Issue 3, 2015. June-July

   

THE EFFECTS OF INVESTMENTS IN CLEAN ENERGY IN GEORGIA

PMCG and KAS, in the framework of the project Policy Research for Sustainable Economic Development, used extensive computer modeling to estimate the potential benefits from clean energy investments and to assess the impact of clean energy investment on the environment (emissions reduction for the country) energy (energy security, energy independence) and society (job creation).

Ivane Pirveli, Researcher at PMCG

The economic impact of clean energy

The Georgian government has acknowledged the importance of clean energy investments and has been actively promoting hydropower investments since 2006.

Clean energy projects, however, require massive investments -- an estimated $5 billion for Georgia alone. But the benefits of clean energy investments are wide-reaching and the positive monetary effects of FDIs in the energy sector and increased exports, contribution to economic growth, fiscal effects and sustainable development should also be taken into consideration when calculating the total cost of investing in the sector.

If implemented, clean energy investments in Georgia would create an estimated 10,299 - 12,448 new jobs, acording to PMCG's study. In addition, clean energy projects have been forecast to reduce harmful greenhouse gas emissions, including the reduction of CO2, which is currently being emitted in the amount of 886 thousand metric tons.

It will also improve the country's energy security by reducing the country's dependency on energy imports by 16%, compared to the reference energy system development scenario, or the forecasted energy system development path under current energy policy. Such achievements, if reached, are significant for a country like Georgia.

Clean energy can cut imports

In 2007, Georgia became a net exporter of electricity. But due to increased demand, five years later, in 2012, the country reverted back to being net electricity importer.

The Georgian economy is heavily dependent on imports, even in the energy sector. At the same time, Georgia has underutilized clean, environmentally friendly, renewable sources of energy: only 18% of economically feasible hydropower energy (40 bln kWh annually) has been utilized so far. Georgia also has considerable potential for exploitation of untapped wind and solar energy.

The increased electricity generation from domestic renewable energy resources and the partial switch from imported fossil fuel to electricity means Georgia's energy import dependence is expected to decrease from 77% in business (if regular energy sources are used) or 65% (if clean energy sources are used) by 2030. Keeping the market attractive for investors is vital to take full advantage of Georgia's potential. Georgia is competitive in the regional energy sector, particularly in hydropower, so the country's main strategy should be to avoid underpricing electricity, a common problem in former Soviet countries.

How to ramp up utilization of clean energy resources

In order to foster the development of clean energy resources, a number of issues should be taken into consideration. One of the most important is the difference between political timing and energy timing.

The former is short-term, focusing on the elections, while energy projects are longer-term and usually go beyond one election period. That means that less political involvement in the energy sector would promote long-term projects. In this regard, increasing independence and the role of the Georgian National Energy and Water Supply Regulatory Commission would enhance development of the energy sector in the sustainable manner.

In addition to this critical step, the following actions should be taken to support the development of clean energy in Georgia:

- Develop and implement an electricity trading mechanism for the regional markets, with a specific focus on the Turkish electricity market, to support green electricity trading on a regional level;

- The government needs to analyze the opportunities for the long-term cost-effective use of renewable energy sources in the process of diversifying the energy supply to meet national policy objectives;

- Develop and implement a fuel- switching policy, especially in residential and transportation sectors;

- Modernize the current vocational education system to fill the gap between the current skills in the Georgian job market and clean energy industry job requirements. High-quality vocational education should be provided with a particular focus on the skills needed for power plant construction. In addition, it is important to send the right signals to SMEs to specialize in providing supplementary services;

- Enforce requirements to assess environmental effects for every considered power plant before securing of investments;

- Coordinated action within the government will improve the promotion and utilization of clean energy sources. The government should also increase its participation in public-private partnerships, which will encourage and maintain clean energy investments.

Ivane Pirveli, Researcher at PMCG, wrote the research paper "Clean Energy Investment in Georgia," as part of the Konrad Adenauer Foundation project "Policy Research for Sustainable Economic Development."

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