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A blog about economics in the South Caucasus.

What If You and Your Neighbor Could Share a Micro Power Plant to Produce Your Own Electricity (and Help the Country in the Process)?

Have you ever thought how Tbilisi would look if the existing old Soviet Union era multi-story buildings were renovated and equipped with rooftop solar panels? There are several good reasons why this might be happening in the future, and why the government of Georgia might want to encourage this development.

On average, over the last year 84% of Georgia’s electricity generation was provided by hydropower plants. However, hydro resources depend crucially on weather patterns. In our previous blog we documented how a change in weather patterns led to a record generation - consumption gap in August 2018. Also, hydro resources are unequally distributed in the country. The western part of the country has much more potential for hydropower plants generation than the eastern part and the transmission process is associated with additional costs and inefficiencies reflected in transmission losses. Even though they have decreased substantially over the years, losses still amounted to 7.05% of the energy received by the network in 20171. The remaining electricity is mostly generated from Thermal Power plants (with approximately 1% generated by Wind Power Plants) and is exposed to energy security risks, as it mostly operates burning imported fuels.

Increased generation of electricity via rooftop solar panels would help diversify the energy mix and containing the risk associated with thermal power plant generation.

Why Tbilisi multi-story buildings? For several reasons:

1) 38% of the total electricity demand comes from the Tbilisi region;

2) Almost 30% of electricity demand comes from households.

Let’s imagine equipping multi-story buildings with solar power plants on the rooftop. Both the installation and maintenance costs and electricity generated are shared among the residents of the buildings. They would become producers and consumers at the same time. The term ‘prosumer’ (producer and consumer) is still new in Georgia, although it is becoming more known since the introduction of the ‘Net-metering’ system, allowing residential customers who generate their own electricity from micro plants to transfer the electricity they do not use back into the grid at a determined price to be paid by power distributors. The main question, to be able to assess the potential impact of such development on the electricity market, is “how many multi-story buildings can we expect to make this move towards electric self-sufficiency (or at least towards a reduced reliance on bought electricity)”?

A few months ago, we conducted research to estimate the potential of shared rooftop solar photovoltaics (PV) in-grid2 electricity generation without battery storage for multi-story buildings in 9 districts of the Tbilisi area. All in all we observed 41 objects of different rooftop sizes and different shapes. In order to estimate the economic cost and benefits of the project, we calculated for each one of them the levelized cost of electricity production (LCOE), which included the cost of installation, purchasing price for the system, cost of maintenance, and opportunity costs during its lifetime. In short, LCOE is the average price of one kilowatt-hour (KWh) of electricity generated during the lifetime of a power plant. The next step was to analyze the profitability of the investment from the residential   consumers’ point of view. Specifically, we estimated whether it was really worth for consumers to invest in PV systems given the current installation cost of plants and under the existing “Net-Metering’’ policy. We also explored alternative scenarios, where tariffs and demand for electricity changed, to represent a much more dynamic picture.

It emerged that the profitability of rooftop PV installation is affected by different factors: the area of the rooftop, the number of residents in the buildings, the location, the amount of sun radiation, temperature, technical factors (like the solar panels’ efficiency, inclination and tilt angles, etc.), and economic factors (electricity prices, the tariff system, the discount rate, electricity consumption and the initial installation costs).

The results we found varied quite substantially among buildings. It turned out that, even though sun radiation is more or less the same in the Tbilisi region, slight dissimilarities can give rise to quite different outcomes in terms of profitability. At the same time, in different districts, people’s pattern of electricity consumption turned out to be quite different, and this also affects the level of profitability. Below is a short summary of the results we got.

Imagine you live in an eight-storey, two-block building on Kazbegi Avenue. If you and your neighbors decided to buy a solar PV system with your own funds, you would have to pay 2453 Gel each to purchase it and it would cost you and your neighbors approximately 17tetri to ‘prosume’ a kWh of electricity for next 25 years from your own solar power plant. The system would satisfy approximately 76% of the electricity consumption of the block. If you lived in Abashidze Street in a 5-story 3-block building, instead, you should pay 4300 Gel to place a solar system on the rooftop, corresponding to almost 17,3tetri per kWh consumed. However, your lifetime savings would be much higher than for the residents in Kazbegi street, as your consumption level is higher and currently you pay mostly 23tetri for the electricity you consume, while on average residents in Kazbegi avenue pay around 18.5.With your investment you could satisfy 73% of the electricity demand of the building on your own. Finally, if you lived in Samtredia Street in a 9-story, 1 block building you and your neighbors would have to pay 1612 Gel each and it would cost all of you approximately 17 Tetri to ‘prosume’ one kWh electricity, while now you pay on average 18.5 tetri per kWh. However, in this case you would be able to cover only 35% of the consumption of the building.

Savings and pay-back period3 of the investment in PV system depends much on how your electricity demand, tariff system and the price of electricity will evolve. If you expect that tariffs will increase while you can’t change your electricity consumption, the investment will become much more attractive for you. If electricity prices are expected to increase, which is the most likely to happen as the demand especially from the industry, commercial and the transport sectors are increasing (in line with GDP rise and vehicle electrification), you will establish your own fixed clean electricity price per kwh on a large part of your consumption and reduce substantially the risk associated with tariff increase. However, if the tariffs will go in the opposite direction you will definitely lose a non-negligible amount.

What will be your final choice? Before answering, you should probably check your current electricity bill, the financial costs you would incur to start such investment, how willing your neighbors are to invest in such project, how willing you are to take some risk to have the opportunity to gain from these developments. Finally, you should think to how much you care about the environment and Georgian energy security.

The most interesting point emerging from this exercise is that the option of becoming fully or partially self-sufficient currently exist, and the technological development in the solar PV industry (with prices constantly declining and efficiency constantly increasing) and in the national regulation contribute to make it increasingly attractive. It will probably not take too long before these micro solar power plants start covering buildings spread across the city. Will your building be one of them?


1 GNERC 2017 Annual Report
2 In-grid electricity generation means that the system is connected to the grid and in the case of the deficit the electricity is generated from the grid while in the case of the surplus it is fed into the mains power grid.

3 The payback period shows how long it takes to recoup the investment.


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Friday, 16 November 2018

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