Electricity Market Watch
Sector research is one of the key directions of Galt & Taggart Research. We currently provide coverage of Energy, Healthcare, Tourism, Agriculture, Wine, and Real Estate sectors in Georgia. As part of our energy sector coverage, we produce a monthly Electricity Market Watch, adapted here for Georgia Today’s readers. Previous reports on the sector can be found on Galt & Taggart’s website - gtresearch.ge.
Ministry of Energy to re-evaluate PPA policy
According to the Deputy Minister of Energy, Mr. Ilia Eloshvili, consultations are in process with the IMF on revising the Power Purchase Agreement (PPA) policy. The current PPA policy grants new investors take-or-pay agreements whereby ESCO, the electricity market operator, buys all HPP-generated electricity September through April. According to the IMF statement in November 2015, the government guarantees that backstop PPAs should be managed carefully in order to safeguard Georgia’s “hard-earned fiscal sustainability.”
Sale of thermal generation unit 9 by Inter Rao confirmed
Inter Rao confirmed the sale of Mtkvari Energy (TPP unit 9) to an investor consortium that includes GIG (Georgian Industrial Group). Names of the other investors and further details of transaction are not yet public. The negotiations for the sale of the Russian company-owned, gas-fueled TPP (300 MW) started earlier this year, with GIG a likely buyer from the outset. Inter Rao maintains its stakes in hydrogeneration and grid operation.
Georgian Manganese resumes mining operations
Georgian Manganese, one of the largest direct consumers on the Georgian electricity market, resumed mining operations in May. Domestic electricity consumption growth slowed in 2015 on the back of lower consumption from GM, which in turn was caused by reduced production of manganese as global prices dropped. We expect domestic electricity consumption figures to rebound in June, as GM’s monthly consumption returns to previous levels.
TAP construction set to commence this year
Inauguration of the Trans-Adriatic Pipeline (TAP) that took place on May 17th in Greece was a significant step forward in the development of the Southern Gas Corridor (SGC). Georgia is a crucial link in delivering Azerbaijani gas to the EU. Once completed, the extension of the South Caucasus Pipeline will result in increased gas deliveries from the Shah Deniz II field in Azerbaijan through Turkey to the EU. TAP is the EU part of the pipeline that will pass through northern parts of Greece, onto Albania and Italy, with construction expected to last 3.5 years. Georgia will receive increased amounts of natural gas as an in-kind transit fee once the pipeline is operational.
Domestic consumption flat in April 2016
Domestic electricity consumption was flat in April and up 1.3% y/y in 4M16. A 12.5% y/y decrease in the Abkhazian Region’s consumption was the main contributor to the slower growth in April. Excluding the Abkhazian Region’s slowdown in consumption, domestic consumption was up 2.8% y/y in April 2016. Growth was concentrated in greater Tbilisi area, with a 6.6% rise in Telasi consumption. Regional consumption was up 3.5% y/y among Energo-Pro subscribers and down 2.5% y/y among Kakheti Energy Distribution subscribers. Consumption by GM was roughly flat, but with the resumption of mining operations in the end of May, we expect GM’s consumption to rise in June. GM represents roughly 10% of domestic electricity consumption. There were no electricity exports in April 2016.
TPP generation up 36.5% y/y in April 2016
In April 2016, domestic generation was down 3.4% y/y on the back of lower HPP output. Electricity generation by Enguri and Vardili, the country’s largest HPPs (41% of total installed capacity), was down 31.0% y/y in April 2016 due to low precipitation. The deficit was bridged by TPP-generated electricity (+36.5% y/y) and imports (-41.3% y/y). 79.0% of total TPP generation fell on Gardabani CCPP, followed by Tbilsresi (Units 3 and 4) and Tkibuli coal. 93.4% of imports came from Russia at an average price of USc 5.2/kWh. Generation by deregulated HPPs increased 18.4% y/y in April 2016 and the share of deregulated HPPs in the hydrogeneration mix was up to 16.9% in April 2016. This is a result of robust development in the hydrogeneration sector and the upward trend is expected to continue.
The first annual increase in Turkish electricity prices in 13 months
The weighted average market clearing price in Turkey increased 13.2% y/y in US$ terms, after decreasing for 13 straight months, but the increase is largely due to the low base in April 2015, when the market clearing price was down over 50% y/y. In Georgia, balancing electricity price in April decreased 22.8% y/y to USc 4.7. 17.6% of total electricity supplied to the grid was traded on the wholesale market (via ESCO), with the rest traded via bilateral contracts. 70% of the balancing electricity price was made up of HPP generation, while TPPs and imports made up 14% and 16%, respectively.
Tamara Kurdadze (Galt and Taggart)