Failure to Power: The Need for Decentralized Renewable Energy Models

The Middle East Program at the Center for Strategic and International Studies (CSIS) commissioned commentaries from the Sustainable States project's working group, which consists of environmental analysts and practitioners from the Middle East and North Africa region.

Most Lebanese pay two electricity bills and still lack reliable power. They pay a comically low bill to an ineffective state utility, and an exorbitant bill to a supplementary private generator subscription. The high cost of power provision also appears in Jordan, where businesses report electricity cost as a barrier to doing and expanding business.

The two countries are highly indebted, rely on fuel imports, and their electricity policies have largely focused on centralized generation, although the level of success of these policies varies. Jordan has developed significant power projects through expensive power purchase agreements. In Lebanon, however, the system does not work, as it is based on confessional power-sharing that safeguards the interests of the different political parties and corresponding religious sects. The outcome in both countries is that vested interests hinder effective power reforms.

Decentralized renewable energy models offer an opportunity to circumvent political bottlenecks, provide affordable electricity, and reduce reliance on imported fuel. These models entail the implementation of renewable energy technologies on premise, such as rooftop solar power systems, or close to the electricity load, such as solar microgrids that can power entire communities. These systems can run on- or off-grid with battery storage or in hybrid mode coupled to the existing diesel generators.

Cost of the Status Quo

The shortcomings in the electricity sector in both countries have strained public debts. In Lebanon, debt to GDP ratio crossed 194 percent in 2020, and the country defaulted on its debt for the first time in its history in March that year. The electricity sector is accountable for 43 percent of this debt. Although Jordan’s economy is slightly stronger, the electricity sector has also been a main contributor to the surge in public debt, mostly due to the expensive power projects.

The peak power demand in Lebanon stands at 1.5 gigawatts more than the available generation capacity. This supply gap has led to the proliferation of private diesel generators across neighborhoods, creating an informal economy valued at $2 billion. The policy focus has been to mind the supply gap through fast, temporary thermal solutions such as renting expensive floating power stations docked offshore, thus compromising sustainability and cost-competitiveness.

Electricity provision in Lebanon has chronically been unjust. The blackouts from the national electricity utility differ in length across the regions. The farther from the capital Beirut the consumers reside, the lower the utility supply and, consequently, the higher the private generators bills. The economic and financial crises have reduced the availability of foreign currency reserves necessary for fuel imports, thus reducing the capacity to import fuel for the utility power plants and private generators. As a result, the power rationing has increased, further aggravating the prospects for economic recovery and exacerbating regional disparities.

Following instances of fuel supply disruptions, Jordan rushed to secure significant gas imports and gas-fired power plants, coupled with centralized utility-scale renewable energy, at suboptimal costs. Additionally, the pace of implementation of thermal power plants did not slow down with the increased deployment of centralized renewable energy. The national electricity utility found itself purchasing substantial electricity at elevated costs both from renewable energy and thermal power producers. To reduce the cost of subsidies and match the expensive power recovery cost, the government adopted the simplistic approach of maintaining subsidies for the vulnerable households and small industries while significantly hiking the tariff for the commercial sector and other industries. This has increased the operating costs of businesses, reducing their competitiveness and export potential.

Out with the Old, In with the New

Distributed renewable energy generation would enhance security and economic indicators through reduced dependence on fuel imports, lower outflows of foreign currencies, and improved business competitiveness. Yet, it would challenge the existing governance structure by empowering local authorities and diluting political interference and vested interests. Reliable electricity is a main driver of economic growth, but its affordability is also a critical factor, especially in low-income countries that suffer from significant trade imbalance, including Lebanon and Jordan.

In Lebanon, in addition to bypassing the complex central governance model, distributed systems such as hybrid solar-diesel microgrids would ensure a fair, equitable, and more reliable electricity provision. Such systems are implemented separately from the national grid and would cover a defined area, neighborhood, city, or town. They would rely primarily on solar power generation coupled with the exiting diesel generators. Consequently, they would decrease reliance on the national utility and reduce the generators’ diesel consumption. These systems would therefore reduce the blackouts impact by optimizing the use of domestic resources and equipment—mainly the 300 sunny days each year and the spread of diesel generators. In Jordan, a primary value of this governance model is its potential in job creation and improved business competitiveness through lower operating costs.

Moreover, the grid in Jordan and Lebanon is weak and suffers from underinvestment. Decentralized system models reduce the overall costs through the reduction of grid and flexibility costs and required investments. Systems, such as rooftop solar, provide affordable electricity to facilities and businesses otherwise struggling to reduce operating costs, enabling them to compete at regional and international levels. Reducing the cost of electricity provision should be a key policy driver in both countries as they seek to improve their exports and secure foreign currency inflows. Such models are easy to deploy across value-added sectors, including tourism, agriculture, and industries. As the pandemic-associated unemployment figures continue to rise, the deployment of these models enables job creation across all economic sectors. Decentralized systems would also grow the local market of small and medium-sized energy enterprises, which do not stand a chance of competing for centralized large-scale projects.

Decentralized renewable energy should be placed at the heart of economic recovery policy in Arab states, especially in Lebanon and Jordan. Each country should be designing financing mechanisms that increase the deployment of these models across sectors in collaboration with bilateral and multilateral financial institutions, focusing on specific impact and evaluation metrics. There is no thriving economy without consistent and affordable electricity that relies on available natural resources and reduces political interests.

Jessica Obeid is an energy policy consultant and a member of the CSIS Middle East Program’s Working Group for the Sustainable States project. She was formerly a resident fellow at the Chatham House Energy, Environment and Resources Programme and, prior to that, chief energy engineer with the United Nations Development Programme in Beirut.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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Jessica Obeid

Member, Working Group for the Sustainable States Project; Energy Policy Consultant