August 2017 Electricity Market Review – Transit opportunity and its challenges

August 2017 Electricity Market Review – Transit opportunity and its challenges

August 2017 Electricity Market Review – Transit opportunity and its challenges

The FINANCIAL -- In August 2017, Georgian power plants generated 1,035 mln. kWh of electricity. This corresponds to an 8% increase in total generation in comparison with the previous year (in 2016, total generation in August was 957 mln. kWh), mainly due to a 31% increase in TPP, and an 8% increase in regulatory HPP generation. Generation decreased by 17% with respect to July 2017 (in July 2017 total generation was 1,247 mln. kWh). 

Following the traditional seasonal pattern1, renewable sources of electricity produced 92% of total generation (952 mln. kWh), while thermal power generation accounted for only 8% (83 mln. kWh). Consumption of electricity on the local market was 1,038 mln. kWh, marginally bigger than the amount generated.

Among different sources of electricity, hydropower remained dominant. Specifically, in August 2017, hydropower (HPP) generation amounted to 944 mln. kWh, wind power (WPP) was 8 mln. kWh, and thermal power (TPP) was 83 mln. kWh. In hydropower generation, large (regulatory) HPPs produced 73% (688 mln. kWh) of electricity, while seasonal and small HPPs produced, respectively, 24% (224 mln. kWh) and 3% (32 mln. kWh).

Among large HPPs, Enguri and Vardnili generated the largest amounts of power, producing 505 mln. kWh and 83 mln. kWh, respectively, representing 57% of total generation and around 86% of generation for regulatory HPPs.

In August 2017, total electricity consumption of Georgia came from Telasi – 25% (261 mln. kWh), Energo-Pro Georgia – 47% (484 mln. kWh), Kakheti Energy Distribution – 3 % (35 mln. kWh), Abkhazia – 11% (119 mln. kWh) and direct customers – 13% (138 mln. kWh). Compared to August 2016, demand from Telasi increased by 9%, from Energo-Pro Georgia by 12%, from Kakheti Energy Distribution by 9%, from Abkhazia by 2%, and from direct customers by 66% (a large increase caused primarily by consumption of “Georgian Manganese”). Overall, the annual increase in electricity consumption reached 14% in August 2017.

Electricity Market Operations

In August 2017, 84% (914 mln. kWh) of electricity sold on/from the local market was through direct contracts. The rest, 16% (180 mln. kWh), was sold as balancing electricity. The share of balancing electricity increased compared to the past two years, because of increased consumption, leading to a significant need for imports.

The weighted average price of the balancing electricity was 11.1 tetri/kWh in August 2017, which is an annual increase of 11%, with respect to August 2016. As for the weighted average price for deregulated (small) HPPs, it reached 1.5 tetri/kWh. The difference between the overall balancing electricity price, and that for deregulated HPPs, is coming from the regulatory structure of the balancing electricity market (see July 2017 Energy Review from ISET-PI, available online). Guaranteed capacity payments in August 2017 were roughly 12.68 mln. GEL, a decrease of 5% compared to August 2016. This reduction is due to smaller guranteed capacity fees (set by the national regulator) paid to several TPPs (see July 2017 Energy Review). The higher cost of guaranteed capacity, compared to earlier years (2011-2015), is primarily caused by payments to the newly built Gardabani TPP, which became operational in November 2015.

Electricity Import, Export and Transit

In August 2017, Georgia imported 73 mln. kWh of electricity (just 7% of its monthly consumption). 69% of this electricity was imported from Azerbaijan, and 31% from Armenia. Unlike the previous month, August 2017 has shown a modest increase in exports, primarily due to the month-long drought in the country. Export from Georgia reached 32 mln. kWh (a 16% increase compared to August 2016 and a mere 3% of internal generation). 36% of exports went to Turkey, and 64% went to Armenia.

Transit in August 2017 amounted to 93 mln. kWh. Around 69% of this electricity was transited from Azerbaijan to Turkey, and 31% was transited from Russia to Armenia.

Georgia seems to be moving towards becoming a trading hub between neighbouring electricity markets. Providing a connection network - the Georgian electricity transmission system - to the neighbouring countries can be an important contribution to the development of a regionally integrated power market. Increasing transit creates also an important opportunity for mobilizing additional resources to develop Georgia’s electricity transmission systems. Finally, this development can be very useful both for the stability of the country’s power market as well as for the future utilization of Georgia’s power generation potential.

These opportunities do not come without challenges. Transit during the past year and a half has been larger during the autumn period. This is important to consider as transit volumes are increasing in parallel to the increase of electricity consumption within the country. If international electricity flows passing through the country continued increasing, this could cause transmission congestion in the Georgian electricity system. Also, as the capacity of Georgia to provide interconnection between neighbouring countries (Russia-Armenia, Azerbaijan-Turkey) grows, it will become vital that electricity flows are stable and distributed, along the whole year in order to avoid the infrastructure to stand idle in some parts of the year.