Issue 3, 2019. June-July



Electricity consumption in Georgia is expected to double by 2030, according to Galt & Taggart research. While generation capacity is growing in the country, it is not growing fast enough to match rising demand. In response, the government has launched new reforms to deregulate the market and attract investors to increase electricity generation.

Lika Jorjoliani

Georgia is consuming more electricity than it produces, despite a steady increase in generation capacity over the past several years.

The growing demand means the country has become a net importer of electricity, despite being a net exporter from 2007 to 2011.

Economy Minister Natia Turnava has said that even by moderate predictions, demand for electricity will increase by 4.6 percent. Currently Georgia produces 12.5 billion kWh; by 2030, it will need to generate 21 billion kWh to meet domestic demand.

That means more investment is needed in generation capacity-and the country needs to become energy efficient, Turnava said.

The government has already secured some investment in electricity generation. There are reportedly some 150 ongoing projects (total capacity at 5.4 GW). While the projects have identified investors and are at various stages of development, Galt & Taggart has noted that, as government policy on energy projects has tightened "significantly" since 2016, not all projects will be completed.

"Nonetheless, we estimate that even partial implementation of these 150 projects will make Georgia a net exporter of electricity from 2021," the Galt & Taggart report says.

Turnava is a bit more cautious. In remarks at a conference earlier this year, she said Georgia has the chance to become an exporter of electricity by 2025.

"We also have a chance to cover our own consumption by 2030. With our realistic calculations, we will be able to produce as much electricity as we need and at the same time, we will have an opportunity to export 3.5 billion kWh taking into account our seasonal generation," she said.

Transforming the energy market

To encourage more electricity generation-and to comply with Georgia's obligations as part of the EU's Energy Community-the government has started to reform the energy market.

"I think this reform will be a serious step towards strengthening Georgia's energy independence, increasing energy efficiency and restoring Georgian industry," Minister of Economy and Sustainable Development Natia Turnava said.

The reforms are a long-term proposition. Changes to the electricity market are being made gradually, over the span of several years. The first wave started in 2018; it is scheduled to be completed in 2025.

The reform will make the Georgian energy market more transparent and competitive, according to a report by Galt & Taggart. In addition, the reforms will create a "path to a new type of investor."

The reform path includes several legislative changes-including a new energy law, a renewable energy law and secondary energy legislation-that the parliament is scheduled to discuss and vote on this year, according to the reform schedule.

One part of the reform, deregulating the energy market for industrial consumers, is already underway, however. The free energy market is not scheduled to open until 2020-21. The government has already created a model, based on the energy markets used in Turkey and European countries. Work is currently underway on the trade mechanism for electricity.

Despite the fact that the energy stock exchange is not open yet, as of May 1 large industrial consumers can buy electricity at market prices. Eventually the government foresees a market where industrial consumers can agree to purchase electricity in real time, for a number of hours or sign longer term contracts with producers.

Small business consumers and private families will not be affected by the deregulation reforms.

Over the next several years, the reforms will also diversify power trading channels by creating day-ahead and intraday markets. It will also ultimately increase the number of direct consumers, bolster the volume of power trading and unbundle the country's distribution and power supply, Galt & Taggart said.

"In the context of these upcoming changes, we believe that future market prices will be dictated by neighboring market prices and decisions on the integration of electricity generated from old regulated HPPs and from HPPs with Power Purchase Agreements," the research group said in a paper on the energy sector.

The ability to trade electricity on a daily basis should help reduce imbalances in the market caused by over generation at times when it is not needed. That should result in more accurate planning by electricity generation providers, the report said.

If the deregulation reforms continue on schedule, by 2025 Georgia should be in full compliance with the Energy Community Acquis.

Adopting the acquis, otherwise known as core EU energy legislation, became an obligation when Georgia joined the EU Energy Community in 2017.

The Energy Community Treaty seeks to:

- Establish a stable regulatory and market framework capable of attracting investment in power generation and networks;
- Create an integrated energy market allowing for cross-border energy trade and integration with the EU market;
- Enhance the security of supply to ensure stable and continuous energy supply that is essential for economic development and social stability;
- Improve the environmental situation in relation with energy supply in the region and foster the use of renewable energy and energy efficiency;
- Develop competition at a regional level and exploit economies of scale.

The acquis concerns all areas of energy policy, from energy supply to energy security.

It also includes a special section on renewable energy, a topic of particular interest in Georgia, where there is renewed interest in investing in hydro power plants, wind energy and solar energy.

Renewables, projects in the pipeline

Georgia has the potential to produce 7.3 mw per capita in the field of renewable energy, which is higher than the potential of Norway and Canada, according to the director of the Georgian Energy Development Fund, Giorgi Chikovani.

In addition to the country's potential for hydroelectricity, there is also a natural and untapped "tunnel" for wind power in Georgia, he added.

"Georgia has a great potential for the development of wind energy, the average amount is estimated at 4 billion kWh," he told

"The Black Sea and the geographically close location of the Caspian Sea, the Caucasus Mountains and the Trialeti complex all create the effect of a tunnel, which makes it possible to accommodate more powerful enough wind turbines on relatively small sites, which is economically advantageous."

Chikovani noted that there are a number of reforms underway to attract investments in renewable energy.

" If we talk about leverage to attract investors, then first of all, investors were attracted on the basis of the power purchase agreement (PPA) (contract and sale)," he said.

The PPA used to be the main mechanism to attract and carry out investment. But the PPA is no longer accepted by the EU, Chikovani said, because the contract is concluded by the government, and private companies sell and buy.

That is where Georgia's plans to create a free market for the trade of electricity come in, he said.

"To this end, it is necessary to create promotional tools and subsidize the generated renewable energy," he said.

Once the free market is operational, it is important that commercial consumers can purchase electricity by the hour at unregulated prices, Chikovani said.

"And after that, the market will determine how much energy costs. And what is the difference between the market price and the price of renewable energy.

"Only in this case can we discuss how many new sources of solar or wind energy should be planned and added.

"As of today, proceeding from our current system, it is difficult to plan something correctly. This requires the creation of a new system.