The weekend read: What Lebanon’s default means for PV

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From pv magazine 06/2020

Hassan Diab, Lebanon’s prime minister, explained the situation in a televised address in early March. “The debt has become bigger than Lebanon can bear, and bigger than the ability of the Lebanese to meet interest payments,” he said. On March 9, the country defaulted on a $1.2 billion eurobond.

The government’s debts account for more than 150% of GDP, with the biggest part held by local banks. Diab said that talks to restructure the country’s debt are underway with all creditors, namely local banks and international investors. It won’t be an easy task, and either a default on debt payments or a small haircut will have dire impacts on the Lebanese economy.

More cumbersome than restructuring its debt will be Lebanon’s effort to modernize its economy. The nation suffers from bad governance, which led the Lebanese people last year – both at home and abroad – to protest about corruption, poor public services, youth unemployment and rising consumer prices.

“We don’t need a banking sector four times the size of our economy,” said Diab. Lebanon needs to modernize its economy and invest in other sectors, too – offering an opportunity for renewable energy.

PV tenders

Lebanon currently has two major solar PV tenders underway. The first is for 12 solar PV plants totaling 180 MW of capacity. Lebanon initially received 42 applications and a year ago it shortlisted 28 applicants for the second phase. Following this, a national committee started “technical and capability scoring” of the applicants in cooperation with an international consultant.

“Firms that scored well had their financial offers opened and the government entered into negotiations with the lowest bids in accordance with the tender documents,” a government source explained. The negotiating process has been underway for a number of months and there are fears that the current financial struggles will result in it being placed on pause.

Meanwhile, Lebanon has also started the process to tender three 100 MW solar-plus-storage projects, for which it received 75 expressions of interest in 2018.

Progress for the solar-plus-storage tender has been slow and the European Bank for Reconstruction and Development (EBRD) is offering assistance. In 2018 the bank appointed two international consultants for small initial assignments – which were completed in 2019.

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Gabriel de Lastours, a banker responsible for coordinating the EBRD’s energy projects and policy dialogue initiatives in the southern and eastern Mediterranean regions, told pv magazine that, “the focus [of the initial assistance] was on the new solar-plus-storage tender and the second round of wind projects. A consortium led by EY and another led by Synergy completed the work. A larger, multi-year contract was tendered at the end of 2019 and is in the process of being appointed and approved by the Ministry of Energy.”

Yet, the Lebanese government has stated that progress on the solar-plus-storage tender is lagging significantly. The legal and technical aspects of the solar-plus-storage tender differ significantly from other projects, and given that the 180 MW PV tender is the priority, things are proceeding slowly on this front, said the same government source.

EBRD’s efforts

The main goal of the EBRD in Lebanon is to help the country to become a free market economy, while supporting its decarbonizing efforts via access to low-cost renewable energy, as seen in tenders across the region, said de Lastours. An example of the EBRD’s work in the country is the power purchase agreement (PPA) framework for independent power producers (IPPs), which the Ministry of Energy developed in cooperation with the EBRD and other stakeholders in 2017 and 2018.

“Our effort in renewable energy generation is part of a wider engagement in supporting the green transition of the Lebanese power sector,” argued de Lastours, while listing a number of deals facilitated by the EBRD. They include a senior corporate loan of up to $20 million to BUTEC Utility Services. The private electricity distribution services company, which is incorporated in Lebanon, will use the funds to accelerate the deployment of smart meters and upgrade the distribution network.

Additionally, in 2019 the EBRD announced that it would support Electricite du Liban, which is the country’s state-owned electric utility, to upgrade transmission infrastructure in Beirut’s north loop. “This investment, which will contribute to renewable energy integration in the grid, is pending final approval,” said de Lastours.

Bankruptcy nightmares

To date, the EBRD has not closed any renewable energy financing in Lebanon, but it has invested in bonds aimed at boosting Lebanon’s green economy. In 2018, for instance, the bank subscribed to a bond issued by Beirut-headquartered Fransabank for $15 million – the first in Lebanon with the explicit aim of financing green investment. The funds aimed to support Fransabank in scaling up its lending to renewable-energy arrays, energy efficiency, and green-building projects throughout the country. International Finance Corp., which is a member of the World Bank, subscribed to Fransabank’s bond with an additional $45 million.

In January of this year, the EBRD and the European Union also agreed to set up a €50 million program of financial guarantees aimed at scaling up investments in renewable energy projects in Lebanon and other countries.

Asked whether such investments are at risk, de Lastours said that the bank is following the situation in Lebanon “very closely and very carefully.” However, he remained hopeful. “Regardless of the macro situation in the country, we expect the renewable energy program to move forward. The case for renewable energy in Lebanon is strong: It will address the deficit in power generation, reduce the cost of power to the consumer and contribute to meeting Lebanon’s climate targets. EBRD is committed to continue its active engagement in the sector in Lebanon.”

According to the latest statistics published by the Ministry Of Energy and Water, Lebanon has installed 56 MW of PV capacity. Its goal for renewable energy by 2030 is 5 GW – primarily large-scale solar PV installations and wind power systems.