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Electricity Sector of Caucasus – Short Sector Overview

Energy independence for every country is one of the most important challenges for economic, political and security reasons and countries from Caucasus region (Azerbaijan, Armenia and Georgia) are not the exception.

According to Geostat, Armstat and stat.gov.az, average demand on electricity in these countries is constantly growing, but electricity consumption and production are seasonal.

The main sources of electricity generation are different through countries. For Armenia it is nuclear energy, for Azerbaijan thermal energy and for Georgia hydro power plants. However, the seasonality of water flow in rivers affects energy production in Georgia: In summer, when electricity consumption is low, river level is high and in winter when there is maximum consumption of electricity, the water level is significantly lower. Consequently, the minimum hydropower generation period in the country matches with the maximum consumption period of electricity and vice versa. As a result, there is a demand, which must be fulfilled with import. Georgia mainly imports from Azerbaijan, Russia and Armenia.

Electricity market in Caucasus can be provisionally divided into retail and wholesale markets. Participants of wholesale market are electricity producers, direct customers, importers, exporters and distribution licensees, also service providers, transmission system operators, market operators, transmission and distribution licensees. Main service providers on retail market are electricity distribution licensees.

Currently around 151 (Armenia – 40, Azerbaijan – 34, Georgia -77) main electricity producers are registered at wholesale market in these 3 countries. Total generation capacity of Georgia has constituted around 3,868.76 MW, 3,213.2 MW in Armenia and 7,417 MW in Azerbaijan (2017 data).

Electricity System Commercial Operator (ESCO) of Georgia buys and sells balance electricity and organizes trade with guaranteed capacity for the purpose of meeting (balancing) demand of qualified enterprises. Georgian State Electro System (GSE) is a 100% state-owned joint stock company providing transmission and exclusive dispatch services to about 50 eligible companies in Georgia. Based on the transmission and dispatch tariffs established by the independent regulator (GNERC-Georgian National Energy and Water Regulatory Commission) GSE carries out technical control over the entire power system to ensure the availability of the system for uninterrupted and reliable power supply; and transfers, without the right of purchase or sale, the electricity imported or generated in Georgia to distribution companies, direct customers or the power systems of neighboring countries. There are two main companies that carry out the distribution of electric energy in Georgia – ENERGO-PRO Georgia and Telasi.

ENERGO-PRO Georgia is a daughter company of ENERGO-PRO A.S. and a member of ENERGO-PRO Group, which unites electricity generation and distribution utilities in Czech Republic, Bulgaria, Georgia and Turkey. At present they manage and maintain 15 medium and small size hydro power plants with total capacity of 469,25 MW and Gardabani gas turbine power plant with total capacity 110 MW. ENERGO-PRO Georgia’s service area covers 70% of Georgian land plot with total number of customers exceeding 1 million. Telasi is one of the major network companies of Georgia, carrying out distribution and sale of electric power in Tbilisi. Currently, the INTER RAO Group owns 75% of the shares of Telasi and 25% of the shares are under the government’s ownership. The Company’s activities include: purchase and sale of electric power; operation and maintenance of power grids; services for electric power transit; administration of integrated and coordinated system of power supply, water supply and wastes management in Tbilisi. The Company’s total number of customers is 524,500.

Distribution in Armenia is controlled by Electric Networks of Armenia (ENA), High Voltage Electrical Networks (HVEN CJSC), and Electro Power System Operator. There are over 36,000 km of distribution lines across the country.

CJSC Electric Networks of Armenia was founded in May of 2002 as merger of four state regional companies (Yerevan Electric Networks, North Electric Networks, South Electric Networks and Central Electric Networks) and is mainly engaged in regulated distribution and sales of electric energy. High Voltage Electric Networks CJSC performs the function of electric power transmission while Electric Networks of Armenia CJSC implements electric power distribution. In addition, Operator of Electric Power System CJSC performs the operative technological and economic regulation of the electric power system, functions of the electric power system (production, import, export, transit), as well as ensures the parallel work with the regional electric power system of the Republic of Armenia.

The Asian Development Bank (ADB) and Government of Azerbaijan have signed a Memorandum of Understanding in 2015 for a $1 billion investment programme to rehabilitate and expand the country’s power distribution network as the country experienced electricity losses in transmission and distribution. As a result, a single operator of electricity distribution network, Azerishig JSC has been established, which has obtained the electricity distribution powers in all districts of the country.

The opportunities in Caucasus countries are different. Azerbaijan government has adopted the increased use of renewable energy sources as a priority area for the country. They are planning the installation of stations designed for renewable energy sources, with a projected total capacity of around 420 Megawatts, guided by its Strategic Road Map 2020 for the development of utilities (electricity and thermal energy, water and gas supply).

There are numerous investment opportunities in the sector in Armenia too as the country has significant potential for electricity production from renewable energy sources such as hydropower, wind, solar, geothermal, and biogas. Government tries to support new projects and upgrade old ones. For example, Metsamor nuclear power plant is aging and will need to be replaced soon. It is receiving lots of financing for modernizing its systems and safety features. Plans for building a new nuclear power plant are been discussed too.

Georgia has more than 20,000 rivers and almost 300 of them provide excellent opportunity for hydropower generation. Only 25% of economically feasible Hydro potential is being exploited today. Georgia could produce additional 25 Tw electricity annually with hydro resources alone. There are over 60 potential HPP projects identified by the Ministry of Energy, the list is public and can be seen on the website. All new hydro power plants  are totally deregulated, license for export are not required and have priority access to new transmission line to Turkey. Investor is free to choose the market and negotiate the price. HPPs with installed capacity of 13MW or less don’t require generation license and HPPs that have installed capacity of 2 MW or less don’t need environmental impact permit either. They can sell generated electricity to direct consumers without third party.

All three mentioned countries have problems with old machinery and Soviet technology. Companies providing modern solutions are always welcome as governments try to upgrade the production process or to implement cost effective modern methods.

Wind potential of the Caucasus countries is also significant. Ganja-Dashkesan zone in the west and the Sharur-Julfa area in Azerbaijan, Bazum Mountain, Jajur Pass, Gegham Mountains, Sevan Pass and Sisian and Goris in Armenia, Kutaisi, Mta-Sabueti, Gori, Kaspi, Paravani in Georgia are the best locations for such kind of business.

Giga Goliadze