Twenty years ago, Georgians faced near daily power cuts that lasted up to 24 hours, severely curbing economic growth. At the time, few would have imagined their country would one day become a reliable energy exporter. But that day has come. In summer, Georgia now exports excess electricity to neighboring countries. However, while the situation has improved significantly, the country is still experiencing a supply gap in winter.
And here is why: Georgia’s energy consumption is currently a game of two halves. During summer, when the country’s river flows are at their highest, its hydro plants generate a glut of energy, significantly overriding domestic consumption. In winter, however, and with the current trend of growing electricity consumption, Georgians face a supply gap, and have to rely on power imports and the use of thermal generation. With no hydrocarbon reserves to speak of, the country then relies on the natural gas it receives from its neighbors. Achieving energy security is a key objective of Georgia’s energy policy.
If the current trend of growing electricity consumption continues, Georgia will have a significant energy generation deficit in a decade. Domestic demand, which is expected to grow in line with a rising gross domestic product, will require the country to generate around 65 percent more power through 2025.
The country is now working to take advantage of what it has in abundance – water. Georgia ranks third in Europe in terms of hydropower potential, yet its hydro sector is among the region’s least developed, at just 20 percent of potential capacity. Embracing this potential – and developing the necessary transmission infrastructure – would not only help the country meet its own energy demand, but could also spur economic growth through export revenues and transit fees.
Leveraging the country’s strategic geographical position and abundant hydropower supply, accompanied by a systematic assessment of all economic, environmental and social impacts could become a game changer in achieving energy security.
So far, Georgia has attracted financing for new hydropower plants to the tune of $1 billion in private investment. The World Bank Group has supported the Georgian government’s strategy of developing the country’s power sector. As part of this work, IFC, the largest global development institution focused on the private sector in emerging markets, has backed several hydropower projects, including a landmark hydropower plant on the Adjaristskali River, which are expected to help increase Georgia’s power generation capacity by around 20 percent.
Additionally, the World Bank, IFC’s sister organization which works with the public sector in emerging markets around the globe, has recently completed a Power Sector Policy Note that recommends the development of generation investments based on economic, least cost principles, thus buffering tariff increases to consumers and unsustainable fiscal risks to the government.
However, a lot more can be done. For example, the framework for energy efficiency, wind, solar, and other renewable projects has yet to be developed further, as well as the electricity and gas market rules required by the Energy Community, which Georgia became a member of in 2016. The country expects that, in the medium term, the combination of efficient gas thermal generation and new hydropower plants will meet domestic demand in the winter, increasing the existing over-capacity in the summer, which will need to be exported at a competitive price by private developers. Therefore, access to export markets is vital to make the current and planned development of Georgian hydropower viable.
This means that Georgia would need to move towards a more comprehensive regional power trading approach, whereby the country would establish itself as a trading hub. This would require additional investments in interconnection capacity with Turkey as well as other neighboring countries and more flexible markets to allow for power trading in various directions.
So, what comes next for Georgia? Removing barriers for regional power trading is vital. The challenges include technical constraints, like transmission capacity issues, which are being addressed through investments in transmission and interconnection. The private sector can also play a role in attracting the necessary investments in the grid infrastructure—particularly border interconnectors— if the government creates an enabling framework and structures public-private partnerships for specific investments.
There are also regulatory barriers to energy trade, so aligning the regulatory framework and electricity markets of Georgia and neighboring systems is vital. Clear and transparent rules for allocating cross-border capacity and congestion management are key to boosting investor confidence. The transition to a more dynamic and competitive electricity market would be the next necessary step to modernizing the Georgian power sector and reaping the benefits of regional trade. That will bring more competitive private investments, foster competition, and create a sustainable sector with less need for state support – an ongoing process in many countries in the region.
In addition, giving more priority – at the highest policy level – to energy efficiency measures and alternative heating options to reduce demand for electricity in the winter is crucial.
All these actions can help Georgia bolster domestic power supplies and enable the country to become a regional electricity trading hub, turning the country’s greatest natural asset into an engine of growth.
AUTHOR: JAN VAN BILSEN, IFC REGIONAL MANAGER FOR THE SOUTH CAUCASUS.დატოვე კომენტარი