Policy Briefs

Can low electricity prices be a comparative advantage of Georgia? - Summary of findings -
Tuesday, 04 August, 2015

For resilient economic development in Georgia, the country should encourage exports of higher-value-added goods. In this report, ISET-PI and GET have found that Georgia might be able to develop a comparative advantage when it comes to exporting higher-value energy-intensive products. According to projections of its electricity network operator, Georgia will develop excess capacities of low-cost electricity in the next decade. The policy challenge is twofold. Attracting investments requires high prices and a stable regulatory environment. Both conditions can be achieved by increasing market integration with Turkey. Conversely, integration leads to high electricity prices in Georgia, making the country less attractive to electricity-intensive industries.

The research team has suggested continuing building a Georgian electricity market that is pursuant to the European rules while fostering regional integration in order to attract investors for hydropower projects. However, the process of allocating hydropower sites could be made more competitive in order to maintain a higher share of the resource-rent in the country.

To promote the development of energy-intensive industries in Georgia, the team has suggested further improving the transparency of the regulatory process in order to provide actors with clear guidelines on the future developments of the regulatory framework. Additionally, policymakers should consider actions that reduce the risk brought on by regulations for investors.

Since September 2014, the ISET Policy Institute has been working with the German Economic Team (GET). In May 2015 ISET-PI and GET extended their partnership and began working on a variety of policy briefs for Georgia's industrial development. These briefs will simultaneously advance research in the sector and provide the Georgian government a set of guidelines for the development of its own policy, exploring where Georgia's comparative advantages lie. The German Economic Team is a consulting group that provides advisory services to the Georgian government on economic policy and is supported by the German Federal Ministry for Economic Affairs and Energy.