From its heyday as an exporter of power, to an energy crisis that it has been battling since the 1990s, Lebanon is trying to correct the imbalance of supply and demand with reform measures. But as the crisis compounds, the reforms need to transcend from paper to action.
With electricity consumption per capita outstripping electricity generation by a significant margin, Lebanon has been struggling to meet its electricity demands since the end of the civil war 27 years ago, with the supply-demand imbalance resulting in regular power cuts across the country.
H.E. Cesar Abi Khalil, Lebanon’s Minister of Energy, believes that decisions made during the 1990s continue to haunt the energy equation today. “Building combined cycle power plants in the 90s, which should have been fired on natural gas and have instead been fired on gasoil since, resulted in generation costs that skyrocketed when the oil prices soared to $140 per barrel,” he explains.
While imports have helped to ease the situation—more than 7.5% of electricity demand has been imported from Syria and Egypt through the regional interconnection grid—regional instabilities have disrupted these, and the added demand for electricity created by an influx of refugees to Lebanon have compounded the capacity shortage.
The Economic Cost
H.E. Khalil points to a study conducted by the UNDP in 2017, which found that the situation has been aggravated by the presence of 1.5 million displaced Syrians in Lebanon, requiring around 500 MW of additional power. This cost the government in the region of $333 million in 2017, and that could reach $500 million in 2018 with the increase in oil prices.
A 2016 research paper, “The Lebanese Electricity Woes: An Estimation of the Economical Costs of Power Interruptions”—part of the Swiss-based MDPI’s academic research document, Energies—brought into sharp focus the importance of studying the economic costs of power cuts to inform electricity planning and guide policy makers to allocate capital more optimally to the energy sector.
According to the Policy Paper for the Electricity Sector in 2010, based on $700/MWh representing the average value of lost load (how much it costs the economy to not produce electricity), the total cost of energy losses for the Lebanese economy reached $23.2 billion between 2009 and 2014, although the rental of two floating Turkish power plants in 2013 enabled losses to drop from a peak of around $5.7 billion in 2012, to a low of $3.8 billion in 2014.
The government is aware of the criticality of the economic costs of the crisis, ramping up efforts to ensure reforms are implemented on a war footing. “The crisis is critical when you cannot supply sufficient energy to cover the demand of the country. It is critical to know that with every kWh that we produce we lose 7 US cents but with every kWh that we do not produce we lose 70 US cents (the value of the lost load),” says H.E. Khalil. “Today we have about 2000 MW of production capacity connected to the grid while the demand is for above 3300 MW.”
The situation has been compounded by an apparent lack of investment into the country’s electrical infrastructure. However, the approval of the Policy Paper for the Electricity Sector in June 2010 by the National Unity Government has been translated into a number of plans and accomplished projects.
“Reforms are mere ink on paper. The sector is suffering from the lack of political will, not technical solutions,” says Jessica Obeid, formerly Chief Energy Engineer at a UN agency in Beirut and presently Visiting Energy Analyst at Chatham House, a globally renowned, independent UK-based think tank. “Some measures have been implemented to reduce the shortage in electricity supply, such as the power barges connected in 2013. However, a country with a public debt to GDP ratio of 150%, should be using its resources for investments rather than an unsustainable rental mechanism.”
Private Generators: Boon Or Menace?
The sole official provider of electricity in Lebanon, Electricite du Liban (EDL), currently co-exists with private generators that offer electricity output for neighborhoods during chronic power interruptions. However, as EDL and the authorities struggle to meet growing demand, the rising cost of electricity bills from private generators is putting a strain on household budgets.
“The cost of electricity from private generators goes up to 50 US cents per kWh. In contrast, the cost of electricity from the government/EDL ranges between 17-23 US cents per kWh. EDL tariffs have been fixed since the 1990s and average at around 9.5 US cents per kWh,” Obeid explains. This means that despite government subsidies on electricity in Lebanon, the people end up paying a high bill. “In the past decade, the value of lost load on the Lebanese economy has amounted to more than $32.2 billion and the treasury has paid EDL around $15.8 billion. So, the electricity sector has cost the Lebanese more than $48 billion in the past decade,” adds Obeid.
H.E. Khalil believes the private generator sector poses one of the key challenges to the reforms. “Established private generation businesses—estimated to be worth more than $2 billion today—benefit from the gap of power generation, making up for the lost load and selling their electricity at very high prices to the consumers,” he explains. “This business forms a large network across the value chain, starting from the import of gasoil to the import and assembly of generators all the way through to the investors placing large funds in this business.” The long-standing deficit of EDL is seen as another stumbling block, driven largely by its dependence on subsidies and contributions from the general treasury, which means it must seek approval from a council of ministers.
“It’s hard to imagine a solution that doesn’t account for private generators, but the government should put strict regulations on their operation, tariff and greenhouse gas emissions and emphasize the monitoring and follow-up on the implementation,” adds Obeid. “Municipalities and communities should play an active role in electricity generation and decreasing greenhouse gas emissions and should be allowed to generate their own green electricity. Many already operate their own diesel generators and have a separate generator network to cater for the electricity needs of their communities.”
Reforms: The Way Forward
Several reforms are now underway. The Policy Paper for the Electricity Sector in 2010 allowed for an emergency deployment plan of 700 MW, consisting of three land-based power plants in Zouk, Jiyeh and Deir Aamar. Two of these have now been delivered and connected to the grid, despite administrative delays. Reforms also include a tender to purchase 850 MW of electrical capacity for the coming months, as well as commission two other power plants—Selaata 1 and Zahrani 2. Three Floating Storage Regasification Units offshore have also been tendered to supply coastal power plants with natural gas, reducing power production costs by at least 40%.
There have also been high-level discussions on restructuring the electricity sector, for example through the privatization of EDL, although Obeid believes there are a number of reasons why this would be challenging. “Privatization requires an independent regulator, strong institutions, a high level of transparency, good governance and a proper valuation of the assets. First there should be basic reforms, transparent procurement and data. The lack of access to information in the sector is detrimental to management, monitoring and the attraction of investment.” she says. “Attracting investment into the sector is important.”
“In the distribution sector we managed to execute one of the first successful PPPs, with the award of the three regional distribution sub-sectors to three different companies,” says H.E. Khalil. “These have, in large areas of the country, managed to ameliorate the service, decrease the costs and decrease by half the technical and non-technical losses, which were initially estimated at above 40%.” The smart grid that has started to be deployed in some areas is also helping to further reduce the technical and non-technical losses.
The sector’s heavy dependence on imported fuels may also be weakening its security and increasing economic volatility. Renewable energy systems could play an important role, not only in minding the electricity supply gap at less cost, but also in increasing the overall security of the sector. Obeid believes there’s been a decoupling between the renewable energy and the thermal power sectors in the country, and renewables have taken a better pace. “Lebanon has embraced the PPP model and engaged the private sector in bidding and expressing interest for wind and solar farms, at a cost lower than 11 US cents per kWh. But they remain a risky business,” she says. “Lebanon should be cautious in tendering a large number of projects. They pose questions on whether the grid can sustain this capacity and whether the government can afford to pay the bill without delays.”
Net-metering—a credit mechanism adopted by Lebanon in 2011—involves exporting potential electricity surplus to the grid and billing the customer for the difference between the amount consumed from the grid and that fed-back to the grid. “Lebanon should facilitate the net-metering and the NEEREA loan process, which now require a minimum of five months,” says Obeid. “In addition, in a county struggling with waste management and elevated electricity shortage, waste-to-energy plants are an obvious solution.”
Looking ahead and experts agree there is a need to avoid the pitfalls of past reforms, with a greater focus on reducing demand and decentralizing electricity generation. Access to a reliable and continuous supply of electricity is essential to economic growth, technological advancements and a good standard of living. Continued power cuts in Lebanon have had a debilitating impact on the socio-economic fabric of the country, while associated economic costs have mounted.
The Lebanese energy crisis requires multi-fold action, from managing demand-side and supply-side numbers and ramping up generation capacity, to revisiting energy pricing structures and resolving financial deficits. The key lies in the political will to implement reforms.