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Georgia's Energy Sector - Electricity Market watch - October 2018

11 Dec, 2018

GNERC updated Grid Code for Electricity on October 26, 2018 to include requirements of Energy Community’s regulation No 543/2013 concerning submission and publication of data in electricity markets. This update is one step forward to implement Georgia’s obligations under the Energy Community. The Grid Code sets general rules for gathering, submission and publication of information on ENTSO-E’s platform. The mentioned information includes: actual and forecasted loads, planned and emergency maintenance, grid congestions, NTCs, etc. The dispatch licensee - Georgian State Electrosystem (GSE) - is responsible for the data gathering and publication process and should prepare detailed instructions by April, 2019 and start publication by November, 2019.

MoESD revised the annual balance of electricity in November 2018. The forecast for annual electricity consumption growth for 2018 was revised downwards from 9.9% to 8.2% in November 2018. The high expectation for annual growth was caused by 11.8%y/y increase in consumption during May-July period. Since August 2018, the growth of consumption slowed down to average 2.6% y/y. As a result, consumption forecast was revised to follow the trend. Actual electricity consumption was up by 6.9% y/y and reached 7.4 TWh in 10M18. 

Updated annual balance of electricity also includes updated forecast of supply for November and December and actual figures for 10M18. According to updated balance, the import in 2018 is expected at last year’s record level of 1.5TWh. The record high electricity import in 2017 was caused by Enguri’s closure in winter reducing supply and 2018 import forecast is explained by increased electricity consumption.

Electricity consumption increased by 3.2% y/y in October 2018. The growth was driven by increased consumption of direct consumers (+40.5%y/y), as new companies were added to the group of eligible consumers, in line with legal changes effective since May 2018. Consumption by distribution licensees was down by 0.7% y/y in October 2018, caused by above-mentioned reallocation of eligible consumers. The addition of new commercial and household subscribers to the group was not sufficient to fully absorb the mentioned reallocation effect, especially for Telasi.

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Georgia's Energy Sector - Electricity Market watch- September 2018

6 Nov, 2018

Energy community secretariat’s implementation report issued on 1 September 2018 measures Georgia’s progress for the first time. The report evaluates progress of 9 contracting parties, including Georgia, towards implementation of EU legislation (acquis communautaire) in sectors related to energy and environment. A report assesses a total of 37 sub-indicators across the nine sectors. Overall score of Georgia is circa 23% (out of maximum 100%), meaning that Georgia needs to make significant changes into legislation to become in line with EU rules and regulations. According to the report, out of 9 measured sectors, Georgia is moderately advanced in energy statistics, is on early implementation stage for electricity, renewable energy, energy efficiency, energy infrastructure and environment sectors, and ranks very poorly in oil, natural gas and climate sectors. We expect major changes into legislation for electricity, renewable energy and energy efficiency sectors by the end-2018, as set in protocol regarding accession of Georgia to the Energy Community charter treaty. According to implementation report, at least a year is needed for testing and adjusting the relevant implementing provisions and market instruments. Thus, Georgia is targeting to have fully functional and competitive wholesale and retail markets of electricity by 2020.

Electricity consumption increased by 3.9% y/y in September 2018, 4.9% below the planned level. Main contributors to the growth were eligible consumers and Energo-pro Georgia , while Telasi had the negative effect on growth. Consumption was below the planned level for all consumer groups.  In 9M18, electricity consumption is up by 7.3% y/y.

Demand on electricity was mostly satisfied by domestic generation  in September 2018. Main contributors to the growth of domestic generation (+3.5% y/y) were TPPs (49.5% y/y) and HPPs, other than Enguri/Vardnili (+9.5% y/y). Since the demand on electricity grew below the planned level, the supply by Engur/Vardnili was reduced by 12.4% y/y. 

Electricity imports accounted for 14.1% of total electricity supply. Imports came from Russia (96.6% of imports) and Azerbaijan (3.4%). ESCO was the sole importer of the energy in September 2018. ESCO’s supplier (Inter-Rao ues) and import country (Russia) was selected via tender procedure announced and closed in August 2018. Average price of electricity imports to Georgia was down 12.7% y/y to USc 4.2/kWh in September 2018. The decrease in price might be the result of ESCO’s tender for supplier.

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Georgia's Energy Sector - Electricity Market watch - August 2018

2 Oct, 2018

Electricity consumption growth rate was revised upwards by 3ppts for 2018. On August 27, 2018 Ministry of Economy and Sustainable Development updated the forecast of electricity (capacity) balance for 2018. Based on this document, forecast for electricity consumption in 2018 was revised upwards to 13.0TWh, which is 9.9% y/y increase and the highest growth of electricity consumption since 2010. This growth in demand expected to be satisfied by increased thermal generation and imports. Notably, imports are planned at last year’s record high level. The new balance also incorporates the changes into legislation made in May 2018 regarding the eligibility criteria for direct consumers and traditionally includes actual figures for 7M18.

Electricity consumption growth slowed in August 2018, increasing by just 1.0% y/y after the 11.8% y/y growth during May-July period. The slowdown in growth can be explained by the high base of August 2017 (+14.4%) and favourable weather conditions leading to decreased needs for air-conditioning. Domestic consumption of electricity in 8M18 was up by 7.7% y/y. Eligible consumers’ increased their consumption by 24.4% y/y, explained by addition of new companies to the group of eligible consumers, in line with legal changes effective since May 2018. Consumption by distribution licensees was down by 3.1% y/y in August 2018, caused by above-mentioned reallocation of eligible consumers and favorable weather conditions.

There was no export of electricity in August 2018 because of the deficit in the system. Generally, August is considered as an export month, but high growth in electricity consumption led to significantly low exports of electricity during 2015-2017 (3-year average at 28GWh).

Drop in hydro generation (-12.3% y/y) caused thermal generation (+81.2% y/y) and imports (+36.7%y/y) growth in August 2018. The low volume of hydro Generation is explained by bad hydrological conditions and maintenance works on some regulated HPPs. Notably, generation of new HPPs increased in August, contributing positively to the total supply of electricity. A 9.2% of electricity demand was satisfied by electricity imports from Azerbaijan (65.7% of imports) and Russia (34.3%).

Wholesale market prices in Georgia increased 0.6% y/y to USc 4.7/kWh in August 2018. A 16.4% of total electricity supplied to the grid in August 2018 was traded through the market operator ESCO, with the rest traded through bilateral contracts.

Turkish electricity prices increased by dramatic 70.6% y/y in TRY terms, but in US$ terms y/y growth was mere 4.6%. This was market reaction to TRY’s radical depreciation in August 2018 as energy sector is highly sensitive to FX movements and is anchored to US$, based on analysts’ assessments. In august 2018, average electricity prices in Turkey reached US$ 5.3/kWh

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Georgia's Energy Sector - Electricity Market watch - July 2018

12 Sept, 2018

Energy sector is one of the strategically important sectors under newly adopted Public-Private Partnership law. The legislation, among others, envisages the possibility of granting long-term guaranteed purchase agreement to the investor. The law on Public-Private partnership was approved by the Parliament of Georgia in May 2018. Later in August 2018, the government of Georgia adopted the rule for PPP projects screening and implementation. These documents define the general framework for PPP projects initiation, partner finding and monitoring.

The project initiation and private partner finding process under PPP framework is generally led by special entities, based on transparent and competitive principles. The energy sector has some exemptions from general rules, e.g: for the projects larger than 100MW, the initiation process must include feasibility study conducted by independent company; all energy sector PPP projects should be agreed with the government despite the size of the project; private companies are allowed to initiate the project; the Government has right to allow closed and direct negotiations with only one partner, skipping the public tendering and evaluation procedure.

The export season of 2018 ended with total export of 588.3GWh (-9.9% y/y). The decrease in 7M exports is explained by: 1) last year’s high base due to unexpected surplus in hydro generation, 2) disruption of export caused by Enguri’s emergency closure in May-2018, 3) low prices on Turkish market, incentivizing companies with TDAs (e.g. Georgian Urban Energy) to sign additional agreements with the GoG and limit export to only May-July period in favor of increased local supply.  Although the volume of exported electricity was down, its total value increased by 13.8% y/y to US$ 19.0mn, as Russia’s share (which pays low price vs other markets) in total exports decreased y/y. The electricity trade deficit stood at US$ 11.8mn in 7M18 and was down 40.8% y/y as growth in exports partly absorbed imports.

Domestic electricity consumption increased 10.8% y/y in July 2018 and 8.8% y/y in 7M18. The eligible consumers and distribution licensees drove this growth. The demand was satisfied by hydro generation in July 2018. Hydro Generation increased slightly (+1.5% y/y) and reached 1.3TWh, supported by good hydrological conditions and commissioning of new HPPs. Meanwhile, the maintenance works on some regulated HPPs dragged the supply. Enguri/Vardnili generation (+11.2% y/y) satisfied 65.9% of electricity demand in July 2018. In 7M18 generation of Enguri/Vardnili increased 24.8% y/y and reached its record high generation since 2010 (3.2TWh). Thermal generation and imports accounted for 0.7% of total electricity supply, used only for system’s balancing and stability purposes.

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