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Lebanon: Power Up

Lebanon's government is looking at a range of options to solve the country's chronic electricity shortages that threaten to slow economic development, though it will take much time and money to overcome years of low investments and unwillingness to reform the sector in order to meet the country's growing needs.

Though the Lebanese economy performed well in 2009, and is expected to post growth of 5.8% this year, this figure could be even better if the country has a reliable source of power. Much of the country experiences some form of electricity rationing, with scheduled power cuts or reductions in supply being a regular part of life for most Lebanese.

The cost of these cuts runs across the economy, with loss-making state monopoly Electricité du Liban ( EDL ) being one the biggest drains on the budget, while shortages restrict industrial productivity.

Furthermore, Lebanon has to import 96% of its energy consumption, including almost all of the fuel used by EDL 's power stations and the increasing numbers of private generators used to meet the shortfall in state production. This leaves Lebanon very vulnerable to price fluctuations and disruptions to supply. With oil prices again on the rise, EDL 's import bill is also increasing, potentially adding to the $1.5bn of losses it recorded last year.

EDL also suffers from illegal electricity connections across the country - avoiding meters and amounting lost revenue for the company - as well as unpaid bills.

Though EDL has around 2200 MW of installed generation capacity, the utility is usually only able to keep 1600 MW operational. With national demand now well over 2300 MW and rising, the need for additional capacity and upgrades to existing facilities and the country's distribution network is a matter of urgency for consumers and the economy.

On April 15, the finance minister, Raya Hafar Hassan, unveiled the draft budget for this year, with the document including funding for new power stations and the installation of electricity transportation networks. In total, the draft budget allocates $322.6m for new capital works, with the proposed power stations set to bridge the gap between existing demand and the current shortfall in production.

Of course, the cabinet has to give its approval to the budget and then the Finance Ministry has to find the funds for the new power stations and the many other projects and recurrent spending requirements of the state, all without further adding to public sector debt, which stood at around 147% of GDP as of the end of February.

Though immediate plans are to further increase the use of hydrocarbons as fuel for electricity generation, Lebanon has set itself a target of generating 12% of its electricity through renewable resources by 2020, in particular looking at a mix of solar and wind energy to help it achieve this goal, though there are a number of obstacles to overcome.

One of these is the relatively small size of the country, with the limited available space and the high cost of land restricting the deployment of solar farms, which require a large area for panels to be spread over.

Another problem faced by proponents of renewable energy is that EDL 's tariff system has been left unchanged since the late 1990s when oil was trading at $25 a barrel, effectively providing heavily subsidied electricity to the public. Even though alternative energy has become more cost-effective as new technology is developed, it would be impossible for renewables to compete with traditional means of power generation unless the playing field was at least levelled, if not tilted in their favour.

The current government was committed to renewable energy, and to resolving the country's electricity shortages, though there was much work that needed to be done, the water and energy minister, Gebran Bassil, told a seminar on alternative energy held in Beirut in late March.

"We are not ready on the technical and legislative levels, but we are committed to deal with these issues as soon as possible," Bassil declared. "The problem in Lebanon has always been that of a political decision, but I can assure you that today we have both the will and the decision to go on with this project."

A study has been commissioned to determine the best locations across the country for wind power generation, with a goal of generating up to 500 MW of power via wind-turbine installations, the minister said.

Though an additional 500 MW of clean power and the 700 MW of conventional capacity planned for in the budget will improve the situation, it will only be a step in a much longer road towards Lebanon ensuring power security. Some estimates put the country's requirements for new generation capacity at 3000 MW over the coming decade. Given the existing shortfall and the fact that most of EDL 's facilities are ageing and in need of upgrades, Lebanon still has a long way to go before it can guarantee power to the people.

© Oxford Business Group 2010