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The weekend read: Will Lebanon’s solar rise?

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A year after a sudden explosion in Beirut killed more than 200 people, destroying solar installations in the port and sending the country into a complete downfall, a question emerges: Can Lebanon use this experience to set its economy on a new sustainable pathway, supported by a viable energy sector? Solar energy offers some lessons.

From pv magazine 09/2021

In July 2020, pv magazine published an article on Lebanon’s solar photovoltaic sector, addressing how the country’s dwindling economy was affecting its renewable energy tender schemes and the overall progress toward its green energy goals for the years 2020 and 2030. The situation was already very difficult, given that Lebanon had failed to make a bond payment that led to the country’s first sovereign default. However, at this point there was still a glimpse of hope stemming from the involvement of the European Bank for Reconstruction and Development (EBRD) in the design of the tenders.

PV potential

This trust in solar’s potential for low-risk investment seemed to pay off. A few days after the publication of the article, Lebanon’s government concluded negotiations for feed-in tariffs concerning three solar PV farms in the Bekaa-Hermel region. The three solar parks were part of a 180 MW solar tender, which aimed to auction the development of 12 PV projects, each at 15 MW, in separate regions of the country.

The design of the 180 MW tender allowed the government to negotiate a different tariff for each of the four regions (Bekaa-Hermel, Nabatieh, Akkar, and Mount Lebanon). The lowest bid submitted in a given region would apply to all PV projects in the same region. For Bekaa-Hermel, specifically, one group had submitted a $0.057/kWh bid, so all three 15 MW farms had to accept that tariff.

Pierre El Khoury, general director and president of the Lebanese Center for Energy Conservation (LCEC) board, spoke to pv magazine last year about the Bekaa-Hermel tariff.

“Bekaa-Hermel has the most solar irradiance, cheap land and easy-to-install plots. The names of the three bidders (joint Lebanese and international companies) will be disclosed once the government issues the licenses; the negotiations for the remaining three regions were still ongoing,” he said. “And with no surprises [the government needs] hopefully one to two months [to conclude negotiations for all 12 solar projects].”

Tip of the iceberg

That time never came. Instead, on Aug. 4, 2020, a large amount of ammonium nitrate stored illegally at Beirut’s port exploded, killing at least 218 people, and leaving about 300,000 people homeless. Lebanon’s citizens felt the blast was the tip of the iceberg for corruption, mismanagement, and the incompetency of the country’s elite, and demanded a new government comprising figures removed from the political establishment.

Yet, although the government resigned and has acted only in a caretaker capacity since then, Lebanon has failed to form a legitimate new government. In July, the country’s parliament named the third prime minister in a year, but it is far from certain whether this new attempt to form a sustainable and legitimate government will come to fruition.

The blast, combined with Lebanon’s debt default and the Covid-19 crisis, has led to a situation that many argue is ungovernable. Residents face dire shortages of medicine, fuel and electricity on a daily basis, while the national currency has lost about 90% of its value against the U.S. dollar, driving hyperinflation.

Meanwhile, the international community, led by France and the European Union, have made it clear that any financial help will come only on the condition of brave political and economic reform. The immediate question is whether Lebanon will be able to form a government that pushes through reforms, saving the economy and its people from poverty.

Crisis catch-up

Gabriel De Lastours, who is the regional head for the EBRD’s energy projects in the southern and eastern Mediterranean regions, told pv magazine that the bank is preparing for what happens when there is a stable government and Lebanon’s macro-economic prospects improve. “We believe investment in renewable energy is on hold until the macro-economic situation improves. [However,] we want the independent power producers (IPP) model supporting the tender scheme in Lebanon to move ahead. So, one of the things we are now working on is how to develop bankable solar projects relying on a power purchase agreement (PPA) backed by a government in a comparable macro-economic situation to Lebanon.”

For example, the EBRD is currently working closely with the LCEC to examine what happened in countries such as Argentina, where the successful development of renewable energy was possible after the resumption of access to external lending and investors, said De Lastours. “We are trying to see if we should think of an additional comfort element to back the government’s obligations in the PPAs, after the macro-economic situation improves,” he added.

Based on De Lastours remarks, it is no surprise that the first three projects of the 180 MW tender did not move forward. Rani Al Anchkar, the executive director of the LCEC, told pv magazine that although the first three solar farms in the Bekaa-Hermel region reached the licensing phase, the PPA contracts were never signed. The resignation of the government played a role, but this is “mainly due to the economic situation and devaluation of the Lebanese currency,” said Al Anchkar.

EBRD’s persistence

Al Anchkar added that the LCEC and Lebanon’s Ministry of Energy and Water are assisted by a global consortium assigned by the EBRD to prepare all documents for a solar+storage tender, as well as a second round of wind power tenders. However, Al Anchkar noted that an official decision to launch a tender cannot be taken by a caretaker government.

Perhaps the EBRD’s persistence on Lebanon is the most positive news currently in the country’s energy sector. “We remain in Lebanon,” De Lastours repeated more than once. “EBRD started its policy dialogue support for renewable energy in Lebanon in 2017 before the political/economic crisis hit, and we are continuing. A part of the international donor community has decided not to continue their support [to Lebanon] until the reforms take place, but the EBRD’s program continues. There is no deadline for the EBRD’s program in Lebanon, we remain there to help with the tenders.”

Asked if, apart from the PPA projects, the EBRD plans to support “private wire” energy projects in Lebanon, De Lastours answered that the bank engaged a consultant two years ago to draft new articles that will be put into law to allow the regulation in Lebanon to do B2B, private wire renewable energy projects. “The draft is ready, and the consultant is currently engaging with the parliamentarians to promote this policy. We are hopeful that this will pass. We are keen to support this type of the market.”

In line with the EBRD’s persistence in the country, De Lastours aimed for a positive closing remark. “The fundamentals on renewable energy that were there two years ago are still there: the shortage of power, the good renewable energy resources, and the good team at the LCEC organising the renewables program.” Especially solar, added De Lastours, with its low costs and quick project deliveries, can help the country by offering reduced risks. Of course, the crisis that Lebanon is presently facing is affecting the development of renewable energy. And while the blast had an impact on the whole of the country, it also had a dramatic impact on the country’s state-owned utility, which has slowed things down. But equally, concluded Delastours, “our fundamental analysis for the need and the opportunities of renewable energy in Lebanon is still there and is valid.”

The LCEC said Lebanon installed 14 MW of new PV capacity in 2020, mainly comprising net-metered rooftop systems. The country’s cumulative installed PV capacity stood at 90 MW by the end of 2020, which is below the 100 MW government target for 2020.