Armenia (2012)

Source: REEEP Policy Database (contributed by SERN for REEEP)

This policy & regulatory overview is not updated anymore since 2015. We decided to keep it online due to high demand but would like to make you aware of the fact that it might be outdated.

Energy sources

Total installed electricity capacity (2008): 2,610 MW

Hydropower and nuclear power are the main indigenous sources of energy. There are 9 major hydro power plants. The largest is the Sevan Hrazdan Cascade plant, which is 90% owned by United Energy System (UES) of Russia. The second largest hydro plant, the Vorotan facility, is publicly owned.

The Megrhi hydropower plan, a joint project of Iran and Armenia, is currently under construction..1 The USD 2.3 bn plant will have a capacity of 130-140 MW and will be built by Iranian companies. Construction is expected to be completed in 2015.

The only domestically produced primary energy in Armenia is electricity from hydroelectric plants.  Out of a total annual primary energy supply of 2,586 thousand tonnes of oil equivalent (ktoe), 1,372 ktoe are from natural gas, 688 ktoe are from nuclear power, 394 ktoe from petroleum products, 157 ktoe from hydro electricity plants, and 1 ktoe from RES.  Although Armenia imports nearly all its primary energy needs, it is a net exporter of electricity, with net exports of 27 ktoe.

There is one nuclear powered plant. The Metsamor plant was built in 1979 and has an installed capacity of 815MW but only 1 of its units is operational and it supplies 407.5MW. Nuclear fuel is flown in from Russia. Although the government owns the plant, UES signed an agreement in 2003 to operate the facility. In 2008, the agreement was extended for another 5 years. The power plant is expected to reach the end of its life cycle in 2016 and as a result will be closed.

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Armenia has no indigenous sources of oil, coal or natural gas. It imports and consumes 47,000 barrels a day of oil, most of which is imported from Russia. It also imports and consumes about 9 mn cubic meters of natural gas of which two-thirds is imported via pipelines from Russia that runs through Georgia and one-third comes from Iran. In 2008, Armenia imported 2.2 bn cubic meters of gas from Russia1. On December 23, 2009, Iran and Armenia reached an agreement for Armenia to import about 150 mn cubic meters of natural gas from Iran. Armenia was importing 1-1.5 mn cubic meters, which it paid for by exporting electricity to Iran. Natural gas from Iran is imported via a 140 km pipeline that was competed in 2008. The pipeline is controlled by ArmRosGazprom (ARG), a Russian-Armenian joint venture that is 80% owned by Gazprom of Russia.

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Capacity concerns

Heavy reliance on imported fuels and the old and under-maintained transmission and distribution assets put Armenia at risk of supply interruptions, price fluctuations, and possible outages. The average age of the transmission lines is around 45 years and the transmission company did not make any substantial investments in rehabilitation of the lines. Moreover, Armenia is dependent on the imports for gas and nuclear fuel used to generate over two-third of the country’s electricity.

Armenia currently has sufficient capacity to meet its demand. However, depending on the power demand growth scenarios, generation capacity shortage of 520-920 MW to meet the peak electricity demand is estimated to emerge after the planned shutdown of the nuclear power plant (currently scheduled for 2016), and the phasing out of inefficient and old (>40 years) thermal power plants. The shortage is expected to reach 1,150 – 2,270 MW by 2020.

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Renewable energy

The hydro potential of Armenia has been evaluated to be about 21.8 billion kWh/year, including 18.6 billion kWh from large and medium rivers and 3.2 billion kWh from small rivers. According to the Renewable Energy Armenia webpage, the economically feasible hydropower potential is about 3.6 billion kWh, with 1.5 billion kWh already utilized. The remaining hydropower potential is to be developed during the next 15 years. The total output of large and small hydropower existing in the country, as of January 2011, is 1,256 MW or 3,746 million kWh. There are 70 small hydroelectric plants operating with an installed capacity of 89 MW; in January 2009, building licences were issued for 64, and more are foreseen, along with several major plants.

The average annual wind velocity in Armenia is distributed unevenly in the range of 1.0 to 8.0 meters per second. In some regions, particularly in the Ararat Valley, strong mountain valley winds are quite common. For instance, during the summer months the velocity of these winds oftentimes reaches 20 m/s or more. Despite a relatively attractive wind regime in many parts of the country, the only operational wind power facility in Armenia today is the 2.6 MW Lori-1 pilot wind power project comprised of four 660 kW Iranian-assembled Vestas wind turbines.  A second, the Iran-Armenia Wind Farm, is under construction.

Biomass energy in Armenia has the potential to provide significant power, if utilized. Armenia has reasonable areas of land covered by forests and lands for agricultural industry, including farming of plants and animals. These areas can potentially produce residues which could be used as fuel for biomass combustion or gasification, as well as biogas production through anaerobic digestion. Forest residues (slash from forest thinnings or waste wood from sawmills) can provide a concentrated resource to be used as fuel for energy production. Agricultural residues can provide a range of residues, including crop residues (corn stover, nutshells, fruit tree branches, etc.) and animal wastes.

Armenia is rich in solar energy resources, the utilization of which will reduce the need for imports of other energy sources. The average annual solar radiation is approximately 1,720 kWh/m2 compared to the average annual European solar radiation of 1,000 kWh/m2. Over a quarter of the territory of the country has solar resources with an intensity of 1,850 kWh/m2.

The need to promote EE in Armenia is going to increase due to the fact that the upcoming decommissioning of the nuclear power plant by 2016 requires the country to develop RE. Additionally, Armenia is a signatory of such international agreements as Copenhagen Accord, under which the country has committed to increasing energy production based on RE sources and improving EE in all sectors of the economy, as well as in buildings and construction. Better use of the potential of EE will limit the dependency of the country on imported fuel.

Recent geologic surveys funded by the World Bank show that on the Syunik volcanic plateau, the Jermaghbyur region presents the best region for extracting geothermal power. The water temperature at 2500-3000 m is about 250o C. Using single flash technology this site can produce approximately 25 MW of electric power.  In addition to Jermaghpyur, two more geothermal sites; Karkar and Gridzor are being investigated under the WB/Geo-Fund.

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Energy efficiency

According to the National Program on Energy Saving and Renewable Energy (ESRE), the potential for energy efficiency (EE) savings in Armenia is large, including 40% in building sector, 35-40% in food industry, while optimization of lighting was estimated to save 475 million kWh over the next 10 years.

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Currently, the market is composed of the following participants: one transmission company, CJSC Vysokovoltnye Electricheskie Sety, which is 100% state-owned; one distribution company, CJSC Armianskie Electroseti (AE), all of the shares of which belong to the Russian company Interenergo B.V.; a single system operator (transmission and distribution), CJSC Operator Systemy Electroenergetiky, which is state-owned and responsible for all dispatching services; and more than 50 generation companies, most of which are privatised.

According to the Energy Law (first adopted in 1996 and amended various times) electricity generation, transmission, and distribution companies receive separate licences; legal unbundling between transmission and other activities is required

Petroleum and gas
The market is de facto a vertically integrated monopoly. According to the Energy Law, the functions of import, transmission, distribution and system operator in the gas sector are subject to licensing by PSRC. These functions are currently monopolised by Armrosgazprom (ARGP), a majority-Russian-owned company that, together with its subsidiaries, has complete control of the Armenian gas sector. ARGP was established in 1997, with shareholdings from the Armenian government (45%), Gazprom (45%) and the international group Itera (10%), to import, transport and distribute Russian gas. In 2006, a dual transaction gave on the one hand the control of ARGP to Gazprom, and on the other hand the control of the fifth unit of Armenia’s largest thermal power plant, Hrazdan, to ARGP.

Close Ownership


AE enjoys an exclusive right of distribution and sale of electricity (the original five-year right fixed by law has expired but the status remains the same). AE purchases electricity from national generating companies at regulated prices and on the basis of direct contracts. As a consequence, the wholesale market is a monopoly, with AE acting de facto as a single buyer.

Close Competition

Energy framework

Currently, the "Energy Law of the Republic of Armenia" guarantees the market for electricity produced by all small hydropower plants (SHPPs, total capacity up to 10 MW per plant) in Armenia. According to this Law (Article 59, Clause 1.c), adopted by the Armenian Parliament in April 2001, "All electricity (capacity) generated at small hydro power plants, as well as from renewable sources of energy within the next 15 years shall be purchased pursuant to the Market Rules".

As of January 2009, the announced feed in tariff is approximately 0.09 USD/kWh (31.343 AMD/KWh) without value added tax. Some of the basic principles of the policy are as follows

  • Enhancement of competition and efficient operation in the energy sector.
  • Regulation on energy sector operations.
  • Protection and balance of interests between consumers and economic entities.
  • Efficient use of domestic and alternative sources of energy, and the creation of economic and legal mechanisms to serve that purpose.
  • Encouragement of investments, safety and environmental protection in the energy sector.
  • Separation of the generation, transmission, and distribution system operator.

Energy Saving and Renewable Energy Law
According to the Energy Saving and Renewable Energy Law, ratified in December 2004, the principles of Armenian policy in energy saving and renewable energy are:
1) Increasing the level of supply of indigenous renewable energy carriers to satisfy the energy demand of the economy,
2) Implementation of energy saving strategies, as well as development and enforcement of legal and economic mechanisms for the promotion of renewable energy,
3) Ensuring increasing usage of renewable energy resources as well as the application and development of new renewable energy technologies aimed at its promotion,
4) Ensuring competitiveness of renewable energy resources and protection/enforcement of the rights of businesses engaged in the area of renewable energy,
5) Ensuring high priority of issues of environmental protection and efficient (economic) usage of natural resources while implementing measures/activities aimed at the development of energy saving and renewable energy; etc.

According to the Law, legal and physical persons using, producing and importing energy devices can submit those in the manner established by the Law on Certification of Compliance of Goods and Services with Normative Requirements for voluntary certification based on energy efficiency indicators. The costs are, however, carried by the mentioned legal (physical) persons. Further, all certified energy devices will be labelled.

Water Code
This Code, which has been adopted on 4 June 2002, establishes procedures to obtain water permit for hydro power plants. According to this Code water permit for a hydro power plant is given for 3 years at the first, but once the plant is operational or even it is under construction, then the permit is extended for a much longer period. The purpose of this provision is to prevent people getting a water permit and then not proceeding to construct the project. However, land lease for the project outlined in the Land Code dated 2 May 2001 is not in synch with this provision because there are not such time limits for the land lease.

Land Code
Procedures to obtain the right to use the land for an energy related project, such a SHPP, are outlined in this code. Land can either be leased or purchased. The general plan of various areas does not have specific land parcels identified as of energy type use. Therefore, procedures in this code need to be followed to change the land us category. A governmental decision is required for any land use category change.

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Energy debates

In Armenia, Japan’s nuclear accident has raised a debate over the safety of Metsamor nuclear power station which is also situated on an earthquake-prone zone, and prompted the Armenian government to invite the IAEA inspection to the plant.  Metsamor currently provides more than 40% of electricity in Armenia. Armenia is isolated from Azerbaijan and Turkey and therefore has difficulties in obtaining energy from elsewhere. The country suffered from severe electricity shortages during the time Metsamor was closed. Therefore, the nuclear plant is very important for Armenia in terms of energy production.  Armenia plans to replace Metsamor with a new nuclear power plant at the same location by 2017.

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Energy studies

Renewable Energy Roadmap for Armenia
This first version of an Armenian Renewable Energy Roadmap identifies the economically and financially viable potential of renewable energy (RE) in Armenia. It defines short (2013), midterm (2015), and long-term (beyond 2020) targets for the development of RE as well as outlines specific steps towards achieving those targets. It includes milestones to allow regular tracking of progress towards the established goals.

Since 2001, the USAID Municipal Network for Energy Efficiency (MUNEE) program in Armenia has focused on EE policy reform needs through the development of the Armenian Energy Efficiency Council, and technical assistance to the drafting of the Energy Saving and Renewable Energy Law (adopted in 2004).

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Role of government

Ministry of Energy and Natural Resources (MENR)
The Ministry of Energy and Natural Resources (MENR) is the main responsible authority for energy policy development and implementation in Armenia. The main input of the MENR in the field of RE has been development of applicable laws and regulations, conducting and supporting research, as well as obtaining and facilitating support from international organizations.

Ministry of Nature Protection of Armenia (MoNP)
In 2003 the Ministry of Nature Protection of Armenia was designated as a National Authority for the CDM in Armenia. MoNP conducts the following activities:

  • Approves the compliance of CDM project activities with the requirements of the Host Country and provisions of Article 12 of the Kyoto Protocol
  • Decides whether the CDM project activity makes a contribution to achieving the country’s sustainable development goal
  • Certifies the voluntary participation of project participants in CDM projects;
  • Ensures availability of information on CDM projects;
  • Conducts negotiations with potential investors and develops strategic directions for implementation of CDM projects;
  • Ensures the efficient participation of Armenia in international CDM processes.
  • Ensures the co-ordination of CDM projects and project documents with relevant stakeholders and organizations, according to the procedures defined by the Armenian legislation.
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Government agencies

Scientific Research Institute of Energy

  • Research and development in power engineering,
  • Design Engineering,
  • Design of occupational safety laboratories,
  • Development projects on operation of power systems,
  • Development of optimization methods for power network and energy system operation,
  • Development of power supply plans,
  • Energy loss calculation in power networks,
  • Energy saving projects,
  • Forecast services for power engineering development of Armenia,
  • Preparation of standard documents in power engineering,
  • Research in power engineering,
  • Research in renewable energy.

Armenia Renewable Resources and Energy Efficiency Fund
Armenia Renewable Resources and Energy Efficiency Fund started its operation since November 2005. It implements grant and credit projects targeted at the development of Energy Efficiency and Renewable Energy sectors in Armenia.  The main objectives of the Fund are to facilitate investments in EE and RE sectors, promote the development of EE and RE markets in Armenia and increase the use of clean, efficient, safe and affordable heating technologies in multi-apartment buildings and schools in Armenia.

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Energy procedure

The construction of a hydro-electric power plant on the border River of Arax separating Armenia from Iran has been subject of negotiations between Iranian and Armenian energy authorities. According to a bilateral plan, a 180 MW power plant will be built in Iran and another 180 MW power plant will be built in Armenia. Accordingly, a consortium comprised of Iranian companies is established to pursue construction of the power plant in Armenia at the cost of some USD 450-500 million.  Earlier estimates put the cost of the project at USD 323 million. The construction of the plant on the Armenian side will be financed by an Iranian investment company. Armenia will repay it by electricity exports.

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Energy regulator

Regulatory implementation is the responsibility of the Armenian Public Services Regulatory Commission (PSRC), which was established in 1997 by the Decree of the President of Armenia “On the Energy Commission of the Republic of Armenia” (DP-717, April 1997).1

A separate agency, the State Commission for the Protection of Competition, is in charge of preventing monopolistic activities.

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Degree of independence

PSRC is an autonomous regulatory agency; government entities cannot interfere with its decisions. It is a multi-member body responsible for electricity, gas, district heating and telecommunications. Its board is made up of five commissioners, including the Chairman. Commission members are designated by the President of Armenia on the proposal of the Prime Minister and serve a five-year term (renewable and on a staggered basis, one expiring each year).


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Regulatory framework

Within the framework established by legislation (the Energy Law and the related “Procedure of Establishing and Reviewing of Tariffs in the Sector of Energy”, June 2007), PSRC has established the procedure for approving and reviewing tariffs, as well as a list of necessary documents a licensee must submit; all of these have been established according to legislation.  The following categories of tariffs are currently in force in the electricity sector: generation (single price nationwide, which includes a capacity component with monthly payment), transmission, distribution, retail supply (two rates: day and night), export. In principle, tariffs cover all current and capital costs, and include a fair profit. No subsidies or grants are provided to private or state companies to cover possible financial gaps.

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Regulatory roles

PSRC has a number of responsibilities; in particular, it:
1. sets the regulated tariffs for electrical and thermal energy and natural gas, transmission (transportation), distribution in the energy sector, system operator, services provided in the energy market, as well as maximum tariffs for electricity and natural gas import; 
2. issues licenses for operations in the energy sector;
3. oversees compliance with the license conditions and apply penalties ;
4.  establishes rules on supply and use of electrical and thermal energy and natural gas;
5. establishes model electricity and natural gas supply contracts, or mandatory provisions thereof,
6. sets quality requirements for services provided to the consumers by the companies

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Regulatory barriers

The country is striving to increase the share of RE generation. However, a number of legislative and regulatory barriers hinder Armenia’s renewable energy development including opaque and bureaucratic permitting procedures for land and water use, cumbersome environmental approval process for small projects, onerous and prescriptive nature of regulations for small projects, and insufficient monetary incentives to overcome the added costs and complications of renewable energy development. There are also system operation issues that need resolution including transmission adequacy, as well as manageability and stability of the system with expanded renewable capacities.

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Central Asia-Caucasus Institute website. Armenia and Iran to launch major joint projects. Available at: [Accessed 7th September 2013]

International Business network for Armenia and Caucasus (GAB). Energy. January 2010. Available at: [Accessed 7th September 2013]

Danish Energy Management A/S. Preparation of Renewable Energy Development Roadmap for The Republic Of Armenia. February 2011. Available at: [Accessed 7th September 2013]

Globserver website. Armenia: Energy. Available at: [Accessed 7th September 2013]

USAID/Armenia. Evaluation of the commercialization of energy efficiency program (CEEP). September 2010. Available at: [Accessed 7th September 2013]

European Bank for Reconstruction and Development (EBRD). Armenia Country Profile. Available at: [Accessed 7th September 2013]. Information retrieved primarily from Armenian Public Services Regulatory Commission (PSRC)

GPartners. Regulation of the Energy Sector in Armenia, June 2010. Available at: [Accessed 7th September 2013]

University of Turku. Wider Europe. Regional Security Report: Western CIS – South Caucasus and Central Asia. 22 June 2011. Available at: [Accessed 7th September 2013]

Armenia Renewable Resources and Energy Efficiency Fund. Electricity Supply Reliability and Energy Efficiency Project: Environmental Management Plan (EMP) Checklist for Public Buildings Energy Efficiency Project. Available at: [Accessed 7th September 2013]

Arka News Agency. Establishing Hydropower plant on border Arax river rises to $450-$500 million. Available at: [Accessed 7th September 2013]

USAID and Assistance to Energy Sector of Armenia to Strengthen Energy Security and Regional Integration. Available at: [Accessed 
7th September 2013] Close References