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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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Georgian Tourism Sector - 1H18 - Tourism Boom Continues

27 Aug, 2018

Tourism is booming: visitor trips (tourist trips and same-day trips combined) were up 16.4% y/y to 3.0mn in 1H18. Tourist trips drove the growth, reaching 1.9mn visitors and accounting for 64.5% of the total in 1H18. This comfortably translates into our total tourist trip forecast for 2018 of 4.9mn. Leisure and recreation is the predominant purpose of visits to Georgia, and visitors enjoy Georgian cuisine the most. With Georgia’s regions attracting a growing number of visitors and the regional accommodation market undersupplied, the timing for the hotel development in Georgia’s regions looks right.

Tourist trips drove growth, accounting for 64.5% of total in 1H18. Tourist trips rose 22.9% y/y to 1.9mn in 1H18, which we expect to comfortably translate into our total tourist trip forecast for 2018 of 4.9mn.

We expect tourist trips to reach nearly 9mn by 2022. We have revised our forecast upwards and now expect 8.8mn tourist trips in 2022 (up from 7.6mn previously), or 2.4x the country’s population based on a new methodology (see Table 1 and Box 1 for clarification). This increase will see Georgia overtake Hungary (1.6x), Slovenia (1.5x), Albania (1.4x) and Bulgaria (1.2x) according to their 2016 ratios. However, this would still be below the proportions found in Croatia (3.3x), Cyprus (2.7x) and Montenegro (2.7x) in 2016.

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

14 Aug, 2018

Adjar Energy 2007 finished construction of run-of-river Kirnati HPP with installed capacity of 51.3MW, and projected annual generation of 226GWh. The HPP currently operates in test regime and expected to move to full capacity by September 2018. In addition to above mentioned HPP, there are three other small HPPs already commissioned in 2018: 1) Kasleti HPP - 9.0 MW, 2) Kheori HPP - 1.3MW and 3) Shilda 1 HPP - 1.2MW.  Total capacity of these four HPPs is 63MW. As of July 2018, there are 80 operational HPPs in Georgia. Out of these, 57 are small HPPs (capacity below 13.0 MW) and 4.6% (190.1 MW) of combined installed capacity.

Domestic electricity consumption increased 12.6% y/y in June 2018 and 8.4% y/y in 1H18. The eligible consumers and distribution licensees drove this growth. Eligible consumers’ increased their consumption by 34.7% y/y, accounting for 18.0% of total domestic consumption. This growth can be explained by addition of 2 new companies (GFDC Georgia and Geo Servers) to the group of eligible consumers. This was in line with legal changes effective since May 2018 as their average monthly consumption of electricity was above 15MWh. Consumption by distribution licensees was up by 10.2% y/y in June 2018, as consumption of new commercial subscribers fully compensated the reduced consumption caused by reallocation of 2 above mentioned large companies into different category.

Electricity exports were down 15.4% y/y in June 2018, while exports were up 5.8% y/y in 1H18. Electricity exports accounted for 16.0% of electricity supplied to the grid in June 2018. A 78.6% out of 194.6MWh total exports were directed to Turkey (+134.6% y/y), while the rest was exported to Russia, Armenia and Azerbaijan in June 2018. A 76.2% of electricity export to Turkey was conducted by ESCO in exchange of electricity imports planned during October- December 2018.

Electricity generated by domestic sources increased by 6.2% y/y in June 2018 and by 14.8% in 1H18. Hydro generation (+6.4% y/y in June 2018) drove the domestic supply growth supported by good hydrological conditions and commissioning of new HPPs. Enguri/Vardnili generation was up by 16.7% y/y and satisfied lions share (56.5%) of electricity demand in June 2018. In 1H18 generation of Enguri/Vardnili increased by 30.5% y/y and reached 2.3TWh, highest number since 2010. Thermal generation and imports accounted for 0.8% of total electricity supply and were intended only for system’s balancing and stability purposes. 

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