Electricity Market Watch: JUNE

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.

For Georgia Today by Mariam Chakhvashvili

Qartli Wind Farm on the Georgian Stock Exchange

The government announced plans for a public offering of the Qartli Wind Farm on the Georgian Stock Exchange. The 20.7MW WPP in Gori has generated 38.6 GWh in 2017 and annual generation is forecasted at 88.0 GWh. There is a 10-year PPA in place with ESCO for a guaranteed USc 6.89/kWh. Georgian Energy Development Fund (GEDF) and Georgian Oil and Gas Corporation (GOGC) are the current shareholders of Qartli Wind Farm Ltd. EBRD provided a 10-year US$ 22.0mn loan for the project. The EBRD transaction was named the best renewable energy transaction of 2016 by EMEA Finance. Details of the public offering will be announced in the coming months.

Shuakhevi- the Largest HPP constructed in Georgia in the last 50 years

Adjaristsqali Georgia LLC has completed the construction of the 187MW Shuakhevi HPP. The expected annual generation of 450.0 GWh will contribute positively to Georgia’s electricity trade balance and increase energy independence and security of supply. This is the largest HPP constructed in Georgia in the last 50 years, boasting the world’s second longest hydropower tunnel (37.5km). Total investment amounted to US$ 420.0mn, with 40.5% in equity financing by Norway’s Clean Energy Invest AS, India’s Tata Power, and IFC Infraventures. The remaining 59.5% (US$ 250.0mn) was financed by loans from EBRD, ADB, and IFC. Company’s social responsibility program encompasses more than 70 social projects, including education in energy and construction sectors and infrastructure and local business development.

Electric vehicle (EV) chargers throughout Georgia by end-2017

Electric vehicle (EV) chargers will be installed throughout Georgia, enabling hybrid and electric cars to cover the distance from Telavi to Batumi on a single charge. The project was initiated by E-Space and supported by m2 Real Estate. 20 charging stations are already in place in Tbilisi, Kutaisi, and Batumi. EUR 100,000 in capital expenses will be covered by m2 Real Estate’s corporate social responsibility program, expressing the company’s dedication to Georgia’s green development. By end-2017, E-space plans to install up to 100 EV chargers at gas stations, hotels, and supermarkets owned by partner organizations. The charging stations can be used free of charge through the end of the year, while minor fees, covering variable and maintenance costs, will be applied starting in 2018.

Covenant of Mayors for Climate & Energy

Fourteen municipalities of Georgia have signed the Covenant of Mayors for Climate & Energy. The covenant is a EU-initiated program, connecting local and regional governments with the aim to increase renewable energy usage and energy efficiency and decrease CO2 emissions. Over 7,500 local municipalities have joined the initiative since 2008. The Georgian municipalities who have signed the covenant have voluntarily taken on the obligation to meet the goals set out in their action plans by 2020. Actions to be taken include modernizing municipal buildings and public transport. Being a signatory of the Covenant of Mayors opens up new credit lines and grant opportunities from various organizations and international banks for projects aimed at decreasing CO2 emissions and increasing energy efficiency.

Inter Rao against GoG

Inter Rao has filed a dispute against GoG in the international court of arbitration. Inter Rao owns 75% of JSC Telasi and 100% of Khrami 1 and Khrami 2 HPPs through two separate subsidiary companies based in the Netherlands. There is a Bilateral Investment Treaty in place between Georgia and the Netherlands, which protects the interests of foreign investors. Inter Rao claims that exchange rate fluctuation, which negatively affected its revenues, was not taken into account by GNERC in its 2016 tariff calculation. Generally, the tariff methodology in Georgia does not factor in losses due to exchange rate movements. Before filing the dispute, Inter Rao submitted a list of claims to the Georgian government, but the parties were unable to reach an agreement. According to preliminary information, the investor is suing for US$ 125.0mn in damages.

Electricity Consumption and Generation – May 2017

Domestic consumption increased 1.3% y/y in May 2017. Consumption of distribution companies increased 6.0% y/y in May: consumption was up 6.8% y/y by Telasi, 5.5% y/y by Energo-Pro, and 6.2% y/y by Kakheti Energy Distribution. The Abkhazian region’s electricity usage was up 7.7% y/y and accounted for 12.5% of domestic consumption. The low overall growth in domestic consumption (1.3% y/y) was largely the result of a 26.6% y/y decrease in direct consumption (-4.1ppts. in total domestic consumption growth), with Georgian Manganese usage down 30.1% y/y. Georgian Manganese’s production dropped in May 2017 after the government’s appointment of a special administrator at the company.

Electricity exports increased 5.4% y/y to 200.1 GWh in May 2017

The top export destination was Turkey (42.1% of total), posting a 38.1% y/y increase, albeit from the low base in 2016 (-29.7% y/y). The top exporters to Turkey were Georgian Urban Energy (69.8% of total), owner of the 89MW Paravani HPP, and Adjar Energy 2007 (22.5% of total), owner of the newly commissioned 47.5MW Khelvachauri HPP. Electricity exports to Russia decreased 22.6% y/y and accounted for 31.6% of exports, while exports to Armenia posted a 14.1% y/y increase and accounted for 25.8% of total. Azerbaijan accounted for the rest (0.5%). ESCO was the sole exporter to Russia and Azerbaijan, while export to Armenia was split between GIEC (51.0%) and ESCO (49.0%), which exported electricity in exchange for the electricity imported during Feb-Apr from Armenia.

HPPs satisfied electricity demand

Electricity demand was satisfied largely by hydro generation, with 99.1% in the supply mix. The new wind power plant accounted for 0.7% of total electricity supply, while imports and TPPs together comprised only 0.2%. 19.0% of domestic generation was exported. Total hydro generation was up only 1.3% y/y. Deregulated HPPs posted a 38.7% y/y increase in generation, with 29.5ppts due to the addition of new large HPPs – Dariali HPP (108.0MW) and Khelvachauri HPP (47.5 MW) – and the remaining 9.2ppts attributed to good hydrological conditions in May 2017. However, generation was down 1.7% y/y by Enguri/Vardnili and 10.0% y/y by other regulated HPPs due to the low water levels in reservoirs resulting from bad hydrological conditions in the winter (Oct-16 to Apr-17). The guaranteed capacity fee was up 12.9% y/y to USc 0.64/kWh, with guaranteed capacity provided by most of the sources for the entire month. Block 3, which was under maintenance for the month, was the exception.

Electricity Prices in Georgia and Turkey

Wholesale market prices in Georgia decreased 16.8% y/y to USc 3.9/kWh. Only 7.2% of total electricity supplied to the grid in May 2017 was traded through the market operator, with the rest traded through bilateral contracts. The average price of electricity exported from Georgia was USc 3.4/kWh (+2.0% y/y), 22.7% below the Turkish market clearing price. The average monthly market clearing price in Turkey was USc 4.4/kWh (+4.4% y/y), 12.5% above the Georgian wholesale market price in May 2017.