Issue 3, 2012. June-July

   

CLEAN POWER, CLEAN PROFITS: THE PROSPECTIVE ON HYDRO POWER PLANTS

Hydro power projects have attracted millions of dollars in investments from foreign and local businesses. Investor.ge spoke with investors, analysts, policy makers, and foreign government program managers about the anticipated return for new hydro power sources, and the potential markets.

Ernest Petrosyan

Not blessed with its own oil and gas resources, Georgia was initially in the energy spotlight for its role as a transit country: the Baku-Supsa oil pipeline, followed by the Baku-Tbilisi-Ceyhan pipeline, tied it to Turkey and the world oil markets.

But hydro has provided a chance for the country to shine.

A steady stream of investments in Georgia's hydro energy sector has buoyed government plans to boost energy production and export. Over a billion dollars worth of projects have been announced, according to official sources, including a potential $776 million investment by Indian Trans Electra LTD for Khudoni Hydro Power Plant, which is undergoing an environmental impact survey.

While the hydro projects have suffered from controversy - a local environmental group, Green Alternative, published a report highlighting the needs for higher environmental standards on the projects - investments are still coming as foreign and domestic demand for energy grows.

Deputy Energy Minister Mariam Valishvili told Investor.ge that expensive investments in hydro energy make good business sense based on the Turkish demand alone. Turkey, she said, is "a deficit market for many years to come."

For Lasha Iordanishvili, a local investor in two hydro power plants, the Dariali and the Larsi, the prospective for hydro is good.

"Investments in the hydro energy sector are quite lucrative in Georgia, as there are excellent perspectives to export energy to the Turkish market, where the annual energy deficit has increased by up to 1000 MW," he said, noting that the average return on hydro power plants has been in just four to eight years - a "relatively short" period.

Energy analysts and the Georgian Ministry of Energy estimate that Turkish electricity consumption will increase from 23,000 GWh in 2012 to almost 28,000 GWh by 2016, making it a good bet for Georgian hydro power.

But energy exports from Georgia are seasonal: while electricity is just five percent of total exports in the winter, it shoots up to between 20-29 percent in the summer. The annual average, according to Valishvili, is between 10 to 15 percent of all exports.

She noted, however, that after the completion of the 10 plants currently under construction, Georgia will be able to produce enough energy for its own consumption in the winter and increase winter exports.

"This is around 2,500 MW to be developed before 2020, which has the potential to cover the increased demand that we have today, because without new capacities there is no way we can maintain the supply levels and meet our demand, [and] at the same time keep our energy sector dependent upon imports," Valishvili said.

Iordanishvili added that demand is growing domestically, and more hydro could make the Georgian market more self reliant.

In addition, new high voltage transmission lines to the Turkish market will make electricity exports easier for the new production.

The transmission lines - a EURO 260 million project funded by EBRD, EIB and KFW - will stretch 300 kilometers across southern Georgia into Turkey and connect the two countries' transmission grids. The line will be launched in May 2012 and be fully loaded by January 2013.

"A new transmission line is being constructed between Georgia and Turkey, and we hope that the new hydro plants that are built will have access to the transmission line," noted Giorgi Chikovani, the deputy chief of party for the USAID Hydropower Investment Promotion Project.

"If they can sell their electricity to the Turkish market where the price is higher, it would certainly help with the economy."

Export potential, however, is not limited to Turkey, noted Eric Livny, the director of the International School of Economics at Tbilisi State University. He noted that Russia - with massive development projects planned for the North Caucasus - should be considered a possible importer depending on "how the political situation and the Sochi [Olympic Games] evolve."

Michael James Delphia, the Chief of Party at the USAID Hydro Power Promotion Project, told Investor.ge that Georgia has the power to export energy to the European market, as well.

"Unlike other countries, Georgia has power plants which generate many months of the year. Georgian has a potential not just to feed the region, but to export its energy in the European market," he said.

"Russia's southern region also has a great need for power...and they certainly need additional help to satisfy growing demand... there is a great potential forbuilding plants here; the market looks very good."