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New HPPs are of Vital Importance for Power Sector Development

Georgia compensates a lack of natural gas, oil and small reserves of coil through imports, especially during the winter. As for renewable energy resources, the country has predominantly developed its hydro power resources.

Recently, discussions have intensified about whether the country needs giant HPPs like Khudoni and Nenskra, and whether the existing renewable energy resources can generate the same volume of energy as the planned HPPs.

Economic experts assert that creating an investment-friendly environment in competitive fields is one of the preconditions for Georgian economy development, even more so as this sector is capital intensive and implies a long-term business cycle (that is, it takes at least five years to return investments).

Achieving a competitive advantage in one or two directions brings positive effects for support industries, too, and creates a positive effect on the whole economy, as compared to only revenues in the field and for employed citizens. Similar investments may emerge in the sector of hydro power stations (HPPs).

The top five HPPs in various regions of Georgia:

  1. Khudoni HPP – Georgia’s biggest HPP with 702 megawatts of power and 1.5 billion kw/h generation.
  2. Namakhvani HPP – the second biggest HPP with 433 megawatts of power, it is comprised of two waterfalls in the villages of Tvishi and Namakhvani.
  3. Nenskra HPP – the third biggest HPP with 280 megawatts of power, comprised of high cascades. The total generation planned is 1.1 billion kw/h. The construction works will cover 300 hectare of space.
  4. Oni Cascade – 206 megawatts of power. The HPP will be built in Upper Racha and it is a derivative HPP.
  5. Shuakhevi HPP – HPP with 185 megawatts of power. The total generation will be about 0.5 billion kilowatt/hours. Unlike the above-mentioned HPPs, Shuakhevi HPP has already been built. The HPP launched operation in July 2017, but suspended operation in August after a tunnel collapsed and its fate remains unclear.

Caucasus Business Week (CBW) has inquired into how important it is to build huge HPPs and what economic benefits they could bring the country.

Doctor of Economics Rati Abuladze says that the efficient employment of energy resources has strategic, political and economic importance for Georgia, on both regional and international levels. According to him, we should build new HPPs and improve the old infrastructure.

Strategic needs before the country necessitates to build hydro power plants include resolving power supply problems and employing energy potential. These needs can be achieved only in some geographic zones.

“Facts prove that HPP projects pose ecological and social challenges, result in flora and fauna annihilation and damage household economies. At the same time, in an economic context it grows its importance, due to huge investments, state energy provision, growth in export potential, growth in budget revenues, creating new jobs, revitalizing the region and intensifying activities (the implementation of infrastructural projects has an indirect influence on activity growth on a regional level).”

“Along with negative effects, we should also mention the economic benefits of constructing HPPs and employing energy resources. These effects are particularly expressed in low prices. Therefore, along with the construction of HPPs, the electricity tariff burden should be alleviated for our citizens,” Abuladze said.

Andria Gvidiani, an analyst for the Association of Young Financiers and Businessmen (AYFB), says that any new HPP is of vital importance for power sector development. The construction of new HPPs should be promoted in the country, not hampered, according to Gvidiani.

“The government of Georgia should articulate clearly and firmly positions regarding construction of hydro power plants. Moreover, the current developments against HPPs are categorically unacceptable. Frequently, people blended in environment protection issues create obstacles and they deliberately provoke local residents against HPPs. They follow their own self-interests,” Gvidiani said.

HPP construction paces should be accelerated according to him.

In response to the question of whether the government’s support suffices for sector advancement, Gvidiani explained that the Government does not show an uncompromising approach to this issue.

“Frequently, we see that the Government fails to follow the principle and to ensure construction of HPPs without excesses. Khudoni HPP is an evident sample to this, where the Government has failed to ensure constructive dialogue and persuade local residents of the crucial importance of  HPPs. I believe the authorities should activate efforts and take a more articulated position in this direction.”

“Currently, Georgia’s annual consumption constitutes 12.5 billion kw/h. Taking into account the current pace and plans for a  5% growth in consumption at the expense of economic upturn, in 10 years Georgia’s annual consumption will reach 20 billion kw/h.”

“Consequently, if we do not build new power facilities and fail to balance the demand to come, the country will face serious problems. We will have to import expensive resources or balance the demand with steam power plants, which are expensive and increase the degree of energy dependence.”

“All these factors increase the chance of political dependence in a direct ratio. As a key objective, we should accumulate necessary reserves ourselves,” Gvidiani said.

Economic expert Paata Sheshelidze, president of New Economic School Georgia, said that today the Georgian energy market is illiberal, because distribution networks are monopolized and there are set prices. Therefore, it is difficult to determine which form of power generation would be more optimal and convenient. Today, we do not have mechanism to assess which kind of power generation would best fit the country’s needs, Sheshelidze noted.

“If we want to have similar evaluation mechanism, we should start with economic aspects, neutralize obstacles that we have today, including fixed prices in energy networks. In this case, real demand-supply logic will show what is better, what brings better results, what is more appropriate. A free market would bring different solutions. Therefore, there is not direct answer whether huge HPPs should be constructed or not,” Sheshelidze said, pointing out a logical flaw in others’ arguments.

A hydro power plant may be profitable, and HPP projects should also include compensation components. This issue should be negotiable, and political decisions should be made for the resettlement of people in a specific territory, Sheshelidze said. “If we have a reasonable and substantiated project in terms of its economic aspects, then we should calculate expenses, including compensation for these people,” Sheshelidze said.

According to Sheshelidze, if all details are analyzed and harmonized, then the hydro power plants will be fit for construction and they may be profitable.