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G&T Team
ResearchResearch Reports Electricity Market Watch - 1H22

Electricity Market Watch - 1H22

Electricity consumption increased by 9.8% y/y and reached 7.3TWh in 1H22. The growth was mainly satisfied by growth in hydro generation (+21.1% y/y), attributable to good hydrology of this year. Additionally, import of electricity (-31.1% y/y) was substituted by thermal generation (+62.4% y/y) when possible, due to price differences. 

Georgia had a positive trade balance in electricity trade in 1H22, first time in a decade. In 1H22, export of electricity stood at US$ 55.8mn, import at US$ 34.7mn, resulting in positive trade balance of US$ 21.1mn. On the one hand, energy crisis and global price growth of energy products impacted our key export destination Turkey – where prices tripled. On the other hand, the energy crisis did not affect our import providers - Russia and Azerbaijan - as they are price setters on the global energy market. Price of electricity import from Russia and Azerbaijan to Georgia increased, but not so significantly to cause any dramatic changes on local market prices. Therefore, Georgian companies benefited from current energy crisis with increased revenue from electricity exports to Turkey, while prices on local markets increased far below global trend:
•    Prices of electricity in Turkey tripled y/y and went up to USc 14.5/kWh in Jun-22, in line with price surge of natural gas globally. Georgian exporters benefited from this growth – gaining historic high revenue of US$ 51.2mn from electricity export to Turkey in 1H22. Export of electricity in Turkey started in May and will probably continue until end of August with some limited volumes. Despite high demand and price growth expectation on Turkish market, export of electricity is limited by Georgian regulation - prohibiting electricity exports when electricity import is needed. 
•    Price of imported electricity also increased, but this growth was far below exported price. For example, price of electricity imported from Azerbaijan stood at USc 7.5/kWh in 1H22, up from USc 4.6/kWh in 1H21 (+62.1% y/y), while electricity export price is at USc 14.5/kWh.
•    Balancing electricity price in Georgia increased by 21.9% y/y to USc 5.7/kWh. The main reason is growth of average import price.

Day-ahead and balancing and ancillary services markets should start its operation on 1 September 2022, according to current addition of electricity market concept (Government decree N246, dated 16.04.2020). A month prior the date, there are still some open questions remaining. GNERC and all responsible policymakers approve regulatory documents intensely to fill the regulatory gaps and have whole framework ready for September. Public hearing on some regulatory piece is planned for almost every single day of the summer. The date was previously postponed several times and chances of postponing once again seem to be high, although policymakers seem very decisive this time.  Imbalance settlement should also be introduced from September 1, 2022. Market participants should become responsible for the difference between their planned and actual consumption/generation in each hour. This imbalance settlement mechanism is the key difference from the current market model and makes trade on day-ahead market reasonable.