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.

By Mariam Chakhvashvili

HPPs commissioned in late 2016 (164.9MW) are expected to account for 5.7% of total hydro generation in 2017

The generation of deregulated HPPs already posted a significant increase in Dec-16 (+27.5% y/y). The 108MW Dariali HPP, commissioned in Nov-16, was the main contributor to the increase, as it has already generated 22.1gWh of electricity and is expected to generate 464.5gWh in 2017. The HPPs commissioned in 2016 also include Debeda (3.0MW), Shakshaheti (1.5MW), Maksania (0.5MW), and Saguramo (4.4MW). Khelvachauri HPP (47.5MW), constructed by Turkish company Adjar Energy 2007, is currently operating in test mode and will be granted a generation license in 2017. It is part of a cascade of three HPPs, including Khelvachauri, Kirnati, and Khelvachauri 2, the last two of which are to be commissioned in coming years. The cascade is expected to provide 512.7gWh, on average, to the grid annually.

An estimated US$ 733mn will be spent on the construction of the Namakhvani HPP cascade in the next 5 years

An SPV established by the Norwegian company, Clean Energy Group, was granted the right to build, own, and operate the Namakhvani HPP cascade (433MW), the third largest HPP project in Georgia after Enguri and Khudoni. Expression of interest was held by the current project owner, Namakhvani LLC, a subsidiary of the state-owned company GEDF. Experience and financial performance were the prequalification criteria, while the PPA terms offered by the bidders were the deciding factors (the tariff and the period requested from GoG for purchasing generated electricity). The investor requested a guaranteed tariff for only eight months (September through April) for the first 10 years. Annual generation of the Namakhvani HPP cascade is estimated at 1.5tWh, which represents 11.0% of the projected Georgian electricity consumption in 2022.

Solar energy potential in Georgia

GoG has signed an MoU with Caucasian Solar Company JSC for the feasibility study of solar power plants (SPPs) in ten different locations across Georgia. The approximate capacity of each SPP is 50MW. The exact amount of installed capacity and required investment will be known after the completion of the 18-month feasibility study. Currently there are two other solar projects on the feasibility stage: one developed by GEDF in Udabno, Kakheti region, with approximate capacity of 5MW and another by Solar Energy Company Ltd. in Kvemo Kartli region, with approximate capacity of 50MW.

GEDF offers investors its 150MW Zestafoni WPP project for further mutual development

Pre-feasibility revealed the possibility to construct 50 wind turbines on the site, which would require an investment of US$ 227mn. The main investor selection criteria are the rates offered for call and put options, which can be activated after the completion of the feasibility study. GEDF is also developing the Central WPP project (150MW) in the Imereti region and the Nigoza WPP project (50MW) in the Kartli region, together with the Turkish company Calik Enerji Sanayi ve Ticaret A.S. GEDF is also the owner of Gori WPP, which commenced operations in November 2016 and already reached 0.6% of total energy supplied to the grid in December 2016.

Electricity Consumption, Exports, and Generation – December 2016

Domestic consumption increased 14.5% y/y in December 2016, with Telasi and eligible consumers driving the growth. DNO consumption was up 12.6% y/y, with the greater Tbilisi area (Telasi subscribers) posting an outsized 20.5% y/y growth rate. Usage of Energo-Pro subscribers was up 8.4% y/y, while Kakheti Energy Distribution usage was up 6.0% y/y. Consumption of the Abkhazian region was up 9.2% y/y. Eligible consumer usage was up 44.3% y/y from the very low base in December 2015. Georgian Manganese, the largest direct consumer (81.4% of direct consumption), drove the growth with a 71.7% y/y increase from the December 2015 low base. Electricity exports were negligible, while a significant amount of electricity transit (134.4gWh) took place from Azerbaijan to Turkey in December 2016.

Domestic consumption needs were met almost entirely by domestic generation in December 2016. Imports (-72.7% y/y) accounted for a mere 2.8% of total electricity supplied to the grid, with 58.8% coming from Azerbaijan and the rest from Russia. Total generation increased 26.7% y/y, with TPPs driving the growth (+50.9% y/y) and accounting for 40.8% of total electricity supply. The newly commissioned wind power plant accounted for 0.6% of total electricity supplied to the grid (7.2gWh). HPP generation was up 12.4% y/y, following the high growth rate in November 2016 (+17.0% y/y). The main drivers of the increase in hydro generation were Enguri and Vardnili (+13.6% y/y) and deregulated HPPs (+27.5% y/y), as newly commissioned HPPs commenced operations.

Electricity Prices in Georgia and Turkey

Wholesale market prices in Georgia decreased 23.3% y/y to USc 4.2/kWh, 35.2% below the Turkish market clearing price in December 2016. Turkish electricity prices increased 12.6% y/y to USc 6.5/kWh from a significantly low base in December 2015. 22% of total electricity supplied to the grid in December 2016 was traded through the market operator, with the rest traded through bilateral contracts.

Wholesale electricity prices down in December 2016

Wholesale market prices in Georgia decreased 23.3% y/y to USc 4.2/kWh, 35.2% below the Turkish market clearing price in December 2016. Turkish electricity prices increased 12.6% y/y to USc 6.5/kWh from a significantly low base in December 2015. 22% of total electricity supplied to the grid in December 2016 was traded through the market operator, with the rest traded through bilateral contracts.

Electricity Consumption, Exports, and Generation – 2016 Summary

Domestic consumption increased 6.2% y/y in 2016. The main contributor was Telasi (+15.3% y/y), which doubled its 2015 annual growth rate. The Abkhazian region, which led the growth in 2015, continued steady growth (+7.0% y/y) in 2016. Energo-Pro subscribers increased their consumption by 3.3% y/y in 2016, while consumption by Kakheti Energy Distribution subscribers increased by only 1.9% in 2016, following high single-digit increases in previous years. Consumption of eligible consumers decreased 1.0% y/y from the low base in 2015 (-21.4% y/y), but the decrease was the result of Rustavi Water Company giving up its eligible consumer status in 2016. Consumption of Georgian Manganese, the largest direct consumer, was up 4.4% y/y from the 2015 low base.

Higher consumption demand met almost entirely by domestic generation sources

Domestic generation increased 6.8% y/y and comprised 96.0% of total electricity supply. HPP generation increased 10.4% y/y, while TPP generation decreased 6.0% y/y in 2016. Growth of hydro generation was mainly driven by regulated HPPs, with generation up 7.8% y/y by Enguri and Vardnili and 11.9% y/y by other regulated HPPs. Generation by deregulated HPPs was up by 16.6% y/y. 91.3% of total electricity supply was consumed by domestic consumers, 4.6% was exported, and 4.1% was consumed by power plants or lost during transmission.

Georgia became a net exporter of electricity in 2016 with 80.1gWh of net export

Electricity import decreased dramatically (-31.5% y/y) to 478.9gWh in 2016 and accounted for only 4.0% of total electricity supply. 77.1% of imported electricity came from Azerbaijan, the rest from Russia. Exports in 2016 were down 15.3% y/y to 559.0gWh. Exports to the main export market, Turkey (52.7% of 2016 export), decreased 29.8% y/y, largely due to the fewer export months for Paravani HPP. There was a significant increase in export to Armenia (+57.4% y/y), while export to Russia declined 13.0% y/y and accounted for 26.4% of exported electricity. Total amount of electricity transit from Azerbaijan to Turkey reached 849.6 gWh in 2016.