In early April, Lebanon’s government approved a long-awaited plan to reform its electricity sector, aiming to reduce daily blackouts for much of the country’s population. The approval of the plan is regarded by those within Lebanon as one of the most important measures taken since the new cabinet was formed in January.
Speaking to media following its endorsement, Lebanon’s Prime Minister Saad Hariri proclaimed: “This plan satisfies the Lebanese people because it will bring them electricity 24-7. It will also reduce the budget deficit.”
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Lebanon energy plan
Lebanon has suffered from power shortages for decades, following years of civil unrest and inertia at the policy-making level. In 2018, peak electricity demand reached 3,500MW, with available power recorded at 2,050MW during peak periods.
In addition to production shortages from ageing, inefficient fleet of power plants, budget deficits for the power sector have ranged between $1.5bn and $2bn a year as a result of no increases in electricity tariffs since 1994.
Demand on an already overstrained electricity network has risen significantly since 2012 following the influx of an estimated 1.5 million refugees from neighbouring Syria.
Installed capacity by type (MW)
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By GlobalDataSource: Arab Union of Electricity
Reform programme
The new electricity plan was first launched in April last year, but little progress was made due to the delay in forming the new government following parliamentary elections in May. The electricity plan contains short-term and longer-term targets, but both aim to bridge the supply shortfall.
The initial goal of the short-term plan is to secure 1,450MW of temporary power by 2020 to ensure installed capacity reaches 3,500MW and reduce prolonged blackouts. The temporary power units will be kept for a period of 3-5 years until permanent power capacity can be added to the national grid.
Lebanon is already receiving temporary power from Turkish ‘power ships’ – adapted vessels off the coast that each supply more than 200MW daily under fixed-term contracts. In July 2018, the third Turkish boat arrived off the Lebanese coastal town of Jiye. These floating facilities have reportedly provided up to 40 per cent of Lebanon’s power capacity during peak periods.
While reducing supply shortfall is the primary focus of the newly approved plan, Beirut is also aware it needs to establish its own power plants to ensure energy security in a time of increasing regional political tension.
The new plan sets out a target of building six new gas-fired power plants over the next six years to meet power demand and reduce reliance on temporary capacity. With Lebanon’s economy recording growth of just 1-2 per cent in recent years, the government wants the new plants to be developed by private developers.
However, according to a source at a company active in Lebanon’s power sector, a number of regulatory and tariff reforms must be implemented in preparation for attracting interest from regional and international utilities developers.
“Firstly, a regulator needs to be established to set prices and rules for the relationship between private power developers,” says the source.
“Investors will need a clear picture of how contracts will work, and what will happen with electricity tariffs. There is also an issue with collection of payments for power from residential and commercial users. Lebanon still has a big problem with electricity being stolen from the grid.”
Tariff reforms
The frozen price of electricity tariffs for the past quarter of a century is an issue that needs to be addressed urgently if Beirut is to reduce budget deficits and attract private investors to deliver its power programme.
The electricity plan sets out a target to increase tariffs once power production capacity reaches 20 hours a day. The aim is for tariff prices to reach LL217 per kilowatt hour ($0.092/kWh) in 2020, up from the current LL129/kWh. The plan also specifies that the tariff should be tied to oil prices, to reduce budget deficits widening if oil prices rise, with much of the country’s temporary supply coming from oil-fired sources.
If Lebanon is to be successful in establishing a private power market, investing in networks and related infrastructure will be key in attracting investor support. The World Bank and other investors have pledged $11bn to finance infrastructure, including electricity, which would provide much-needed assistance to efforts to improve the country’s power infrastructure.
However, the majority of the funds are dependent on regulatory reforms. To secure this investment, it is vital the government is able to push through pricing reforms in a parliament strewn with political schisms.
Electricity consumers by sector
- Sector No. consumers
Residential 1,426,000
Commercial 20,000
Industrial 1,000
Others 13,000
Clean energy targets
Lebanon plans to supplement its new electricity programme with the integration of renewable energy, with an ambitious 30 per cent by 2030 energy target unveiled in late 2018. While the initial focus will remain on securing temporary and gas-fired capacity, plans are already well under way for the country’s first utility-scale clean energy plants.
One of these is being developed by Hawa Akkar Energy, which plans to develop a 68MW wind project in the northern Akkar region of the country. The facility will produce enough energy to power 60,000 homes.
Albert Khoury, CEO of Akkar Energy, is leading the development of what will be Lebanon’s first wind project. “We are developing a 68MW project, and there are two other wind projects being developed under the programme too,” Khoury tells MEED.
“Our project is being developed as an IPP [independent power project], and will be developed with financing from the European Bank for Reconstruction & Development and International Finance Corporation, in addition to 50 per cent equity.”
The developer signed a power-purchase agreement (PPA) with the government in July last year, and a technical consultant was subsequently appointed to conduct an environmental impact assessment (EIA).
As the country’s first utility-scale wind project, the project has, unsurprisingly, suffered some delays, with Khoury pointing to the time taken to form a government as a primary reason. But with the new government in place, the CEO is optimistic that progress will be made this year.
“We are currently coordinating financial close, and this will hopefully be achieved this year, which means the project could be operational in the first quarter of 2021.”
Lebanon also plans to develop solar plants as part of its renewable energy initiative.
In 2018, the Lebanese Centre for Energy Conservation (LCEC), on behalf of the Ministry of Energy & Water (MEW), invited firms to submit expressions of interest (EOI) for three photovoltaic (PV) solar plants with battery energy storage. The three PV solar farms will have a combined total capacity of 210-300MW, and will be located at various sites.
The Council for Development & Reconstruction (CDR), which has played a key role in developing Lebanon’s infrastructure following the civil war, also plans to develop renewable energy.
In August, the client invited consultants to submit proposals for an advisory role on the scheme to develop a 12MW hydropower plant at Joun and a 3.7-kilometre transmission pipeline from the dam to the plant.
The formation of the new government and the approval of the new electricity plan in the first few months of 2019 have provided fresh optimism that Lebanon may be able to solve the power problems that have plagued its development for 30 years.
With international financial organisations and other investors willing to take part in rebuilding the country’s power sector, it is now up to the government to deliver on reforms to establish a regulatory environment that satisfies the requirements of developers and lenders.
MEED
This article is sourced from Power Technology sister publication www.meed.com, a leading source of high-value business intelligence and economic analysis about the Middle East and North Africa. To access more MEED content register for the 30-day Free Guest User Programme.
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