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