Renewable Energy in Georgia – Electric Power Market in 2011, and Main Challenges Nugzar Beridze – Electric Power Department September 11, 2012 Kutaisi, Georgia Georgian National Energy and Water Supply Regulatory Commission

Wholesale Power Market – 2011 GenerationTransmission- Dispatch (TSO) CSO, Import-ExportDistributionDirect customers Existing PPs: -up to 13 MWt – about 40; -from 13 to 100 MWt – 11; - Over 100 MWT – 10; including 4 – HPPs; - 13 PP construction licenses issued; - Installed capacity: hydro – MWt; Heat – MWt; - Generation in 2011 (delivery to bas bar): Hydro – 7,788.7 GWtH Heat – 2,123.4 GWtH; Awerage weighted tarif of generation – T/KWtH Transmission Licensees: 1. State Electrosystem; 2. Sakrusenergo; 3. Energotrans (preliminary license); Dispatch Licensee: 1. State Electrosystem; Total service volume: - accepted – 9, GWtH - transfered – 9, GWtH Commercial Power Sysytem Operator: The amount of sold energy in 2011: - balancing – 2,159 GWtH; - Average price – 8.45 Tetris/KWtH - Through direct contracts– 8,224 GWtH; Guaranteed reserve - Capacity sources – 460 MWt; - Amount of sold reserves– KWtH; - price – Tetris/KWtH - COS serrvice price – Tetris/KWtH import – GWtH export – GWtH Transit – 0 Average import tariff - Distribution Licensees: 1. JSC Energopor Georgia - Received in the network - 3,527.6 GWtH; - Actual losses – GWtH; 2. JSC Telasi - Received in the network - 2,025.6 GWtH; - Actual losses – 276 GWtH 3. ss kaxeTis energo- distri-bucia - Received in the network – gvt.sT; - Actual losses– 61 GWtH Direct consumers: 1. `Sinatlis Kalaki ~ 48.6 GWtH 2. GWP Ltd. – 284 GWtH 3. Tbilisi Transport Company Ltd. ~ 64 GWtH 4. Georgian Railways LTD. ~ GWtH 5. Georgian Manganese Ltd. ~ 1,121.9 GWtH 6. Saknakhshiri Ltd. ~ 13.7 GWtH 7. Rustavi Water Ltd. ~ 56.7 GWtH Total: 1,798.6 GWtH

Main Events in 2011 Non-favourable natural/climatic conditions (lack of hydro-resources in compare to the previous years); Kakhetis Energodistributsia went to bankruptcy regime; Number of direct consumers reduced;

Dynamics of Import/Export (GWtH)

Market Shares and Structure Indexes In the reporting year 2011 the market shares of the three largest generators made: Enguri HPP Ltd. – 32.6%; Mtkvari Energetika Ltd. – 13%; Vardili HPP Cascade Ltd. – 5.8%. The Herfindal-Hirschmann index for the same companies made HHI=1,265.4, i.e. Georgian power generation market can be assessed as moderately concentrated market. As for the residual supply index, for Enguri HPP it makes RSI=136%, i.e. its capacities are not representing main share in satisfying the customers’ demand, so, it is not dictating at the market. Meanwhile, power distribution market is highly concentrated (HHI=2,378.5) and significant market share is held by JSC Energopro Georgia (42.6%).

Market Openness Indicator

Regulating Framework Promoting Energy Efficiency and Renewables  According to the rules fro activity in power, natural gas and water supply sectors and licensing rules: Regulated utilities are obliged to reflect in the annual reports the efficient use of resources indictors (the amount of resources spent for generated power, volume of not used resources, etc.), technological expenses for power generation and information on measures taken for improvement of energy efficiency; The volumes of actual losses in distribution company networks have significantly reduced and they almost equal the values approved by the Commission (save Kakheti Energodistributsia) – 1-2%; The loss of hydroresources has significantly reduced in 2011 in compare to the previous years;

Setting the actual cost-based tariffs supported flow of investments into the sector; accordingly, improvement of metering and reduction of commercial losses, as well as saving and efficient use of energy; The losses over the norm are not reflected in the tariffs of power sector utilities, and this gives them the incentive to optimise assets and load regimes; The step-wise tariffs set for the residential customers supports creation of the additional social guarantees for the residential segment, as well as saving and efficient use of energy; In accordance with the power tariffs and tariff methodology:

The power transmitted by the small (up to 13 MWt) hydros to the network without preliminary contracts are is considered purchased by CSO. In particular, it is purchased: from September 1 to May 1, at the highest tariff (price) of the power sold by power (capacity) generator to the CSO, while from May 1 to September 1, at a tariff of HPP having regulated fixed tariff, for which the Commission has set the lowest of them. The above norm significantly improved financial status of small hydros and created additional incentives for construction of new projects; According to capacity market rules:

The relations between retail customers and distribution companies were regulated. This gives both parties the incentive to improve the power supply/consumption regimes; The direct sale-purchase of power between small PPs and retail customers have been regulated, which also additionally stimulates small HPP activities and promotes liberalisation of the retail market; The terms for connection of the small PPs (up to 100 KWt) owned by the retail customers to the generation distribution network have been defined (access is free), and the obligation of purchasing the excessive power lies upon the distribution company. The price is calculated by the following methodology: the consumers’ tariff for the respective voltage level less distribution tariff for the same voltage. According to the rules of supply and consumption of power (capacity):

Main outcomes (1) 80% of the existing generation capacities is provided by the renewables (hydro-generation). In the nearest future, this value will reach 87%. 39 projects are being constructed (38 HPP and one windmill with 50 MWt of design capacity), with the 1,879 MWt of installed capacity and projected annual generation of 7,410 GWtH.

Main Outcomes (2) One of the main directions of the energy policy – increasing the share of renewables in total generated power and satisfying the demand for energy carriers by the own resources of the country – is successfully implemented; The state program Renewable Energy 2008 is being implemented; it offers the investors the list of HPPs to be built in various regions of Georgia (5 units; total capacity – 600 MWt);

ძირითადი შედეგები (3) The program Development of Energy infrastructure, is being implemented. It includes the following components: promoting investment into the hydro energy sector (attracting additional 70 million dollars for construction of 400 MWt capacities) and improving transmission system (aiming towards improving energy security and reliability and transfer capacities of the transmission system). In the process of the project implementation, the free access to the networks and sufficient transfer capacities for the priority access of the power from new renewable sources and their export to various countries will be ensured; From the standpoint of improving the enrgy efficiency, it should be mentioned that the peak load of the system has reduced by about 200 MWt, which should mainly be attributed to improvement of tariff and metering systems;

Main Outcomes (3) Actual losses of power in the system reduced more then twice (from 22% to 9.5%). This indicates towards the general improvement of the situation in the sector and, at the same time, towards saving the significant amounts of power (1,000 GWtH) and/or its more efficient consumption (exports, etc.); Big share of the consumed power (up to 30%) falls on the residential sector. After arrangement of the tariff system and introduction of the step-wise tariffs, about 47% of this segment consumes less then 101 KWtH, and this demonstrates serious motivation for power savings; On the background of double increase of GDP (in compare to 2005), the growth in power consumption made only 10% and consumption of the natural gas has reduced by approximately 33% (in compare to 2006). This significantly improves the integral energy efficiency indicator – the so called energy intensiveness (reduced about twice).

Dynamics of Shares of Hydro and Heat Power in Total Generation

Existing Generation Capacities

Generation Capacities for the Years to Come

Dynamics of Power Balance (forecast till 2020 TWtH)* тВт.ч *GSE

Main Challenges (1) The law allows for introduction of the seasonal and daily peak methodologies, although they are not developed yet. This would promote the efficient use of energy resources, existing generation capacities (for the reporting year 2011, the hydro resources equivalent to approximately 600 GWtH of energy have been spilled) and generated power; The demand side load regulation and incentives shall be developed. This would create the significant motivation for customers and network companies to cooperate in th field of energy saving;

Main Challenges (2) The systems of green certificates, CO 2 trading credits and beneficial tariffs for the alternative renewable sources shall be developed. This would support the efficient use of the rich renewable resources existing in the country; The regulations of priority dispatch and access to the network of the renewable generators shall be revised and updated, etc.

Thank you for your attention!