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Year: Month: All releases Economy Sectors Companies
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Georgia's Energy Sector - Electricity Market Watch | April 2018

31 May, 2018

Electricity consumption expected to increase by 6.9% y/y in 2018. The updated annual forecast of 2018 electricity balance was issued on May 16, 2018. Main modifications are related to export and import amounts, hydro generation and 4M figures (forecasted replaced by actuals). According to the modified annual forecast for 2018: Electricity consumption expected to reach 12.7TWh (growth revised down to 6.9% y/y from 7.1%y/y in previous edition); Import expected to reach 1.3TWh, which is 12.4% y/y reduction compared to initial forecast of 30.8% y/y increase; Export planned at 0.5TWh. GSE should define the exporter companies and export directions by the public auctions. So far, the most popular direction within exporters remains Turkey and Armenia is second most popular market.

Electricity consumption increased by 6.7% y/y to 4.3TWh in 4M18. The increase was mainly driven by the 8.4%y/y growth in consumption of distribution licensees due to addition of new commercial subscribers (Energo-pro’s consumption was up by 9.7% y/y and Telasi’s was up by 6.1% y/y). Consumption by Eligible consumers and Abkhazian region was down respectively by 8.5% y/y and 5.0% y/y in 4M18. 

Domestic generation was up by 20.6% y/y in 4M18, mainly driven by 39.8%y/y increase in hydro generation. This dramatic increase in hydro generation can be explained by last year’s low base and by the good hydrological conditions.  Surplus in hydro Generation (19.5% over the planned level) in 4M18 reduced thermal generation (-16.8%y/y) and imports (-38.9%y/y), both being significantly below the planned levels (17.8% and 40.6% respectively). 

Electricity imports stood at 0.5TWh (US$ 27.9mn) in 4M18. The 88.6% of total imports came from Azerbaijan, while the rest came from Turkey (6.7%) and Russia (3.3%). Unexpected surplus in hydro generation also resulted in unexpectedly early exports of electricity. Export of electricity started in second half of April and reached 61.7GWh (US$ 1.8mn) in 4M18.


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Georgia's Energy Sector - Electricity Market Watch | March 2018

4 May, 2018

Draft law on electricity and natural gas, sets the new threshold for mandatory registration as direct consumer at 15.0 GWh of average monthly consumption from May 2018. This law is expected to be approved by the parliament by mid May 2018. The current law requested mandatory registration as direct consumers from all companies connected to the high voltage (35kV+) transmission grid from May 2018. After approval of the law, eligible companies for registering as direct consumers will be reduced from expected 60 to 4 following companies: Georgian Incorporation, BFDC Georgia, Tsekhi-1, and Block Power. Other companies will retain the option to be registered as direct consumers, with the exception that they will no longer be able to go back to the distribution companies’ services. Notably, BFDC Georgia and Geo Servers already voluntarily registered as direct consumers on 30th of April, before the enforcement of the law.

Consumption growth in 2017 was mainly driven by the consumption of non-residential sector: 1) The direct consumers increased their consumption by 18.1% y/y, due to increase of Georgian Manganese’s production level and 2) the non-residential subscribers of distribution licensees increased their consumption by 8.4% y/y, in line with the average growth rate over 2012-2017. New commercial entities added to the distribution grid are the main drivers of the growth. Electricity consumption by residential subscribers of distribution licensees was down by 2.0% in 2017 and accounted for 20% overall domestic consumption. Notably, the average growth rate of residential consumption is 1.9% over 2012-2017 and we do not expect significant changes to this trend in nearest future.

Domestic electricity consumption increased 9.3% y/y in March 2017. The sole contributors to consumption growth were distribution licensees: 1) Energo-Pro Georgia subscribers’ consumption increased by 18.8% y/y. The growth can be explained by addition of new commercial subscribers; 2) Telasi consumption was up 10.2% y/y. There were no Electricity export and transit in March 2018 although the annual balance envisaged the export of 28.0 GWh. Georgian Urban Energy - owner of Faravani HPP has long-term transmission and dispatch agreement, enabling company to export predetermined volume of electricity from March to November of each year in Turkey. Three years in line, Georgian Urban Energy voluntarily sells electricity to ESCO instead of exporting it. In 2018 Georgian Urban Energy will export only in May, June and July.

Electricity generated by domestic sources increased by 34.5% y/y in March 2017. Hydro generation showed significant increase (+42.4% y/y) in March 2018 from a very low base (-21.7% y/y) in March 2017: Enguri/Vardnili generation almost doubled increasing 87.5% y/y from last year’s low base when Enguri had low generation due to its halted operation in February 2017. Abkhazian region consumed 87.4% of electricity generated from Enguri/Vardnili. Generation of other regulated and deregulated HPPs also increased significantly by 20.4% y/y and 42.8% y/y, respectively, due to high water flow and addition of new HPPs (Dariali and Khelvachauri) to the group of deregulated HPPs.

The surplus in hydro generation reduced electricity imports by 48.4% y/y from last year’s high base, when interruption in Enguri increased demand for imports drastically. Most of the imported electricity came from Azerbaijan (77.3% of total imports of Mar-18), while the rest came from Turkey. Notably, it was first time since 2008 when Turkey served as import country. This import was reflection of ESCO’s tender on barter of electricity won by Aksen Enerji in February-2018.


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Georgia's Tourism Sector - Tourism at Full Speed

2 May, 2018

The world has already rediscovered Georgia as a popular tourist destination. Tourist numbers are already close to the country’s population of 3.7mn. The total number of international visitors (tourists, transit and one-day arrivals combined) increased at a CAGR of 21.7% over 2008-17 and reached a record 7.5mn persons in 2017. With 3.5mn tourists in 2017, 2018 looks set to be another bumper year with tourist arrivals forecast to reach a new record of around 4.2mn – above Georgia’s local population.

Georgia managing to attract tourists from non-traditional markets. Traditionally, visitors to Georgia have been more frequently from CIS countries and Turkey. However, the highly sought-after diversification of the arrival mix is evident, with the share of the top four source markets down from 88.1% in 2012 to 80.1% in 2017 as arrivals have increased significantly from the Middle East and Iran.

Tourism is most flourishing part of Georgian economy, which was otherwise affected by regional economic turmoil in 2015-2016. Revenue from the tourism sector of US$ 2.8bn (18.1% of GDP) in 2017 helped to significantly reduce the country’s current account deficit, when it fell to single digits at 8.7% of GDP for the year. Importantly, Georgia has never seen a decline in its tourist revenues – even in 2009 and 2015, beating peers which experienced reduced tourism revenues in those years.

We estimate that tourist arrivals will more than double over the next five years to 7.6mn – 2.0x Georgia’s population. At this proportion, Georgia will overtake Hungary (1.6x), Slovenia (1.5x), Albania (1.4x) and Bulgaria’s (1.2x) ratios from 2016 but will still be below the proportions found in Croatia (3.3x), Cyprus (2.7x), Montenegro (2.7x) and Estonia (2.4x) in 2016. The findings for Georgia seem reasonable as in the other countries mentioned above, tourist numbers used to double every five to seven years. Additionally, we do not exclude faster growth in tourist arrivals in Georgia given the quick success of on-going reforms in the tourism sector.

Georgia generates far less than peer countries in terms of per arrival spending. This is explained by 1) the dominance of neighbouring countries in its arrival mix; and 2) the low share of “real tourists” compared to peer countries. Despite the number of tourists doubling over 2012-17, per visitor spending only increased to US$ 364.2 in 2017 from US$ 318.6 in 2012. Efforts should be directed to lift per visitor spending toward the US$ 500-800 level found in peer countries. In order to attract more high-yielding visitors, Georgia’s tourism industry needs to focus on high-potential niche tourism products such as winter tourism, wine tourism, medical and wellness tourism, MICE tourism, and gambling.

Visitor growth matched by consistent growth of accommodation sector. Over 3,000 new hotel rooms were added to Georgia’s accommodation stock in 2017. Without success in attracting high-yielding visitors coupled with an extensive pipeline of upscale hotels, we expect pressure on prices and occupancy rates in this segment. At the same time, budget accommodation still seems scarce considering the rapid expansion of the Airbnb market in 2016-17. The extensive pipeline for mid-market brands and increased interest in regional destinations also hint at an oversupply in the luxury hotel segment in Tbilisi.

Insufficient infrastructure and scarcity of skilled labour remain major challenges. Georgia meets the medical and sanitation requirements of a successful tourist destination, as well as safety and security standards according to different studies. However, the same studies identify underdeveloped tourism infrastructure as well as scarcity of skilled labor and service quality as key weakness in the sector.

Tourism development is a key area of the government’s four pillar of reforms introduced in 2016. These reform targets aim to improve the relationships between towns and villages, to promote high-quality sustainable tourism development and to transform Georgia into a four-season tourism destination.


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Georgia's Energy Sector - Electricity Market Watch | February 2018

12 Apr, 2018

FDI in energy sector increased 61.0% y/y to US$ 188.6mn in 2017. The largest FDI providers were: Energo-pro Georgia and related companies - Energo-pro Generation and G-Power; Adjaristskali Georgia - investor of Shuakhevi HPP, Mtkvari Holding and Nenskra Hydro - investors of Mtkvari HPP and Nenskra HPP, respectively. 

Domestic electricity consumption increased 4.6% y/y to 1.1TWh, slightly below the planned level (-2.5%). The sole contributors to consumption growth were distribution licensees: 1) Energo-Pro Georgia subscribers’ consumption increased by 16.3% y/y. The growth can be explained by addition of new subscribers; 2) Telasi consumption was up 2.3% y/y, albeit from a high base in February 2017 (+8.3% y/y). 

Electricity generated by domestic sources increased by 15.4% y/y to 0.9TWh in February 2018, slightly above (+3.5%) the planned level. Hydro generation showed significant increase (+64.3%y/y) in February 2018 from a very low base (-33.1%y/y) in February 2017. Enguri/Vardnili generation more than doubled increasing 119.6% y/y from last year’s low base when Enguri was stopped due to tunnel expertise. Abkhazian region consumed 94.8% of electricity generated from Enguri/Vardnili. Generation of other regulated and deregulated HPPs also increased significantly by 40.2% y/y and 44.6% y/y, respectively, due to high water flow and addition of new HPPs (Dariali and Khelvachauri) to the group of deregulated HPPs. The surplus in hydro generation resulted in 24.4% y/y decline in thermal generation, about 16.6% below the planned level. Wind generation showed 7.0% increase to 6.2GWh and contributed 0.6% of total supply.

Electricity imports were down by 32.8% y/y from last year’s high base, when interruption in Enguri increased demand for imports drastically. Import came fully from Azerbaijan and accounted for 15.2% of total electricity supplied to the grid. Average import price increased by 52.2% y/y and reached USc 5.3/kWh, from last year’s low base (-22.6% y/y). In February 2017, there was a subsidized electricity import from Russia via Salkhino line to satisfy the excess needs of Abkhazian region.


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