A POWERFUL ROLE

Lebanon 2017 | GREEN ECONOMY | ROUNDTABLE

TBY recently gathered some of Lebanon's top businessmen to discuss the potential for the private sector to support the country's goal to double the share of renewable energy to 12% by 2020 through new technologies, investments, and PPPs.

Dr. Fouad Zmokhol
DR. FOUAD ZMOKHOL
President
Association of the Lebanese Business People in the World (RDCL World)
Salim Zeenni
SALIM ZEENNI
Chairman
American Lebanese Chamber of Commerce (AmCham)
Pierre El Khoury
PIERRE EL KHOURY
President
Lebanese Center for Energy Conservation (LCEC)
Karim Osseiran
KARIM OSSEIRAN
Senior Energy Expert
Ministry of Energy & Water
Dr. Hassan Harajli
DR. HASSAN HARAJLI
Project Manager
UNDP-CEDRO
 Antoine Skayem
ANTOINE SKAYEM
CEO
Riego
Hussam Hawwa
HUSSAM HAWWA
CEO
Difaf
Albert Khoury
ALBERT KHOURY
CEO
Hawa Akkar

Is the goal of reaching 12% of renewables a realistic figure and, if so, what needs to happen in both the public and private sectors to make this a reality?

Pierre El Khoury The 12% target was announced officially back in 2009, and it was Prime Minister Hariri who issued this during the participation of the Lebanese government at the COP18 meeting at Copenhagen. It was a political commitment and a vision rather than a scientifically determined goal. This target became a staple of the Lebanese government's commitment to renewable energy and energy efficiency. In 2010, the policy paper for the electricity sector that was developed by then-Minister of Energy Gebran Bassil and approved by the Council of Ministers reiterated its commitment to the 12% target. It also defined a few areas where the efforts should be invested in order to reach it. The 12% figure was a political vision in 2009, in 2010 it became a strategy, and today it is a realistic, achievable target. Whatever the Ministry of Energy is doing today, as part of the Lebanese government we are investing all our efforts to reach this goal. LCEC is confident we will reach this goal by 2020. The 12% target was 12% of the electricity demand when it started; today we are talking about 12% of the total energy consumed in Lebanon, which is a tougher target because it is achievable and we can do better. This is why the ministry decided to have a higher target. A major portion of the 12%, around one-quarter, will be covered by solar water heaters. Lebanon is among the top-10 countries in the world in terms of solar water heater installation. The remainder is dedicated to wind farms and in the coming weeks the government will issue the first three permits in its history to allow the private sector to produce 200MW from wind farms. Currently, the private sector is in the process of preparing proposals to build 180MW of solar farms. All this together will lead to the 12% target by 2020. A great deal has been done from 2009 to date, and we are on the right path to achieving our targets.

How has the funding mechanism from the central bank benefited the sector?

Albert Khoury We have a company that works in solar PV, and 100% of the business model is through the central bank financing mechanism known as NEEREA. This is an important component in renewable energy and the entire thing came about because Germany started investing in and subsidizing renewable energy. There should always be a component of financial benefit when talking about renewable energy. This benefit in Lebanon came through the support of the ICC and the central bank, whereby they can offer a 10-12-year loan on PV system installation. The financing of a 600-kW plant was through a 10-year loan and repayments were made in six years, so companies will have positive cash flow by adopting renewable energy. If the central bank stops its subsidies, the market would go bad the next day. It is a mechanism that works and is a win-win situation for everyone in Lebanon. The 12% renewable energy target by 2020 is achievable as the numbers do add up.

Dr. Fouad Zmokhol We have to agree that we have no infrastructure. In 25 years, we are one of the only countries in the world that has not constructed any infrastructure after its devastating war. We have to thus admit we cannot wait for or expect a great improvement from the public sector. We have certain positive points; however, I would be pessimistic given the complications of electricity. When we discuss renewables and sustainable energy for the private sector, it is no longer a choice. I am proud to be advisor to the board of a large company in Lebanon called ITG (Holcom Group), which is one of the largest IT companies in the Middle East. It has invested in a large building, and 30% of its electricity is generated through solar systems. This system cost USD125,000, which is small compared to the investment of the building, and was financed by the central bank for seven years with a two-year grace period. The return of investment for such a huge project was less than one and a half years. The second issue is that the price we pay as individuals or corporations for electricity in Lebanon has to be adjusted one way or the other, as the actual price is less than the real cost of power. If there is any restructuring by the private or public or by PPP, then we know we will have to raise the prices of electricity, and this is something that needs to be discussed. If there is a reform then we will have to shift to renewable energy specifically for large industry as it will be a question on a key issue. Personally, this is a huge opportunity for producers, industrialists, and anyone who might need electricity. Lebanon is a sleeping giant in this sector as there is a great deal of opportunity up for grabs.

Salim Zeenni In terms of private generators, if the public sector does not provide the service, who will provide this service in Lebanon in a regulated way?

Karim Osseiran We have a problem with the legal framework in Lebanon, and the public sector is working with a handicap. The public sector suffers from obsolete public expenditure laws dating from the 1960s that are not compatible with the current market conditions. This is one reason why the public sector has its hands tied; however, it does not lack competence or know-how. Moreover, government-set tariffs that are imposed on the public utility Électricité du Liban (EDL) do not relate with real costs, thereby putting it in deficit, so if the public sector is given the same opportunities that the private sector is given, then the public sector will not fail.

FZ We are business people, and the main difference between business people and consultants is that business people work on facts. After 25 years, the fact is that EDL is a dramatic failure. I am not discussing the people but the results, and unfortunately to date, the results prove it is a complete failure. When we talk about the private sector around the world, we know that when the private sector manages something it does so completely differently from the public sector. Of course, there was no legislature, otherwise we would not be in this state and we would not even be interested in investing a penny in it.

AK The government is approaching the initiative to ask the private sector to bring the capacity. It is pushing ahead toward encouraging the private sector's involvement, and this is why it is feasible as there is awareness in the public sector that it needs to work with the private sector. I know from experience that the energy sector has to exert itself in one way or the other through the government, and the government's way ahead is through private sector distribution. Soon enough, in four to five years, it will be the private sector that will provide 80% of the generation.

KO The problem is that the private sector wants to intervene and be a major player only under favorable conditions. The private sector can make its way by bending the laws because it has the know-how and capability to do it; however, the public sector cannot. There was an issue of lack of political will to give EDL enough political support to do its job. There are conditions required for the private sector to succeed. If we can maintain those conditions also for EDL, then it will succeed. Both need to have a climate of stability, security, and law enforcement, and then they will succeed.

How would you suggest solving this problem in the short term?

KO I suggest proceeding with the IPP process with the International Finance Corporation (IFC). To date, the ministry has been under a great deal of pressure by the private sector to hand out licenses without a regulating authority, a set of tender documents, or criteria of award. The problem of the private sector in Lebanon is that it pushes and bullies to acquire licenses with terms and conditions that are not favorable to the government. When there is a transparent process under IFC rule that it is open to everyone, we can be certain there will be good technical and financial conditions. This will hopefully happen in the next period as the Ministry of Energy and Water is already negotiating with the IFC to act as a transaction advisor in the IPP procurement process.

Is there any role for geo-thermal or other more creative energy solutions?

PEK As part of the 12%, geothermal is the smallest share, at less than 1% of the total of renewable energy. Here, we also refer to biomass or waste-to-energy and we can exchange electricity with the EDL grid through a net metering scheme; whenever there is a surplus of electricity, we lend it to EDL, and whenever we need it, we take it back. The scheme was approved by EDL in 2010, and it is currently fully operational; we encourage companies to apply for this scheme. The National Renewable Energy Action Plan, which is developed by the Ministry of Energy and Water as a public guiding document, has a detailed analysis of the costs of the different technologies, and this is how we determine our objectives and the capacity of each technology by 2020. Most technologies including solar PV, solar water heaters, wind, and biomass are lower than the costs paid by EDL so they are feasible, so we focus on these technologies. Concentrating solar power (CSP) is by far higher than the actual cost paid by EDL, and so too is geothermal. This is why we are not counting on these two technologies. According to the National Renewable Energy Action Plan, we look forward to 50MW of CSP in 2020 and are seeking a few pilot projects in geothermal.

What is the role for innovative startups within the 12% goal?

Antoine Skayem We have been part of this entire scheme since day one. One of our clients asked us to work on water because, in 2015, we had a serious drought in Lebanon. We started using solar systems to power our smart irrigation system, which reduces electricity. By reducing water we reduce the pumping energy, thereby making another cut on the kW per hour usage. Renewable energy also involves energy efficiency as we have a great deal of waste in the country due to bad habits and old systems. Having a fresh and innovative approach will put things into a different perspective, which is what we seek to do. However, it is true that we have one of the most innovative financing mechanisms. Small projects are ignited by word-of-mouth. This mechanism takes a long time and there is a huge bottleneck from the time that we initiate a project to the time we install; sometimes it takes a year. By speeding up this process it will definitely help push to hit this target by 2020.

FZ The positive side is that we do have a great deal of micro company SMEs that have been making large inroads into renewable and sustainable energy. All new buildings now have solar energy; the private sector is a huge step ahead of this.

Hussam Hawwa We would like to see support of SMEs in developing new solutions in the alternative sector of renewable energy. In general, several layers of thinking must be added to such assessments. The master plan cost-recovery assessment mechanisms are generalized; if we could localize them more and integrate benefits to other sectors, this would make important changes in cost-benefit analyses of renewable energy interventions. Secondly, energy sector development in Lebanon has been purely profit and nation-centric, and the potential is great for improving decentralized loops at the municipal level, considering the various recent achievements and potentials of municipalities for implementing green technologies. If we can think about encouraging PPPs at the more local level and integrating the benefits of other cross-cutting sectors, then it could entail lucrative development in terms of sustainability and would be much more interesting environmentally where other non-monetary costs on the environment and health are detailed. Lastly, there is a great deal of goodwill but not enough resources in terms of improving know-how, design, and follow-up; this is where the private sector and universities can have real added value.