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Georgia (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 We decided to keep it online due to high demand but would like to make you aware of the fact that it might be outdated.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 electricity production (2008): 8,441 GWh

  • Hydro: 7,162 GWh
  • Gas: 1,279 GWh


The total primary energy supply in 2008 was 2,988 ktoe, of which 20.5% is hydro power, 1.8% is coal/peat, 12.6% is combustible renewable and waste (including biomass and biogas), 36.1% is natural gas, 28.6% is oil and 0.5% is geothermal/solar/wind. 

The country imports nearly all its needed supplies of natural gas and oil products. It has sizeable hydropower capacity, a growing component of its energy supplies. Georgia has overcome the chronic energy shortages and gas supply interruptions of the past by renovating hydropower plants and by increasingly relying on natural gas imports from Azerbaijan instead of from Russia. The construction on the Baku-T'bilisi-Ceyhan oil pipeline, the Baku-T'bilisi-Erzerum gas pipeline, and the Kars-Akhalkalaki Railroad are part of a strategy to capitalize on Georgia's strategic location between Europe and Asia and develop its role as a transit point for gas, oil and other goods.

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Reliance

Georgia does not have significant oil and gas reserves. As a result, about 65% of country’s primary energy supply is from external sources. Imported natural gas constitutes about 45% of total energy supply while imported oil products constitute about 25% of energy mix.

If the share of import in the total power generation made 16.7% in 2005, the figure in 2009 decreased, by more than 5 times, to 3.9%. Georgia exports electricity mainly in the autumn-summer period, when there are excess water resources. Main export directions are Turkey, Russia and Armenia. Significant portion of power (4.5 and more billion kW/hr) is generated by regulating hydropower plants. More than 1.2 billion kW/hr power was exported within the first eight months of 2011.

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Extend network

Georgia has very well developed electricity network. Actually 100% of populated area of the country has access to the electricity network.

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Capacity concerns

Georgia has become self sufficient in electricity due to hydro plant rehabilitation, though with one important comment: most of electricity production comes in summer when the demand is low, while in winter the hydro potential is insufficient for covering the demand and gas fired thermal plants or import need to come on line.

Major concern is related to Enguri/Vardnili hydro power plant cascade. It is a key contributor to Georgia’s electricity generation and therefore a major factor in energy security. The power house and switchyard are located on the territory occupied by Russia, while the dam and reservoir are on the territory controlled by Georgian state. This can result in serious energy problem in case of political escalation with Russia who already occupies 20% of Georgian territory.

Remaining strong dependence on imported gas, pronounced seasonality of Georgia’s vast hydro potential and threat to control of key energy assets are the most important challenges to Georgia’s energy security. In order to cope with these challenges Georgia needs to develop internal energy resources, diversify further energy supplies and seek the ways for more political stability in the region.
 

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Renewable energy

There is a vast untapped potential of Energy Efficiency (EE) and Renewable Energy (RE) in Georgia that has to be incorporated in energy security improvements. In fact, Georgia has one of the largest undeveloped hydro power potentials in the world at about 32 TWh per year. Georgia’s potential hydro power production is roughly 7.27 MWh per capita, which is considerably higher than that of the world’s biggest hydro power producers, Norway and Canada.  The economically achievable annual potential of renewable energy sources (RES) can be estimated as: small hydro – 5 TWh, wind – 5 TWh, biomass – 3–4TWh, solar – 60–120 GWh, geothermal – 0.8 TWh. However, the share of RE is still only a few percent in Georgia’s energy balance.  By far the hydro electric potential is the main prospective resource of domestic energy. According to various estimates there is a possibility to economically develop about 20–30TWh of annual generation.

Adoption of RE & EE legislation would be a strong factor in support of developing these resources. Development of this resource offers the potential for cooperation in this field with neighbouring countries that are facing the similar challenges.

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Energy efficiency

Energy intensity of Georgian economy is high and the amount of specific energy needed to produce goods and services in Georgia is 2–2.5 times higher than in Western countries. It is estimated that energy efficiency measures can provide up to 20% of energy saving in the country. Up to now Georgia has been slow in development of EE & RE, but recently especially after the pledges by Georgian president at Cancun 2010 conference and Tbilisi joining the Covenant of Mayors, there is a visible trend towards development of these internal reserves.

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Ownership

Electricity
Electricity sector is mostly privately owned and partially liberalized.  Only transmission, dispatch and the largest hydropower plants are owned by the state, whereas all the other generation and distribution assets are privately owned.

The current electricity market design in Georgia is a bilateral contracts market with multiple buyers and sellers at the wholesale level, combined with an independent regulator which establishes tariffs for end-users and for monopoly services like transmission and distribution. New generating plants and existing generating plants under 13 MW are no longer subject to tariff regulation by GNEWRC and thus are deemed to be eligible customers; all other customers are deemed captive and subject to tariff regulation.

Two power transmission licensees are operating within the Georgian territory – “Georgian State Electro System” LLC (GSE) and “Sakrusenergo” JSC.

Three companies carry out distribution of electric energy in Georgia: "Energo- Pro Georgia", "Telasi" and "Kakheti Energy Distribution".

In the generation subsector the main companies operating in the country are Energy Hydro Power Plant (HPP), Lajanuri HPP, Shaori HPP, Tbilsresi TPP, and Mtkvari TPP.

Petroleum and gas
The Georgia gas sector is made up of the state-owned Georgian Gas and Oil Corporation with daughter company Georgian Transportation Company (the transportation licensee); the privatised distribution company, KazTransGaz Tbilisi, owned by the Kazakhstani Company KazTransGaz and regional gas companies mostly owned by Azerbaijani state company SOCAR and the company Itera. At present, a special Manager was appointed for “KazTransGaz Tbilisi” in accordance with the Georgian law on licences and authorisations. The transportation licensee is responsible for meeting suppliers’ instructions for natural gas supply, cut-off or re-supply, and compliance with safety standards.

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Competition

The sector is deregulated and unbundled into generation, transmission and distribution companies. An independent regulator sets tariffs, and the Ministry of Energy is largely confined to policymaking matters.   Generation assets are owned partly by the state and municipalities and private companies with more privatization deals in the pipeline.

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Energy framework

Georgia currently has no special legislative acts to regulate the use of renewable energy sources. The Tax Code enacted in 2005 does not provide any tax benefits for the production and use, import and putting equipment into operation for the production of renewable energy or power saving equipment. The existing law on electricity and gas does not include renewable energy sources explicitly. Goals for renewables have been developed, however.

Georgia ratified the UN climate change agreements in 1994, established a National Climate Protection Program in 1996, and acceded to the Kyoto Protocol in 1999. Consequently the conditions for participating in measures within the framework of the Clean Development Mechanism are in place. Initial proposals for CDM projects in the wind sector are already on hand.

Renewable Energy 2008 State Program
Investors can benefit from the incentives provided through the Renewable Energy 2008 State Program. Under the program, new Hydro Power Plants up to 100 MW are offered a guaranteed purchasing agreement with ESCO for the first 10 years of operation in which the tariff can be negotiated between the investor and GNEWRC. Alternatively, SHPP operators, i. e. HPPs with a capacity up to 10 MW, have the opportunity to sell electricity directly to consumers at tariffs negotiated bilaterally or even to export without the need for an export license. In any case, however, operators have to agree to supply only domestic customers during the three winter months in a year.

USAID project "New Applied Technology Efficiency and Lightning Initiative”
Goal is to convince Georgia's large energy consumers - hospitals, condominium associations and others - to use special materials and facilities to decrease energy consumption and accordingly cut expenses.

USAID Project “Clean Energy for internally displaced person (IDP)”
Assessment of the social, technical, economic and environmental aspects of the introduction of renewable energy and energy saving solutions in the newly constructed or rehabilitated houses for the IDPs.

Energy Efficiency Programme for Georgian Communities- Energy Bus Project

Urban Heating and Residential Energy Efficiency for Utility Affordability in the Republic of Georgia
USAID-approved research outline for the studies on Urban Heating and Residential Energy Efficiency for Utility Affordability in the Republic of Georgia, which will be developed under the World Learning/USAID Energy Sector Grant Program.

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Energy debates

There is an active discussion of Azerbaijan- Georgia-Romania Interconnection Project (AGRI), the project plans to supply 6–8 bcm of liquefied Azeri gas to Europe by Black Sea tankers to Romania annually. The feasibility of the project is still under examination.

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Role of government

Ministry of Energy
The Ministry of Energy has primary responsibility over policy in the energy sector. Specifically, the Ministry of Energy is in charge of drafting the national energy policy and submitting it to the Parliament for approval, and for developing and implementing short-, medium- and long-term strategies and priorities for the power sector of the country. The Ministry’s main functions are the following:

  • Development and implementation of the energy policy of the country;
  • Approval of the annual energy balances;
  • Approval of market rules;
  • Participation in the approval process of strategic projects in the sector.


Electricity System Commercial Operator (ESCO)
The ESCO, active in the electricity market since 2006, purchases and sells the balance of power and maintains a reserve capacity in order to ensure the balance, providing the power system with reserve capacity under the law and the rules established by the “Electricity (Capacity) Market Rules”. It provides dispatching licensees with information in order to plan power and capacity supply and consumption in the national united power system, makes a unified database for wholesale power trade including the creation of a unified accounting registry; it specifies the quantity of power sellers and purchasers, together with the amount of electricity purchased and sold, and presents the information for carrying out appropriate payment procedures.

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Government agencies

Energy Efficiency Centre
Energy Efficiency Centre (EEC) was established in 1998 by European Union within the framework of the EU Tacis Project "Creation of an Energy Efficiency Centre and Development Natural Energy Study in Georgia". The main objectives of EEC are: an improvement of energy efficiency in the country, an improvement the country's energy balance, to reduce the environmental impact, to improve the competitiveness of industry and commerce.

In April 2005, the Energy Efficiency and Cleaner Production Centre (EECP), which was established at 2003 within the framework of the Georgian - Norwegian Capacity Building Program on Energy Efficiency and Cleaner Production, was integrated into Energy Efficiency Centre Georgia.

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Energy procedure

By October 2010, about 20 hydropower projects are being implemented. Implementation will allow the country to put into operation a total installed capacity of 2015.3 thousand kW/hr and an annual power generation of 6452.78 kW/hr.

Paravani Project
The International Finance Corporation (IFC) and the European Bank for Reconstruction and Development (EBRD) are investing USD 115.5M in the 87 MW Paravani hydropower plant: their first renewable energy investment in the country.

IFC (part of the World Bank Group) and EBRD will provide Georgia Urban Energy, a subsidiary of Turkey’s Anadolu Endustri Holding, with USD 40.5M and USD 52M, respectively, syndicating a further USD 23M with commercial banks. As part of the project financing, the EBRD will also take a USD 5M equity stake in Georgia Urban Energy.  The project will provide Georgia with electricity during the winter months, when the country is energy deficient, and export to Turkey in the summer, when Georgia has excess capacity.

Georgia Renewable Energy Fund
With support from UNDP the German Development Bank (KfW) has launched a EUR 5 million Georgia Renewable Energy Fund for the development of small hydro power plants. The renewable energy fund is the first of its kind in Georgia and currently the only source of low interest loans for developers of small hydro projects in the country. The initiative is an effort to remove barriers to renewable energy, promote renewable energy resources, and assist the country with a secure energy supply, with a particular focus on small hydro.

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Energy regulator

The relevant regulatory body is the Georgian National Energy and Water Supply Regulatory Commission (GNEWRC). The relevant legal acts for GNEWRC are the ‘Law of Georgia on Electricity and Natural Gas’ (with later changes and additions regarding water supply regulation as well) of 27 June 1997, the ‘Law of Georgia on Independent National Regulatory Authorities’ (coming into effect from 15 October 2002), the Law on Licensing and Permits of 2005 and the General Administrative Code of Georgia which applies to all state agencies.
http://www.gnerc.org

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Degree of independence

GNEWRC is an independent legal body with the commission chairman and four commissioners being appointed by the President of Georgia for a 6-year term.

The regulator’s budget is funded from regulatory fees. At present, the Government has the authorisation to control GNEWRC’s budget. While GNEWRC has control over its budget, an appointment and dismissal structure consistent with best practices, and other indicia of sound regulatory independence, it has faced some challenges to its authority over the years.

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Regulatory framework

According to the Electricity and Natural gas Law of Georgia GNEWRC develops and approves methodologies and sets all electricity generation, transmission, dispatch, distribution and final consumer tariffs, except  for small hydro power plants (below 13.5 MW) and newly built generators; in the gas sector – transmission, distribution and final tariffs for the ‘regulated tariff consumers’. The following tariff system is in force: generation tariff, which is deregulated for small hydro plants, regulated for the two biggest HPPs, and partially deregulated for the remaining (medium sized) generation companies; other tariffs on transmission, distribution, and dispatching are fixed and subject of GNERWC regulation. The tariff for final consumers is also fixed.

At present, Georgia has no primary legislation dedicated to renewable energy, though aspects relevant to renewables exist in the energy legislation, as hydro power has long been the most important electricity source in the country.  A recent amendment to the Law of Georgia on Electricity and Natural Gas creates a possibility for the Electricity System Commercial Operator to buy hydro power produced by new HPPs at the long-term fixed tariff during winter three months. The activities of all newly constructed HPPs are also deregulated, such that they fall outside of GNERWC’s regulation on prices and licensing.

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Regulatory roles

GNEWRC promotes implementation of state policy in energy, national safety, social, ecology and other sectors. Therefore the Commission establishes rules for electricity generation, transit, dispatch, distribution and export-import activities. The Commission sets and regulates wholesale and retail tariffs for energy generation, transit, dedispatch, distribution, transmission, import and consumption. Within its competence, resolves disputes between licensees, importers, exporters, suppliers and consumers. GNEWRC establishes control over the conditions of the licenses within the electricity sector and over the continuity of supply and service quality; coordinates the certification works in the sector.

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Energy regulation role

In 2006 amendments to the energy laws transferred the authority to the Ministry of Energy for the preparation of electricity and natural gas balances, electricity market rules (including backup capacity calculations), and natural gas market rules. GNERWC has no role in network maintenance and issuing standards for connection and repairs, which are monitored by the Ministry.

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Regulatory barriers

Despite of obvious success of the Georgian Government in improving the energy supply and security situation in the Country, there is still much to be done in order to improve and develop Georgia’s energy legislation and regulation as well as technical standards and operational procedures in the electricity sector.

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References

Forbes (2010) "Best Countries for Business: #50, Georgia". Available at: http://www.forbes.com/lists/2011/6/best-countries-11_Georgia_CHI082.html [Accessed 7th September 2013]

University of Turku. Wider Europe. Regional Security Report: Western CIS – South Caucasus and Central Asia. 22 June 2011. Available at: http://www.utu.fi/fi/yksikot/tse/yksikot/PEI/raportit-ja-tietopaketit/Documents/Regional%20Security%20Report%20II_final%5B1%5D.pdf [Accessed 7th September 2013]

World Bank. Energy in Georgia: Khudoni Hydropower Project - News and Broadcast. Available at: http://go.worldbank.org/2JLR9BRO20 [Accessed 7th September 2013]

European Bank for Reconstruction and Development (EBRD). Georgia Profile. Available at: http://www.ebrd.com/downloads/legal/irc/countries/georgia.pdf [Accessed 7th September 2013] Information retrieved primarily from GNEWRC.

Georgia Government. Unique Investment Opportunity in the Georgian Hydro Power Generation Sector. February 2009. Available at: http://www.georgia.gov.ge/5221 [Accessed 7th September 2013]

Ministry of Energy and Natural Resources of Georgia. Transmission. Available at: http://www.energy.gov.ge/en/4374 [Accessed 7th September 2013]

Ministry of Energy and Natural Resources of Georgia. Distribution. Available at: http://www.energy.gov.ge/en/4376 [Accessed 7th September 2013]

Inogate portal. Energy portal: Energy Cooperation between the EU, Eastern Europe, the Caucasus and Central Asia. Georgia Energy Sector Review. Available at: http://www.inogate.org/index.php?option=com_inogate&view=countrysector&id=15&Itemid=63&lang=en [Accessed 7th September 2013]

Georgia National Investment Agency. Invest in Georgia Energy. 2009. Available at: http://www.investingeorgia.org/upload/file/Invest%20in%20Georgian%20Energy.pdf [Accessed 7th September 2013]

European Bank for Reconstruction and Development (EBRD). Renewable Development Initiative. Georgia Country Profile. Available at: http://ebrdrenewables.com/sites/renew/countries/Georgia/profile.aspx [Accessed 7th September 2013]

Deutsche Gessellschaft für Internationale Zusammenarbeit (GIZ) GmbH. Country Chapter: Republic of Georgia. Available at: http://www.giz.de/Themen/en/dokumente/gtz2009-en-regionalreport-georgia.pdf [Accessed 7th September 2013]

Energy Efficiency Centre (EEC). http://www.eecgeo.org/ [Accessed 25 January 2012]

Civil. ge: daily news. "USD 115.5m EBRD, IFC Funding for Paravani HPP". 23 June 2011. http://www.civil.ge/eng/article.php?id=23660 [Accessed 7th September 2013]

United Nations Development Programme (UNDP). Georgia: Hydro power boosts development in the country’s poorest region. 18 April 2011. Available at: http://europeandcis.undp.org/home/show/0FD6952A-F203-1EE9-BBB55B1EDF29733 [Accessed 7th September 2013]

Italian Ministry of Foreign Affairs website. Standard Twinning Project Fiche. Strengthening capacities of the Georgian National Energy and Water Supply Regulatory Commission (GNERC) in updating incentive based electricity tariff methodology. Available at: www.nfu.hu/download/35499/GE10_ENP-PCA_EY11_Strengthening_capacities_of_the_Georgian_National_Energy_and_Water_Supply_Regulatory_Commission_in_up.pdf [Accessed 7th September 2013]

Inogate. Report on the progress made by the EU and the INOGATE Partner Countries toward achieving the objectives of the Energy Road Map adopted at the 2nd Ministerial Conference in Astana on 30 November 2006. November 2008. Available at: http://www.findthatpowerpoint.com/search-31708626-hDOC/download-documents-presentation_pillar_3_en.ppt.htm [Accessed 7th September 2013] Close References