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.

Revision of regulated tariffs

GNERC has set tariffs for TPPs, regulated HPPs, transmission companies, and distribution licensees. Tariff changes go into effect January 1, 2018. Prior to setting the tariffs, GNERC approved the regulated companies’ investment plans for the corresponding period, as dictated by the tariff methodology. Investment plans for distribution licensees – Telasi and Energo-Pro – are approved at GEL 66.2mn and GEL 278.4mn, respectively, for 2017-2019. As a result, the tariffs will increase by 1.56 tetri/kWh for Telasi subscribers and 1.28 tetri/kWh for Energo-pro consumers, on average, for 2018-2020.

Change in HPP tariffs

Enguri and Vardnili tariffs are set until the end of 2020. Enguri and Vardnili HPPs will invest GEL 94.3mn and GEL 37.6mn, respectively, over 2017-2019, causing increases in their tariffs by 1.818 tetri/kWh (+21.5%) for the former and 4.002 tetri/kWh (+39.0%) for the latter. The three-year rehabilitation plan for Enguri involves the closure of Enguri for three to six months in spring 2019, along with other rehabilitation works during 2018-2020. According to the market rules, the Enguri tariff is the new balancing electricity price that deregulated power plants will receive for electricity sold to ESCO without a contract May through August. Notably, Enguri and Vardnili HPPs generated one third (33.9%) of total electricity supplied to the grid in 11M17.

Tariffs were revised for five other HPPs, all owned by Energo-Pro. Only Dzevruli HPP got a tariff decrease (-24.1%). Tariffs were increased for the other four HPPs by 0.5 tetri/kWh, on average. The tariffs will allow a reasonable return on investments amounting to GEL 43.6mn over 2017-2019. Regulated HPPs of Energo-Pro Georgia accounted for 10.2% of total generation in 11M17. Another five of Energo-Pro’s HPPs, with a total installed capacity of 118.8MW, will become deregulated as of January 1, 2018, as the deregulation threshold increases from the current 13MW to 40MW, per recent changes in the Law on Electricity and Natural Gas.

TPP tariffs and guaranteed capacity fee for 2018

TPP tariffs have also been revised for 2018, both for electricity generated (tetri/kWh) and guaranteed capacity. Tariffs were lowered 1.5% and 0.5% for GPower and Gardabani CCGT, respectively. Tariffs for the other TPPs increased by 3.8% on average. The guaranteed capacity fee was raised for Gardabani CCGT (+11.6%), GPower (+6.2%), Block 3 (+6.4%), and Block 4 (+11.0%) and lowered for Mtkvari Energy (-10.0%).

Transmission and dispatch fee

Exporters will no longer pay an extra charge for transmission. Exporters used to pay a transmission fee to Energo-Trans (0.496 tetri/kWh in 2017) in addition to other transmission fees payable by direct consumers and distribution licensees in proportion to their consumption. The differentiated tariff for Energo-Trans is eliminated and a unified tariff set at 0.38 tetri/kWh until end-2020. Transmission fees for the other two transmission licensees, SakRusEnergo and GSE, were increased to 0.278 tetri/kWh (+54.4%) and 1.323 tetri/kWh (+51.7%), respectively. The dispatch fee for GSE will increase to 0.092 tetri/kWh (+12.2%) through May 1, 2018 and 0.412 tetri/kWh thereafter. The total transmission and dispatch fee will amount to 2.393 tetri/kWh to cover GEL 596.6mn of investments in the rehabilitation of the transmission grid over 2016-2020.

Electricity consumption and generation – November 2017

Domestic consumption increased 6.7% y/y in November 2017 and 8.6% y/y in 11M17. The growth in November was driven by 6.0% y/y growth in consumption of distribution companies and a 31.9% y/y increase in direct consumption, largely driven by 48.2% y/y growth in Georgian Manganese usage. Consumption by Energo-Pro Georgia subscribers, including former Kakheti Energy Distribution subscribers, increased 9.9% y/y, while Telasi consumption was down 0.7% y/y, albeit from a high base in November 2016 (+21.5% y/y). The Abkhazian region’s electricity usage was down 1.1% y/y, accounting for 18.8% of domestic consumption and 75.6% of electricity generated by Enguri/Vardnili HPPs. Electricity transit from Azerbaijan to Turkey through Georgia declined 82.7% y/y to 22.8GWh, while electricity exports were negligible (0.851GWh) in November 2017.

Growth in demand was met by electricity imports from Azerbaijan (48.7%), Russia (46.5%), and Armenia (4.8%). Electricity import increased 8.7 times y/y (+32.1% compared to November 2015) to 110.2 GWh, or 10.2% of total electricity supplied to the grid in November 2017. Notably, electricity import was 4.2% below the planned level.

Domestic generation was roughly flat, with HPP generation up 2.5% y/y (61.1% of total) and TPP generation down 14.2% y/y (28.2% of total). The wind power plant accounted for the remaining 0.5% of electricity supply. Enguri/Vardnili generation was down 7.1% y/y, while generation of other regulated and deregulated HPPs increased 3.3% y/y and 30.0% y/y, respectively, in November 2017. The GC fee was down 22.6% y/y to USc 0.6/kWh. The reasons behind the decrease were higher consumption, which serves as the base for GC fee allocation, and a week of maintenance works on Mtkvari Energy. Gardabani CCGT and Mtkvari Energy operated at full power for most of the month, while the other three TPPs were mostly on standby.

Electricity prices in Georgia and Turkey

Average import price was down 12.8% y/y to USc 4.8/kWh. However, the high share of imports in the electricity supply mix resulted in an increase in the wholesale electricity price to USc 5.3/kWh (+22.9% y/y). Electricity traded at the wholesale price through the market operator accounted for 19.6% of total electricity supplied to the grid in November 2017, with the rest traded through bilateral contracts. Average monthly market clearing price in Turkey decreased 2.9% y/y to USc 4.6/kWh in November 2017.

Mariam Chakhvashvili