Mitigating the darkest hour: Lebanon’s struggle for power

Lebanon is steadily plunging into total darkness. Decades of political bickering, weak governance, and vested interests have taken their toll on the power sector and are developing into economic and humanitarian crises. A long-term strategy focused on improving the sector’s governance is needed. In the short term, however, immediate actions such as distributed renewable energy and out-of-the-box financing mechanisms should be taken to avoid the darkest hour.

Since the early 1990s, Lebanese citizens have been paying an exorbitant cost for an inefficient power sector, which has strained the economy and public budgets. The sector accounts for 40% of public debt, and citizens and businesses have had to rely on a secondary electricity service provided by expensive diesel generators, reducing purchasing power and competitiveness. Despite all that cost, the Lebanese now worry that they may lose both electricity services and be left in the dark.

A total blackout would be a death sentence for the economy and affect everything from water provision to access to health care and vaccines. But it would also have major political implications. Protesters taking to the streets would further destabilize the already-fragile state, which is why officials are keen to maintain some sort of limited power provision. But why won’t they embark on serious reforms? In brief, the same officials have been sharing power for the past few decades and have developed tremendous vested interests across the power sector’s value chain. As simple as this answer may seem, uncovering these vested interests is a challenge. The root causes for this are weak governance and institutions, and the absence of accountability. Consequently, the nation has been stuck at a political impasse, hindering any power sector reforms for almost three decades.

Instead of positioning the country on the path to reform, the political bickering has only gotten worse amid the increasing impact of the financial and economic crises and the inaction of officials since Lebanon’s first default in its history in March 2020. Lebanese governments have historically pushed for temporary and costly quick fixes, which maintained the status quo and locked the sector in a vicious circle. Examples include renting expensive power barges since 2013 and more recently, placing citizens between a rock and a hard place with the choice of a total blackout or dipping into the central bank’s dwindling reserves to import fuel.

The extent and magnitude of the crises call for an optimized approach of both short- and long-term strategies to address the shrinking currency reserves and the power sector’s woes, from minding the supply shortage estimated at a minimum of 1,500 MW to reducing the cost of recovery and the 38% technical and non-technical losses, including non-billing, non-collection, and illegal connections.

The short-term strategy should keep critical power on without creating negative implications or additional vested interests that would hinder the long-term strategy and reforms. The objective of the long-term strategy should be to provide the most affordable electricity while maximizing reliance on domestic natural resources — which are so far only renewables — to enhance energy security and reduce the outflow of foreign currency on fuel imports.

The power sector reforms are currently interlinked with a financial package that the government has yet to start negotiating. There cannot be a thriving economy without lower-cost electricity provision. Procuring the cheapest solutions and reducing non-technical losses would require a significant enhancement of the sector’s governance, however, and this is highly unlikely given the current political context. Enhancing governance starts with strengthening institutions and building citizens and investors’ trust. But the trust gap between citizens and government is currently widening, reducing citizens’ willingness to pay for services provided by the state. This will be a major deterrent to increasing the tariff on electricity supplied by the state-owned electricity utility, Electricité du Liban (EDL). The absence of state authority makes it nearly impossible to cut down on illegal connections and properly bill and collect payment from all citizens. Similarly, investors require political and economic stability, solid regulations, and rule of law to enter a market. An independent regulator with a full mandate and an efficient procurement process would signal a serious will to reform. Lebanese officials have resisted all of these measures in the past decades, however. It is therefore sensible to include enhanced governance as part of the long-term strategy.

In the short term, keeping critical loads powered is a key priority, and bypassing the bottlenecks of the central government is necessary to achieve that. The following measures would ensure reduced reliance on EDL and diesel generators, and consequently the outflow of foreign currency:

1. Roll out an immediate decentralized power generation solution. Develop an immediate decentralized power generation plan through a hybrid solar-photovoltaic/diesel model in collaboration with municipalities, where the existing generators can be centralized at the town level and connected to solar systems. Such models will rely primarily on solar energy, complemented by either EDL or diesel generators as needed. These systems could also be deployed on the low-voltage network.
2. Establish the Green Investment Facility (GIF) as a revolving fund or blended finance for renewable energy with high impact performance indicators. The GIF falls within the Lebanese Government Financial Recovery Plan. International aid assistance to Lebanon and part of the Special Drawing Rights allocation from the International Monetary Fund could be used as a source to capitalize the GIF, along with international oversight, and should prioritize electricity provision through grants and loans to productive sectors and municipalities. If financing guarantees are provided, then the GIF could leverage additional funds from the private sector.
3. Develop localized and inclusive out-of-the-box financing and governance mechanisms. Innovative financing solutions should also be considered, such as engaging the diaspora and building solar cooperatives. In the latter case, citizens of a town would acquire defined shares of a solar system and receive corresponding generated electricity. Renewable energy credits are another mechanism; these  constitute tradable certificates that can be sold to companies and consumers with renewable energy or decarbonization commitments. Another solution could be to develop an “energy-for-trade” fund in which part of donors’ funding for development projects would be channeled toward deploying renewable energy systems in facilities with high export potential, including industries and agriculture.
4. Eliminate subsidies for the highest consumers. Elimination of the subsidies for all consumers without a financial solution, injection of foreign currency into the market, and transparent cash transfers to the vulnerable will only lead to a further depreciation of the Lebanese pound, meaning most people would no longer be able to afford electricity. Yet a fair provision of electricity services and a reduction in wasteful consumption require starting a tariff restructuring process through the elimination of subsidies for the highest consumers.

There are no magic bullets. The power sector will not thrive without competent officials who have no vested interests in the system and are willing to implement serious reforms. The current dominant players make this nearly impossible to achieve in the short term. Yet powering the critical loads immediately through measures bypassing the bottlenecks created by these officials should be the key focus of citizens and any foreign assistance to Lebanon.

Jessica Obeid is an independent energy policy consultant advising international organizations and governments on electricity and energy transition. In addition, she serves as a Senior Global Advisor for London-based consultancy Azure Strategy; a Non-Resident Scholar with MEI’s Lebanon and Economics and Energy programs; an Academy Associate at Chatham House’s energy, environment and resources program; and a non-resident fellow for the Lebanese Center for Policy Studies. 

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