As Georgia completes its economic turnaround and builds a closer relationship with the EU, more investment is needed in the energy sector. As an investor in renewable power generation, thorough Silk Road Group’s Bahkvi 3 hydropower project, I am supporter of Georgia’s journey towards energy independence. To achieve that, Georgia needs to prove to investors that its energy market is mature, competitive and predictable.
Georgia has a natural advantage in energy generation due to its geography. According to figures from the International Energy Agency (IEA), between seventy and ninety percent of Georgia’s electricity generation comes from renewable hydroelectric power.
This remarkable statistic doesn’t tell the full story, unfortunately. The natural abundance of Georgia’s rivers and dams do not come close to meeting our demand for energy. Two thirds of our primary energy supply is imported, the vast majority of which is natural gas, supplied by Azerbaijan and Russia for domestic heating and other applications.
Being an energy importer poses a number of problems for Georgia. Most significantly for the average Georgian citizen, domestic energy is relatively expensive for the region, even if it comfortably cheaper than the EU average. Georgians pay the equivalent of 0.074 EUR per kWh, according to Eurostat, compared to 0.211 EUR for the average EU citizen, but 0.041 EUR for Ukrainians, and even less for energy-rich countries like Azerbaijan.
The problem is compounded in the winter months. The newest and most advanced hydroelectric plants in Georgia produce reliable, year-round energy, but some of the legacy plant produces intermittent supply. In the winter, when the demand for domestic heat and electricity surges, the older hydro plants may not be producing to their full capacity.
Demand continues to grow as a result of Georgia’s successful economic turnaround. In common with other Central European countries, Georgia has since transformed its economy since independence, investing in technology and services industries. Georgia’s impressive economic growth means that even though demand from energy intensive industries has decreased as a proportion of the total, overall demand has grown.
It is not unusual for countries to import a portion of their energy each year, but relying on gas supplies from our near neighbours poses risks to our energy security. As recent events in the Arabian Gulf have shown, energy supplies are sensitive to geopolitical shocks, and many states are willing to use the threat of cutting off supply as a political weapon.
All of this points to a need for significant investment in new generation. When Silk Road Group first invested in the sector in 2011, we had the confidence to make this commitment because of Georgia’s commitment to market reforms, a hallmark of an advanced economy. It is no coincidence that Silk Road Energy was launched in 2014, the same year Georgia signed its association agreement with the EU.
The transition Georgia’s energy market is making is exactly in line with EU priorities, and together they add up to a package that inspires business confidence. Georgia now has a strong energy regulator, the GNERC, which is committed to liberalising the market structure. This will mean an end to hidden subsidies in the natural gas market, for example.
By 2023, it is expected that Georgia will have passed legislation to separate electricity distribution and supply contracts, allowing customers to switch to a cheaper supplier at will. Long term generation contracts will gradually give way to more sophisticated pricing, ensuring the grid buys cheapest possible supply at the time. In the wholesale market, new opportunities have opened to Georgia, acting as a transit country for electricity supplies across the region. All of these reform point to a well-functioning, transparent electricity market.
Georgia has a national action plan on energy efficiency, which will affect the whole economy. In April this year, the EU launched twinning project, which will see the GNERC benefit from expertise in other member states as it develops the regulatory infrastructure to roll out smart metering technology. This will enable households and businesses to monitor, manage and reduce their consumption, and will also drive more efficient and responsive pricing.
As well as setting the country on the road to energy self-sufficiency, more efficient use of energy will make demand more predictable and easier to manage. This would free the power grid from dependence on back up supply from gas generation, meaning that Georgia could accommodate more renewable power.
Georgia’s geography means that there is significant untapped potential for further hydroelectric generation, as well as onshore wind. All that is required for investors to start developing these renewable resources is consistent direction from the Government and partners in the European Energy Community. As an investor and as a Georgian, this transition from an energy-intensive economy that is heavily reliant on gas imports, to a clean, self-sufficient, European nation fill me with confidence for the future.
George Ramishvili is the Founder and Chairman of Silk Road Group, Georgia’s leading investment company. Silk Road Group has grown from a transportation and logistics business to invest in telecommunications, real estate, tourism and energy in Georgia.
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