Institute for Development Freedom of Information (IDFI) has prepared an overview of current developments and challenges in the energy sector of Georgia up to and including November 2020.
The energy sector is a strategically important sector for the economy, having a significant socio-economic impact on society. As energy independence is important for the country’s sustainable development, IDFI will analyze future trends in the sector and publish findings periodically.
Considering its hydro resources, Georgia has significant untapped potential in the energy sector. Electricity generation is increasing annually, although not enough to balance demand. Therefore, the country is a net importer of electricity. Currently, negative outlook of population on the construction of HPPs creates pressure on the inflow of investments, decreases energy independence of the country, and remains an important challenge for the sector’s players.
Electricity consumption is highly correlated with economic growth. It is important to evaluate the impact of the COVID-19 pandemic on electricity consumption dynamics and future outlook of the consumption in the post-pandemic period.
Population and business, eligible consumers and the region of Abkhazia are classified as large consumers of electricity. Rapid increase in tourism in the last years led to a higher demand for electricity from population and business. As eligible consumers are export-oriented, foreign trade dynamics affect electricity consumption. Electricity consumption in Abkhazia displays double digit growth, and the per capita consumption in the region is three times higher when compared to the rest of the country.
Electricity imports exceed exports. Georgia has been a net importer of electricity for a period of several years, which is an additional source of the foreign currency outflow. The increase in imports decreases Georgia’s energy independence and constitutes an important challenge. Arguments supporting increasing imports, which could be cheaper than development of new renewable projects, do not consider the value of the energy independence for the country.
- Electricity generation was down by 5.8% YoY in the first 11 months of 2020. Generation from TPPs is broadly unchanged (-2% YoY) but generation from renewable sources was down considerably (-7% YoY), over the same period.
- The COVID-19 pandemic sharply reduced electricity consumption (-11.2% YoY) in the first 11 months of 2020. This is largely explained by decreased economic activity and the absence of tourism. Electricity consumption was down by -5.7% YoY in the same period, contrasted with the growing electricity consumption in Abkhazia (+24% YoY).
- Consumption in Abkhazia reached 88% of Enguri HPP generation in the first 11 months of 2020. Electricity consumption in Abkhazeti displayed high growth (+24% YoY) and reached its all-time high (2.2 TWh) in the same period. Decreased generation from Enguri HPP also contributed to the increased share of Abkhazia in the first 11 months of 2020
- Electricity imports from Russia were record high for the four-year period in the first 11 months of 2020, nearly half of the total imports. This was partially to balance the increasing consumption needs of Abkhazia.
- Electricity net imports were worth USD 38 mln in first 10 months of 2020. Slightly less when compared to the previous year (USD -3 mln). High electricity deficit is the source of foreign currency outflow from the country. It is expected that country will need USD 60 mln to balance the deficit by year’s end.
- FDI in the energy sector decreased four times during the first 9 months of 2020, compared to the same period in 2019. The COVID-19 pandemic played an important role in the reduced FDI, although it should be mentioned that currently there is a lack of sufficient incentives that would promote investment in renewable energy, which could attract FDI in the energy sector and reduce Georgia’s dependence on imported electricity.
- Increasing wholesale prices on electricity is a good signal to private producers. Wholesale electricity prices were up 23% on average in the first10 months of 2020. This was partially due to exchange rate depreciation and decreased generation from cheap sources of electricity
- Rehabilitation of the Enguri HPP is expected to create an additional deficit of 0.6 TWh in 2021. On the other hand, generation is expected to grow in the following years (2021-2025). Consumption is expected to grow 5.1% annually, compared to the 4.8% growth of the generation in the same period (with the low base in 2020). Electricity deficit is expected to grow 7.5% (CAGR) in this five-year period and reach 1.9 TWh in 2025.
- The Government should create mechanisms for attracting investments.
Currently, after the abolition of PPAs, there are mechanisms that could guarantee investors minimum tariff and would promote investment in renewable energy. A feed-in tariff mechanism could serve this role, especially considering exchange rate risks.
- Market deregulation will support energy independence of the country.
Increasing imports from neighboring countries decreases energy independence. Market deregulation will support investments. In case of price increases, socially vulnerable consumers should be subsidized directly.
- Promote energy efficiency and awareness about the benefits of renewable energy and the country’s energy independence
Increasing awareness about renewable energy will promote the adoption of technology and “smoothen” the high cost of technology by incorporating indirect benefits.
- Promote renewable energy for households and micro enterprises by introducing tax incentives and energy efficient (subsidized) loans
GNERC introduced mechanisms that support integration of micro power plants in the grid, but considering the high cost of the technology, the government should introduce tax incentives (VAT exclusion for renewable energy technology) or energy efficient loans that could promote the development of renewable technology.
- Develop a long-term strategy for the sector that will focus on increasing energy efficiency in the country and promote renewable energy
Currently, there is no long-term strategy that would define strategically important projects for the country and support their development. It is vital for the government to reconsider the hydropower plant projects that are currently on pause and support their implementation. Additionally, investors should be offered alternative projects incorporating solar and wind power.
This material has been financed by the Swedish International Development Cooperation Agency, Sida. Responsibility for the content rests entirely with the creator. Sida does not necessarily share the expressed views and interpretations.
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