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Is a focus on hydropower expansion the best way forward for Georgia’s energy sector?

The energy sector occupies a critical role in the overall economy of Georgia, as the sector is the largest receiver of foreign direct investments. Georgia is also a net energy importer with a large hydropower endowment but untapped potential for other renewables.

While recent reforms in the country’s energy sector have focused on harmonising with EU regulations and the liberalisation of the power market, ensuring a free and competitive electricity market has been conflicted by the growing role of gas. According to the European Investment Bank (EIB), this tendency is particularly challenging for renewables that are nearly non-existent despite the country’s vast potential.

The introduction of a robust regulatory framework for renewables and in particular for non-hydro power sources could promote further investments in Georgia’s renewable sector. As the EIB recommends, the focus should shift to “decisively advancing in the green transition, as Georgia is in a prime spot to take advantage of the long-term business opportunities offered by decarbonisation and enhancing the country’s climate resilience in the energy sector”.

Domineering hydropower

At present, the total installed capacity of Georgia’s hydropower dominated electricity sector amounts to 4.514 megawatts (MW). Hydropower plants account for around 74 per cent of this capacity while gas-fired thermal plants take up 25 per cent. The single existing wind power plant that became operational in 2016 accounts for only one per cent of renewable power capacity in the total electricity supply of Georgia.

As hydropower predominates the electricity sector, its seasonality leads to the import of supplementary energy during the winter season which makes hydro not only a power source of fluctuating reliability but also requires additional financial support from the Georgian government.

Giorgi Abramishvili, the Executive Director and the Chairman of Supervisory board of the Georgian Renewable Energy Development Association (GREDA) told CEENERGYNEWS that hydropower receives supportive incentives from the government for 8 months per year.

“The 4 months of summer means 50 per cent of the generation. So, this is an important challenge for investors and developers because they are dependent on market price”.

Implying Georgia’s hydro energy susceptibility to external developments, he also remarked that “in 2012-13 financial prognosis suggested exploring Turkey’s potential for summer months which was around 7 US dollars cents. Then, for many reasons, like the different economic situations, the prices on the Turkish energy market dropped dramatically. As a result, new power stations have to sell energy for around 3 US dollar cents at the moment in Georgia which makes a lot of new [hydropower] projects unfeasible”.

The potential for alternative renewables is vast but hydropower technology is the local know-how

Besides hydropower generation, Georgia has vast renewable energy potential from other sources. Wind power for instance is estimated at an enormous 4 TWh annually. Considerable solar photovoltaic (PV) and solar thermal capacity is predicted based on the annual sunshine duration in most regions of the country which ranges from 250 to 280 days (1.900 to 2.200 hours).

Yet, the integration capacity of Georgia’s existing power system can only accommodate 520 MW of solar power and 1.332 MW wind by 2030, according to the Energy Policy Review of the International Energy Agency (IEA).

Even though the technical integration of additional renewable-generated power represents a challenge at present, these figures still indicate that Georgia can develop alternative sources of renewables with the right policy, regulatory and investment support. Still, Mr Abramishvili believes that hydro is the way forward.

“Investors should look at hydro first as we have the know-how for that while for wind and solar we need to rely on import not only of technology but also specialist’s”, he said and continued that notwithstanding the fact that Georgia has its hydro storage “it is not enough”.

“Having our own plants and our storage means energy independence especially from northern neighbours”, he said adding, “the question should not be just to build or not to build [a hydropower plant], it is too simplistic. The issue is how to do it better with mitigation and environmental programmes. And for this there are many rules and the government is also promoting to increase environmental standards”.

The latest EIB report highlights that the hydropower generation capacity of Georgia can expand more than three times the size of total power generation and reach 15,000 MWh per year. With respect to this, Mr Abramishvili pointed out that “we cannot use our resources fully. Seventy-eight per cent of hydropower is not utilised” maintaining that “Georgia could be a corridor for renewables, [not only] gas”.

Pointing to recent grassroots opposition to hydropower plant projects from local populations and non-governmental organisations who have been protesting substandard environmental and social impact assessments, Mr Abramishvili referred to the foreign interference. At the same time, he noted that among important challenges that prevent the development of renewables in Georgia, the “social aspect” persists.

“Better communication should be done before getting to the licensing”, he underlined.

Hydro is growing, so is the energy import

As Georgia is moving from the old feed-in-tariff and PPA system to a deregulated market and feed-in-premium, the long-term positive effects of the process are becoming clear but the transitioning is also “difficult for the investors” according to Mr Abramishvili.

“New, decentralised market needs time to build trust that price formation is transparent, systemic. We shouldn’t compete with the neighbours’ market and the import of subsidised thermal energy from Azerbaijan for example but, on the other hand, [we should] insist more on coordination rather than the competition.”

Building the Black Sea cable connection between Georgia and Romania which is at the feasibility stage at present and aims to connect the South Caucasus region to South-Eastern Europe is one example of coordination for Mr Abramishvili. After the completion, the project is expected to increase transit opportunities between two regions and provide an opportunity for an open, cross-border trading regime of renewable energy from the Caucasus to Europe and vice versa.

As hydropower seems to remain the focus of Georgia’s renewable energy developers, EIB reports that “despite the overall increase in hydro generational capacity, the importance of gas-fired thermal power plants and imports in overall electricity consumption has been growing in recent years” in the country. This tendency should become a reason for shifting attention to and starting the expansion of other sources of renewables in Georgia.

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