Energie­si­cher­heits­agenda für Georgien und der Weg zu einem integrierten europäi­schen Energiemarkt

Nana Pirts­k­helani, Independent Energy Expert, Georgia

Intro­duction

Georgia’s desire for full membership of the European Union is clearly manifest in its willingness to enhance its coope­ration with the EU in the energy field. For three decades, Georgia’s active parti­ci­pation in energy activities involving the use of variety of colla­bo­rative tools has demons­trated the country’s desire to join the unified European energy system and contribute to regional energy-security goals. The recent develo­p­ments relating to the prospect of candidate status for Georgia, alongside Ukraine and Moldova, were another confir­mation of this aspiration. In the process of dramatic and dynamic changes, Georgia continues to enhance regional energy coope­ration through diver­si­fying supply sources, suppliers, and supply routes.

It is worth noting that the ongoing Russian military aggression in Ukraine has had a signi­ficant impact not only on the formation of Ukrainian energy security policy but also on that of other European countries as well. The relates parti­cu­larly those countries that consume more energy than they produce, as they are parti­cu­larly vulnerable to the use of energy supply as an instrument of political pressure. Thus, ensuring the security of supply by reducing import depen­dence and enhancing sustainable develo­pment has become a signi­ficant energy policy challenge for every European country. Relevantly, the need for a coordi­nated energy policy was put on the agenda. In this context, the “Associated Trio” (Moldova, Ukraine, and Georgia) took on parti­cular importance for the European Union as strategic energy partners, and more emphasis began to be placed on their role in ensuring supply security.

Georgia on the map of energy-supply security challenges

The EU Joint Commu­ni­cation entitled “Eastern Partnership Policy Beyond 2020″ sets out proposals aimed at the creation of a broader framework for coope­ration and placing greater priority on energy issues. In line with this, new condi­tions for meeting its obliga­tions under the Association Agreement and beyond it were set out for Georgia, as a benefi­ciary of the EU financial assis­tance. With regard to energy, streng­thening supply security and supporting sustainable develo­pment measures emerged as the most critical topics in this context.

It is worth noting that Georgia has faced energy crises since the beginning of the 21^st century and has identified security of supply as a vital objective of its national energy strategy. When discussing the security challenges being faced and ways to overcome them, it is essential to review the mix of Georgia’s energy production and consumption, identify the extent of depen­dence on imported energy, and further review strategic goals with respect to dealing with the overwhelming challenges.

It should be empha­sised that hydro resources account for the greatest share of the country’s energy potential. However, only 22% of Georgia’s hydro­power capacity is currently under explo­itation (potential capacity is 15 000 MW). Conse­quently, despite the fact that hydro­power accounts for around 73% of electricity production from domestic sources, electricity generated by imported natural gas still dominates in terms of total final energy consumption^[1].

The energy mix domestic energy production is as follows: appro­xi­m­ately 67.9% of Georgia’s domestic energy production (1.043 Mtoe in 2020) comes from hydro (0.709 Mtoe), 22% from biofuels/​waste (0.227 Mtoe), 3.8% from coal (0.040 Mtoe), 3.1% from crude oil (0.031 Mtoe), 2.5% from renewables (0.026 Mtoe), 0.7% from natural gas (0.007 Mtoe)[2]. Due to the low rate of utili­sation of hydro resources and increased domestic demand, the country has been forced to import expensive energy products and is heavily dependent on imported oil and gas.

According to the latest statis­tical data, energy imports are used to cover about 89.6% of the country’s total energy demand. Natural gas makes up the largest share of these imports (about 57.6%), followed by oil resources (about 33.9%), imported coal and electricity account for the rest. Imports account for 99.4% (2,504 million cubic meters, up 0.9 percentage points from last year) of the natural gas consumed, with local production accounting from only the remaining part 0.6%. The Republic of Azerbaijan is the primary source of imported natural gas (91%), about 9% of it comes from Russia.[3] Georgia is also involved in transit activities as well as enhancing natural gas transit flows from Azerbaijan to Turkey (via the SCP pipeline) and from Russia to Armenia (via the NSMP pipeline).

Almost all oil products consumed in Georgia are imported. Unlike the case with natural gas, oil import sources are quite diver­sified. Georgia’s Union of Petroleum Importers reported that oil imports in the first half of 2021 came mainly from Romania (23.4% of total imports), Turkme­nistan (23.0%), Russia (20.6%), Azerbaijan (17.7%) and Bulgaria (10.8%), with additional imports from Greece (2.1%), Turkey (1.5%), Kazakhstan (0.5%) and other countries.[4] The transit flows through the territory of Georgia via the BTC and WREP pipelines give the country additional oppor­tunity to diversify import sources. As for coal, the primary import market is the Russian Federation. Coal accounts for only a 4.3% share of total energy imports, and only a 3.9% of the country’s total energy demand.[5]

Georgia is actively involved in electricity export-import activities on a regional level. It has energy trading relations with all its neigh­bouring countries (Armenia, Azerbaijan, Russia, and Turkey). With a total installed capacity of 4536.5 MW, the country is capable of exporting electricity in the summer months, a period of surplus production. However, generally, the country is charac­te­rised by a negative trade balance. In 2021, Georgia imported a total of 2006.2 million kWh of electricity. Russia supplied 1244.9 million kWh of that total. Abkhazia was the desti­nation of 79% of the electricity from Russia (992.7 million kWh), due to a drastic reduction in local electricity production resulting caused by the shutdown of the Enguri HPP for repairs (the Enguri plant normally provided almost 90% of Abkhazia’s supply). Georgia also imported 600.1 million kWh (29.9% of total imports) from Azerbaijan and 161.2 million kWh. (8% of total imports) from Turkey in 2021. No electricity imports from Armenia were reported in 2021.[6]

To sum up, identi­fying import depen­dence as a signi­ficant challenge, the country’s energy strategy focuses on ensuring uninter­rupted supply at an affordable price as a primary task with a view to energy security. Several important activities expected to enable the country to signi­fi­cantly increase its degree of energy security by 2030 have been identified.

Security of energy supply from the perspective of the EU-Georgia cooperation

In the context of high import depen­dence, the low utili­sation rate of local resources, seaso­nality of hydro­power potential, lack of critical reserves, and risks related to the relia­bility of energy infra­structure, security of supply has been identified as the primary energy challenge facing the country. The imple­men­tation of activities aimed at ensuring affordable, reliable, and uninter­rupted supply has been the primary objective in the energy strategy, and a variety of measures are underway:

• Maximum utili­sation of local hydro resources to reduce depen­dence on imports has become a top priority for the country. Seven small HPPs, with a total installed capacity of 23.5 MWh, opened in Georgia in 2021 bringing the total installed HPP capacity to 4.5 GWh. Another ten new hydro­power plants, with an installed capacity of appro­xi­m­ately 30 MW, are expected to go on-line in 2022. The rehabi­li­tation of existing HPPs is another goal of the energy strategy. In 2021, the rehabi­li­tation of the Enguri HPP, was accom­plished with substantial assis­tance from European financial insti­tu­tions (EIB and EBRD). This resulted in a signi­ficant reduction of losses and an increase in the stability and security of the power system, as Enguri HPP is one of the country’s largest HPPs, providing more than 35% of the country’s total electricity supply.

• Developing other renewables was identified as the primary goal in terms of security of supply. Currently, 12 potential solar power plant projects and 18 potential wind power projects have been identified (currently, only one wind power plant, with a capacity of 20.7 MW, operates in Georgia). There are plans to develop a total capacity of 1200 MW in wind and 500 MW in solar power plants by 2030. Overall, by 2030, the share of renewables in the projected, forecasted capacity of electricity is expected to increase to 17%.[7] To encourage the renewable energy market, Georgia developed and estab­lished the so-called “Premium tariff” in 2021, which involves the payment of an additional 1.5 cents/​kWh for the purchase of electricity generated from renewable energy sources. With regard to diver­si­fi­cation of supply sources and elimi­nating supply shortages, a pilot project to explore the potential of green hydrogen in Georgia will launch in 2022, according to a Decla­ration of Intent signed with KfW.

• Due to the potential for grid stability issues and inter­rup­tions associated with an incre­asing share of renewables in the grid, several activities aimed at creating system reserve capacities, streng­thening the trans­mission network, and building up the inter-system trans­mission infra­structure have been identified for imple­men­tation. Over the next ten years, the installation/​building of 500/​400/​220/​154/​110 kV trans­mission lines and substa­tions in Georgia is planned, in order to create a backup system, increase the relia­bility of trans­mission infra­structure, reduce network losses and transfer new capacities.[8] To ensure network security, several sub-projects (construction and rehabi­li­tation of 561 km of trans­mission lines and 13 substa­tions) were defined and launched in the power sector of Georgia under the new 3‑year Energy Network Impro­vement Programme (ENIP – total cost EUR 325 mill.), financed with the support of the Federal Republic of Germany via KfW, EBRD and EU NIF.

• The develo­pment of stable and reliable connec­tions on the regional level remains one of the main priorities with regard supply security. To this end, the construction of high trans­mission lines and substa­tions connecting neigh­bouring countries is planned. However, the fact that the power systems of neigh­bouring countries operate in three different synchronous zones remains a major challenge. ENTSO‑E’s Conti­nental Europe Synchronous Area extends eastwards only to Turkey– the only country in the grid that shares a border with Georgia. However, as a contracting party in Europe’s Energy Community, Georgia adapted ENTSO‑E Network Code, which will enable the country to join the European Energy System in the future and parti­cipate in the electricity trading scheme.

Another project from the „List of Projects of Common Interest“ was launched in 2021 with the support of the EU with a view to physi­cally connecting Georgia up with the European grid: the feasi­bility study for the Black Sea Trans­mission Cable Project. The project aims to construct an undersea high-voltage trans­mission cable connecting the power systems of Georgia and Rumania. However, ongoing military activities in the Black Sea pose a major obstacle to implementation.

• Regarding regional coope­ration in the gas and oil field, Georgia is actively involved in developing alter­native routes for the transport of energy sources from the Caspian Region through the Black Sea to the EU markets, in order to increase energy security in the region and establish more effective tools for future coope­ration. In addition to the physical transit pipeline projects (AGRI, White Stream, EAOTC), Georgia intends to enhance its LNG transit capabi­lities. The construction of an LNG terminal in Georgia near the Black Sea coast will further promote the delivery of Caspian resources to the European markets.[9]

• As part of its Energy Community obliga­tions, Georgia must create strategic reserves to strengthen system capacity. The construction of under­ground gas storage (UGS) was identified as a crucial step in this area. A UGS construction project will be launched in 2022. The facility, which be able store up to 300 mill. cubic meters of natural gas, is slated for commis­sioning in 2025. With the financial support of KFW and EIB, the project will enable the country to avert some energy crises and enhance supply relia­bility in the future. It is worth mentioning that the Security of Supply State­ments pertaining to electricity, oil, and natural gas that Georgia adopted in line with its obliga­tions under the Energy Community treaty identified the lack of strategic reserves as the main challenge in terms of supply security and committed itself to relevant measures to meet this challenge.

National legis­lative approach toward sustainable develo­pment goals 

In recent years, Georgia has under­taken a number of legis­lative reforms in the energy sector with a view to future regulatory harmo­ni­sation of Georgia with the EU energy market, mainly influenced by the EU-Georgia Association Agreement and Energy Community treaty commit­ments, which obliged Georgia to implement the direc­tives of Energy Community’s third energy package. Speci­fi­cally in the period from 2019 to 2022, the following legis­lation was adopted with the aims of market libera­li­sation, clean energy expansion, and sustainable develo­pment: Law on Energy and Water Supply; Law on Renewable Energy Sources; Law on Energy Efficiency; Law on Energy Labelling; Law on Energy Perfor­mance of Buildings.

In addition to these statutes, sectoral action plans and secondary legis­lation intended to promote sustainable develo­pment were adopted: the National Renewable Energy Action Plan (NREAP); National Energy Efficiency Action Plan (NEEAP); Ten-Year Develo­pment Plan for Georgian Gas Trans­mission Network 2021–2030; Ten-Year Power Trans­mission Network Develo­pment Plan of Georgia 2021–2031; National Sustainable Energy Action Plan (NSEAP).

Regarding the NSEAP, it should be empha­sised here that the plan under­lines activities aimed at improving energy efficiency and savings in electricity and natural gas trans­mission and distri­bution systems. In this direction, a process to overhaul the country’s gas metering stations is underway. To decrease import volumes, the “Gardabani‑2”, a 230 MW combined cycle gas turbine thermal power plant with a unique energy-saving effect, was built in 2020. Its design efficiency is 55.6% (appro­xi­m­ately 150–160 million cubic meters of annual natural gas savings). Construction of two more efficient power plants is slated for completion by 2025. Taken together, these projects will make it possible for the country to save 20% of projected import volumes by 2030.[10]Rehabi­li­tation and new construction at critical sections of the main gas pipelines and power trans­mission lines are also underway to address losses in the network.

With respect to sustainable develo­pment, important steps toward market libera­li­sation were taken during 2020–2022. The natural-gas market operator Georgian Gas Exchange LLC was estab­lished; the Government adopted the Natural Gas Market Concept; new rules for natural gas market parti­ci­pants were defined; and the New Electricity Market Model Concept was adopted. Over the course of 2020, several pieces of secondary legis­lation, mainly related to electricity trading on the exchange market, were adopted; the Connection Network Codes and the distri­bution network rules were approved, and an electricity trans­mission system operator was certified and licensed. Unbundling measures were identified and are slated for imple­men­tation in the electricity and gas sector by 2026.[11]

Moving to a climate-neutral future, the concept of trans­forming Georgia into the „Clean Electricity Hub“ remains a priority for regional integration. Georgia’s desire to promote clean energy production with the goal of a low-carbon future will make it possible to extend export capacities to all neigh­bouring countries. Relevant steps necessary to support the imple­men­tation of Georgia’s commit­ments under the Sustainable Develo­pment Goals have been taken. In 2019 Georgia started to develop its „Climate Change Strategy 2030” and Climate Change Action Plan, which are supposed to be finalised in 2022. In 2020, the country launched the Long-Term Low Emissions Develo­pment Strategy 2050.[12] Georgia, a hydro-potential-rich country, is one of the countries that are most vulnerable to climate change. Therefore, the country intends to share a common aspiration toward imple­menting the European Green Deal principles and will support the imple­men­tation of reforms in the energy and environment sectors.

Conclu­sions and recommendations

As the analysis of Georgia’s energy security challenges has shown, the country has become parti­cu­larly vulnerable to supply security challenges in connection with its high level of depen­dence on energy imports. Due to the frequency with which Russia has used energy as a lever to exert political, military, or economic pressure on Georgia, ensuring energy indepen­dence and reducing its import-depen­dence have become the main priority of Georgia’s energy security strategy. To neutralise the political risks resulting its depen­dence on imports, Georgia intends to develop activities leading toward maximum utili­sation of its energy resources, to implement energy-saving and energy-efficiency measures, complete its energy-market restruc­turing activities, develop regional coope­ration and pursue its sustainable develo­pment goals. In this process, support from our partners is vital, parti­cu­larly with respect to the following:

• The conti­nuation of insti­tu­tional assis­tance to relevant bodies geared towards the timely imple­men­tation of secondary legis­lative activities and the finali­sation of energy and environment sector restruc­turing processes;
• The develo­pment of a compre­hensive financial support scheme for the imple­men­tation of strate­gical energy-related projects dedicated to the enhancement of supply security in the region;
• The provision of technical assis­tance in developing strategic reserves of oil, gas, and electricity;
• Coope­ration in the develo­pment and transfer of technology for further utili­sation of renewables;
• Assis­tance in creating a stable regulatory market framework capable of attracting foreign investments;
• Joint efforts to address the global challenges related to environ­mental protection policies;
• The promotion of LNG activities in Georgia;
• The provision of technical assis­tance relating to the finali­sation of the planned activities aimed at integrating Georgia into the unified power system of Europe;
• The provision of further technical assis­tance in the develo­pment and explo­ration of green hydrogen potential in Georgia;
• Active political support and insti­tu­tional assis­tance to projects of common interest, optimising supply sources and developing alter­native supply routes.

[1] Ten-Year Network Develo­pment Plan of Georgia 2021–2031. 2021. Trans­mission System Operator JSC “Georgian State Electro­system”. Available from: https://www.gse.com.ge/communication/Publications/Ten-Year-Network-Development-Plan-of-Georgia Accessed: 10 June 2022

[2] Energy Balance of Georgia. National Statistics Office of Georgia. Statis­tical Publi­cation 2021. Available from: https://www.geostat.ge/en/single-archive/3350Accessed: 10 June 2022

[3] Report on Activities of 2021. Georgian National Energy and Water Supply Regulatory Commission. Available from: https://gnerc.org/en/commission/commission-reports/tsliuri-angarishebi Accessed: 11 June 2022

[4] Union of Petroleum Importers. 20 July 2021. „Imports of gasoline and diesel fuel continue to grow.“ Oilnews.ge. Available from: http://oilnews.ge/index.php?menuid=9&lang=1&id=9809 Accessed: 11 June 2022

[5] Energy Balance of Georgia. National Statistics Office of Georgia. Statis­tical Publi­cation 2021. Available from: https://www.geostat.ge/en/single-archive/3350  Accessed: 10 June 2022

[6] Electricity balance 2021. Electricity Market Operator. 2022. Available from: https://esco.ge/en/energobalansi/by-year‑1/elektroenergiis-balansi-2021Accessed: 12 June 2022

[7] Renewable projects. 2021. Georgian Energy Develo­pment Fund. Available from: https://vre.gedf.com.ge/ka/library Accessed: 13 June 2022

[8] Ten-Year Network Develo­pment Plan of Georgia 2021–2031. 2021. Trans­mission System Operator JSC “Georgian State Electro­system”. Available from: https://www.gse.com.ge/communication/Publications/Ten-Year-Network-Development-Plan-of-Georgia Accessed: 10 June 2022

[9] Ten-Year Develo­pment Plan for Georgian Gas Trans­mission Network 2021–2030. Georgian Oil and Gas Corpo­ration. 2020. (Georgian version) available from: https://www.gogc.ge/uploads/tinymce/documents/2020,%2025.11.2020.pdf Accessed: 15 June 2022

[10] Ten-Year Develo­pment Plan for Georgian Gas Trans­mission Network 2021–2030. Georgian Oil and Gas Corpo­ration. 2020. (Georgian version) available from: https://www.gogc.ge/uploads/tinymce/documents/2020,%2025.11.2020.pdf Accessed: 15 June 2022

[11] Report on Activities of 2021. Georgian National Energy and Water Supply Regulatory Commission. 2022. Available from: https://gnerc.org/en/commission/commission-reports/tsliuri-angarishebi Accessed: 16 June 2022

[12]Georgia’s 2030 Climate Change Strategy. 2021. Government of Georgia. 2021. Available from: https://mepa.gov.ge/En/Files/ViewFile/50123 Accessed: 17 June 2022