a decision in 1996, when consumer energy prices were pegged to the oil prices at the time, which were USD23 per barrel. Today, oil prices hover around USD70 per barrel, and the government has continued to make up the difference.

The results have not just crippled state finances but have locked the nation into a constant cycle of black outs that have slowed economic growth to just 1-2% in recent years. At the same time, the energy sector has failed to keep up with rising electricity demand. According to the McKinsey & Company consulting firm, the quality of Lebanon's electricity supply in 2017-2018 was the fourth worst in the world after Haiti, Nigeria, and Yemen.

The energy reforms come at a critical time and, if implemented successfully, would unlock USD11 billion in financial aid for Lebanon, which was pledged by international donors at the Conférence Économique pour le Développement, par les Réformes et avec les Entreprises (CEDRE) in 2018. Such international backing would be a boon for state officials, who are promising to implement reforms that would stabilize the energy grid, while chipping away at the national debt.

Spearheading the reforms is the new Energy Minister Nada Boustani, who has promised to increase generation capacity while reducing power losses in transmission and building more renewable energy plants in the coming years. Boustani is tasked with overseeing the National Renewable Energy Action Plan (NREAP), which aims to source 12% of national electricity and heating needs from renewable energy plants by 2020, and up to 30% by 2030.

Seeing as Lebanon has 300 sunny days a year and windswept mountains, energy analysts have long pushed for the development of renewables in the country, which lags behind its neighbors in green energy production. Among the most notable energy developments that have received the green light is a 68-MW wind project in the northern Akkar region, being developed by Hawa Akkar Energy.

By 2020, Hawa Akkar, along with the green energy companies, Lebanon Wind Power and Sustainable, plan to build 200MW of wind energy. The government is also reviewing 12 bids for solar farms with a combined capacity of 180MW. Analysts expect total investments in renewables to exceed USD1.5 billion by 2025, which if implemented quickly, would be a major turn around for a country that has grown accustomed to rolling blackouts.