Director of the Secretariat Energy Community on Liberalizing Georgia’s Energy Market

Exclusive Interview

The editor wishes to apologize to readers and Mr Kopac for printing the incorrect version of this interview in Tuesday’s GEORGIA TODAY Business newspaper. Here is the correct version in full.

Janez Kopac is the Director of the Energy Community Secretariat, an international organization which brings together the European Union and its neighbors, to create an integrated pan-European energy market. The Community has similar institutions as the EU, and the EU is a member of the Energy Community. Presently, the Energy Community has nine Contracting Parties: the six Balkan countries, Moldova, Ukraine and Georgia. By adopting the Energy Community Treaty, the Contracting Parties made legally binding commitments to adopt core EU energy legislation, the so-called "acquis communautaire”.

GEORGIA TODAY spoke to Janez Kopac on his recent visit to Tbilisi, where he was attending a two-day event organized under the auspices of the EU4Energy Governance project.

The EU4Energy Initiative is part of the Eastern Partnership. In this specific initiative, the European Union works with the six Eastern Partner countries (Armenia, Azerbaijan, Belarus, Georgia, Moldova and Ukraine), as well as the five states of Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan), to improve energy supply, security and connectivity, as well as to promote energy efficiency and the use of renewables in the region. As far as a robust legislative and regulatory framework is vital for the development of a sustainable energy sector, the EU4Energy governance project, part of the EU4Energy Initiative of the European Union, works with the six Eastern Partner countries to strengthen their legislative and regulatory frameworks, to draft policy recommendations, and to help identify investment opportunities in key strategic energy infrastructure projects.

“This international organization is the waiting room for EU membership. We were bigger in the past (Romania, Bulgaria and Croatia were also Contracting Parties), but after they became EU members, they seized to be individual Parties of the Energy Community, because the EU is an integrated unit. The main purpose of the organization is to bring EU energy rules into the wider European neighborhood, to create an internal energy market that is transparent, competitive, environmentally sustainable and secure. Unfortunately, Georgia cannot benefit from all these elements because it is not geographically connected with any EU state or Energy Community Contracting Party. Yet, it can significantly benefit from using the same approach, which is based on many years of experience in the European Union. It is not easy to establish a functioning electricity and gas market and mistakes are easy (and quick) to make. The EU learnt from its mistakes. So, Georgia can benefit from the EU’s experience and avoid making such mistakes, and thus implement the necessary reforms effectively. In Georgia, the energy market, electricity and gas, which is over-regulated, is definitely not efficient.

To render its electricity sustainable, Georgia must ensure the full transparency of its electricity market, while gradually moving away from price regulation. What kind of responsibilities is Georgia taking on?

In general, an electricity market should be liberalized, which means that every producer sells electricity at the market price, because if the market price is not high enough, the producer will not sell it. If it is too high, however, the producers make an excessive profit and additional suppliers will enter the market. Of course, under EU energy market rules, every consumer has the right to choose a supplier. The electricity network (cables, distribution and transmission systems, high voltage cables) is regulated by the national energy regulator. In Georgia this is GNERC. The new electricity market rules are designed to bring more competition to the market. One such measure is allowing third-party access to energy infrastructure, thus allowing others to use it. This is the main idea of the competitive market: how to dismantle natural monopolies of transmission and distribution cables from the competitive activity of supplying electricity. Supply and generation are free from state intervention, and networks remain regulated. On an unregulated market, the seller and buyer sign a bilateral agreement; the state, ministry or energy regulator has nothing to do with it. The government can only intervene in exceptional cases. Such intervention is called “public service obligation” and must be very limited in time and well-justified. The government defines who is to be deemed as a ‘socially vulnerable’ customer, which is someone who cannot afford to be exposed to the free market and thus receives support from the state budget. Such a system must be transparent.

What benefits does signing the Accession Protocol to the Energy Community Treaty bring Georgia?

The new legislation, soon to be adopted in Georgia as a result of its signature of the Accession Protocol, will increase the transparency of retail markets and strengthen consumer protection. A liberalized energy market will offer the best deal for consumers, which for the first time can choose the energy supplier, whether it be the one offering the cheapest price or the best services. Membership in the pan-European Energy Community will also support the development of energy infrastructure projects of regional significance. In addition, the Energy Community also has a strong sustainability dimension under which Georgia will have to follow EU norms in a number of energy efficiency, environmental and soon also climate related areas. Policies like decreasing air pollution and preventing environmental damage, thus contributing to a healthier living environment, are at the heart of the Energy Community. The EU4Energy Governance Project, financed by the European Union, helps Georgia and the Energy Community to achieve these objectives.

How can Georgia cooperate with its neighbours in the energy field under the new framework?

The EU is surrounded by countries who respect the same rules. Georgia is surrounded by countries that do not need to respect such rules. This means that if Georgia’s electricity production exceeded its consumption, companies could stop producing energy, or sell it to neighbouring countries. Turkey is already voluntarily quite aligned with EU rules in the electricity sector and we hope that Armenia will start to apply European, and now also Georgian, rules and standards as soon as possible.

That said, any cooperation is better than no cooperation; any element of the internal energy market norms and rules is better than no element. For example, Turkey is already a member of the South East European Capacity Allocation Office, which means it offers cross-border electricity capacities via tenders organized in Europe. Georgia can also start the process within the South East European Capacity Allocation Office. The result would be the country’s first direct connection with Europe. Turkey is also an observer to the European Network of Transmission System Operators for Electricity (ENTSO-E), and tries to follow all the rules of ENTSOE. I am sure that Georgia will become a member and not an observer of ENTSO-E in the near future. This will create two Transmission System Operators in the region that must apply common rules, which is vital for cross-border cooperation. This will bring benefits to both sides. It will always be a win-win situation. This (Georgia becoming an ENTSO-E member) would be a very responsible decision. I am optimistic about the future of energy reforms in Georgia, which will follow the European pathway.

Dimitri Dolaberidze

23 November 2017 15:54