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Georgia's Energy Sector - Electricity Market Watch | December 2017

1 Feb, 2018

Electricity power purchase agreements (PPAs) have been eliminated. The government made changes to Decree 214, regulating the expression of interest process for HPP projects on the Ministry of Energy’s list. Currently, the list of potential power plants includes 98 small and medium HPPs with total approximate installed capacity of 1.5 GW. According to the change, listed HPPs will no longer receive guaranteed PPAs from ESCO. In addition, the minimum pre-construction bank guarantee will increase from US$ 5,000 to US$ 15,000. The winner selection criterion (if several candidates bid for the same project) will be the amount of the bank guarantee the investor submits. Previously, the project was awarded to the bidder with the lowest PPA tariff in their proposal. The change will not affect MoUs that have already been signed. The Ministry of Economy did note that strategically important HPPs, such as those with seasonal regulations, might still receive guaranteed tariffs, as an exception, subject to detailed fiscal risk evaluation by the Ministry of Finance. 

Telasi and Energo-Pro are going to invest GEL 85.6mn and GEL 343.5mn, respectively, in grid rehabilitation over 2018-2022. That plan includes the addition of new subscribers, rehabilitation of amortized transmission lines, construction of new substations, increase in transmission capacities, etc. Users currently connected to the 35-110kV transmission grid will be obligated to register as direct consumers in May 2018. Subsequently, they will no longer be subscribers of Telasi or Energo-Pro and will purchase electricity directly from suppliers at prices negotiated with the suppliers on a monthly basis. Direct consumers will pay all service fees to the respective service providers (2.393 tetri/kWh) and the guaranteed capacity fee to ESCO. This change will roughly double direct consumption.

Electricity consumption is expected to increase by 7.1% in 2018. According to the electricity (capacity) forecast of 2018, approved by the Ministry of Economy, the growth in consumption will be met by higher import (+30.8% y/y) and hydro generation (+7.3% y/y). Import sources will be determined during the year according to available commercial contracts. Thermal generation is expected to decrease 4.5% y/y in 2018. According to the forecast, only three small HPPs, with expected generation of 8.9GWh, will be added to the supply side in 2018. HPPs that were commissioned in 2017 will be the main source of the increase in hydro generation. Export of electricity is also expected to increase (+17.5% y/y). Export companies and directions will be determined through the auctions held by GSE during the year. 

Domestic consumption increased 7.7% y/y in 2017 and reached 11.9TWh. Consumption by distribution companies increased 7.1% y/y and accounted for 71.1% of domestic consumption. Telasi subscriber usage (+5.2% y/y) accounted for a third of distributor demand, while Energo-Pro Georgia and former Kakheti Energy Distribution consumption (+8.1% y/y) accounted for the rest. Electricity usage of eligible consumers increased 18.1% y/y, despite the fact that two companies (Rustavi Steel Corporation and Georgian Railway) gave up this status in 2017. Consumption of the Abkhazian region increased 3.9% y/y and accounted for 16.9% of domestic consumption. Exports increased 22.7% y/y and reached 0.7 TWh in 2017. Electricity transit through Georgia declined considerably (-70.1%y/y) to 254.0GWh, of which 80.7% went from Azerbaijan to Turkey, 16.6% from Russia to Armenia, and the rest - from Russia to Turkey.

Growth in demand was met by electricity imports from Azerbaijan (61.3%), Russia (30.2%), and Armenia (8.5%). Electricity import in 2017 increased 3.1 times y/y from the low base in 2016 (-31.5% y/y) to 1.5 TWh, or 11.5% of total electricity supplied to the grid.  The reasons behind the dramatic increase were consumption growth in 2017 and lower hydro generation in the winter (-7.5% y/y), mainly due to Enguri’s maintenance works. Electricity import was chosen over additional generation by certain TPPs due to the flexibility of import, technical constraints, the insignificant difference in prices, and the necessity to have some thermal capacity reserved for system security. Total supply of electricity, comprised of domestic generation (11.5TWh) and import (1.5TWh), reached 13.0TWh (+8.1% y/y) in 2017. 91.0% of total supply was consumed by domestic consumers, 5.3% was exported, and 3.7% was used by power plants or lost during transmission.

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Georgia's Tourism Sector - Tourism Market Watch | December 2017

17 Jan, 2018

International branded hotel projects in Georgia are behind schedule. Out of the 27 international branded hotels in our 2016-2018 pipeline, only four have been completed, while three projects have been cancelled. Of the remaining 20 projects, only four are expected to be finished on time.

Five international midscale branded hotels were added to the Georgian market in 2017. Notably, only one of them, the 3-star Ibis Styles, was opened in Tbilisi. The 5-star Wyndham Hotel and 4-star Best Western Plus opened in Batumi, while the 4-star Golden Tulip was added to the international hotel stock in Borjomi.

International travel inflows to Georgia increased 27.0% y/y to US$ 2.75bn in FY17, according to NBG’s preliminary estimates. Foreign card operations in Georgia were up 30.3% y/y to GEL 1.9bn in 11M17. Tourism value added was up 11.5% y/y to GEL 1.5bn in 9M17 and accounted for 7.0% of GDP.

The number of international arrivals was up 18.8% y/y to 7.6mn visitors in FY17. The number of visitors increased from all major source countries, except Turkey (-0.8% y/y). The largest individual contributor to overall growth was Russia (+34.1% y/y), while Armenia and Azerbaijan also posted double-digit increases.

The tourist category continues to drive arrival growth in December 2017. The number of overnight visitors (‘tourist’ category) was up 31.7% y/y and accounted for 39.2% of international arrivals. The transit category was also a major contributor (+54.9% y/y), while the number of same-day arrivals was up 6.7% y/y. The number of tourist arrivals in FY17 is up 27.9% y/y to 3.5mn, surpassing the annual figure for FY16 by 0.8mn tourists.

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Georgia's Energy Sector - Electricity Market Watch | November 2017

28 Dec, 2017

GNERC has set tariffs for TPPs, regulated HPPs, transmission companies, and distribution licensees. Tariff changes go into effect January 1, 2018. Prior to setting the tariffs, GNERC approved the regulated companies’ investment plans for the corresponding period, as dictated by the tariff methodology. Investment plans for distribution licensees – Telasi and Energo-Pro – are approved at GEL 66.2mn and GEL 278.4mn, respectively, for 2017-2019. As a result, the tariffs will increase by 1.56 tetri/kWh for Telasi subscribers and 1.28 tetri/kWh for Energo-pro consumers, on average, for 2018-2020.  

Enguri and Vardnili tariffs are set until the end of 2020. Enguri and Vardnili HPPs will invest GEL 94.3mn and GEL 37.6mn, respectively, over 2017-2019, causing increases in their tariffs to 1.818 tetri/kWh (+21.5%) for the former and 4.002 tetri/kWh (+39.0%) for the latter. The three-year rehabilitation plan for Enguri involves the closure of Enguri for three to six months in spring 2019, along with other rehabilitation works during 2018-2020. According to the market rules, the Enguri tariff is the new balancing electricity price that deregulated power plants will receive for electricity sold to ESCO without a contract May through August. Notably, Enguri and Vardnili HPPs generated one third (33.9%) of total electricity supplied to the grid in 11M17. 

Tariffs were revised for five other HPPs, all owned by Energo-Pro. Only Dzevruli HPP got a tariff decrease (-24.1%). Tariffs were increased for the other four HPPs by 0.5 tetri/kWh, on average. The tariffs will allow a reasonable return on investments amounting to GEL 43.6mn over 2017-2019. Regulated HPPs of Energo-Pro Georgia accounted for 10.2% of total generation in 11M17. Another five of Energo-Pro’s HPPs, with total installed capacity of 118.8MW, will become deregulated as of January 1, 2018, as the deregulation threshold increases from the current 13MW to 40MW, per recent changes in the Law on Electricity and Natural Gas.

Exporters will no longer pay an extra charge for transmission. Exporters used to pay a transmission fee to Energo-Trans (0.496 tetri/kWh in 2017) in addition to other transmission fees payable by direct consumers and distribution licensees in proportion to their consumption. The differentiated tariff for Energo-Trans is eliminated and a unified tariff set at 0.38 tetri/kWh until end-2020. Transmission fees for the other two transmission licensees, SakRusEnergo and GSE, were also increased to 0.278 tetri/kWh (+54.4%) and 1.323 tetri/kWh (+51.7%), respectively. The dispatch fee for GSE will increase to 0.092 tetri/kWh (+12.2%) through May 1, 2018 and 0.412 tetri/kWh thereafter. The total transmission and dispatch fee will amount to 2.393 tetri/kWh to cover GEL 596.6mn of investments in the rehabilitation of the transmission grid over 2016-2020.             

TPP tariffs have also been revised for 2018, both for electricity generated (tetri/kWh) and guaranteed capacity. Tariffs were lowered 1.5% and 0.5% for GPower and Gardabani CCGT, respectively. Tariffs for the other TPPs were increased by 3.8% on average. The guaranteed capacity fee was raised for Gardabani CCGT (+11.6%), GPower (+6.2%), Block 3 (+6.4%), and Block 4 (+11.0%) and lowered for Mtkvari Energy (-10.0%). 

Domestic consumption increased 6.7% y/y in November 2017 and 8.6% y/y in 11M17. The growth in November was driven by 6.0% y/y growth in consumption of distribution companies and a 31.9% y/y increase in direct consumption, largely driven by 48.2% y/y growth in Georgian Manganese usage. Consumption by Energo-Pro Georgia subscribers increased 9.9% y/y, while Telasi consumption was down 0.7% y/y. The Abkhazian region’s electricity usage was down 1.1% y/y, accounting for 18.8% of domestic consumption and 75.6% of electricity generated by Enguri/Vardnili HPPs. 

Growth in demand was met by electricity imports from Azerbaijan (48.7%), Russia (46.5%), and Armenia (4.8%). Electricity import increased 8.7 times y/y to 110.2 GWh, or 10.2% of total electricity supplied to the grid in November 2017. Notably, electricity import was 4.2% below the planned level. Domestic generation was roughly flat, with HPP generation up 2.5% y/y (61.1% of total) and TPP generation down 14.2% y/y (28.2% of total). The wind power plant accounted for the remaining 0.5% of electricity supply.

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Georgia's Tourism Sector - Tourism Market Watch | November 2017

18 Dec, 2017

Mountain infrastructure and facilities are becoming more attractive for visitors. The new 1,200m Mestia-Hatsvali chairlift will become operational on December 23rd. The chairlift connects the Hatsvali ski resort with Mestia, eliminating the need to use road transportation to get to the slopes.

According to the 2018 draft state budget, GEL 60.0mn will be allocated for the Kobi-Gudauri project. The 7.5km Kobi-Gudauri air lift, connecting the Gudauri ski resort with Kazbegi, is expected to be finalized in 2018. In addition, GEL 12.0mn will be allocated for the creation of an artificial lake in Gudauri.

The first international branded hotel in Georgian winter resorts is now open to visitors. Best Western Plus Bakuriani added 70 rooms to the resort’s accommodation stock. Radisson Blu in Gudauri and Ramada Resort in Goderdzi are also expected to be completed by end-2018. Adjara Group Hospitality has announced development plans for the Kokhta-Mitarbi resort.

The number of international arrivals was up 14.1% y/y to 0.52mn in November 2017. Out of the top four source markets, Russia was the top performer (+35.2% y/y), while Armenia (+7.2% y/y) and Azerbaijan (+11.2% y/y) also posted solid growth. The number of visitors from Turkey also increased (+6.8% y/y) for the fifth consecutive month. Arrivals from the EU were down 1.0% y/y to over 14,000 visitors.

The tourist category continues to drive arrival growth in November 2017. The number of overnight visitors (‘tourist’ category) was up 21.8% y/y and accounted for 38.4% of international arrivals. The transit category was also a major contributor (+33.4% y/y), while the number of same-day arrivals was roughly flat. The number of tourist arrivals in 11M17 is up 27.6% y/y to 3.2mn, already surpassing the annual figure for 2016 by 0.5mn tourists.

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