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A blog about economics in the South Caucasus.

Electricity Generation in Georgia I: The Seasonality Problem

In our two-part article we discuss how combining wind and hydropower can help the Republic of Georgia to achieve energy independence and become a net energy exporter.


OVERVIEW

Due to the geomorphological characteristics of its territory and to its geographical location, the Republic of Georgia is rich in hydro resources. According to the Georgian Ministry of Energy and Natural Resources, so far Georgia has been exploiting only about 20% of its hydro resource potential.

Since 2006 the Georgian government has been planning to utilize these resources to not only meet domestic demand, substituting hydro fully for electricity imports and thermal power plant (TPP) generation (burning imported gas), but also to turn Georgia into a regional provider of electricity.

Initially, thanks to the rehabilitation of existing hydro power plants (HPPs) and to improvements in the regulatory environment of the Georgian electricity sector realized in the wake of the Rose Revolution, this program seemed relatively easy to achieve.

The generation of cheap hydropower did increase and partially substituted for thermal energy generation and electricity imports. After a steady increase from 2007, finally, in the most successful (for the post-soviet Georgian hydropower) year of 2010, the total annual hydropower generation (9 375 GWh) in Georgia exceeded the country’s total electricity consumption (8 441 GWh) (chart 1).

Parallel to this the construction of new transmission lines started to increase the export capacity to Turkey and a number of Memorandum of Understanding were signed with investors in relation with the realization of 40 new HPP projects.

 

chart1

Source: ESCO


THE SEASONALITY PROBLEM

Despite this promising start, however, the situation did not evolve in the desired direction. Due to adverse climatic conditions the generation of hydropower declined in 2011 and 2012, while the consumption kept rising.

As a result, Georgia lost its newfound status of net electricity exporter in 2012 (chart 2).

 

chart2

Source: ESCO

 

Chart 2 allows us also to identify another important aspect that does not appear looking at total hydropower generation and total electricity consumption. Even in the best year (2010) of the Georgian hydropower, both thermal power generation and electricity imports stood quite high (683 and 222 GWhs respectively) due to the monthly distribution of the hydropower generation and the electricity consumption of the country.

The seasonal nature of both hydropower generation and electricity consumption created excessive generation in summer months and a gap in winter of 2010 (chart 3). In other years, the gap was even more pronounced.

This seasonal pattern can also help explaining another reason why hydropower generation has not been increasing as fast as hoped: sluggish investment. From the investors’ point of view the excess of supply during summer months is problematic. In this period, in which new HPPs would generate the highest amount of electricity they are going to meet very tough competition domestically from the already existing HPPs (old, large, often fully amortized, which are operating at very low costs). This lowers the expected profitability of investments in new HPPs (which could be increased only by a substantial increase in the demand for Georgian electricity in the region) and might explain the slower than expected realization of the planned investments, despite the signed memoranda.

In the second part of our article, we will argue that even putting aside the concerns about the profitability of new power plants, additional investments in new Hydro Power Plants (HPPs) seem not to be an effective way to close the gap in winter, especially considering the steadily growing consumption. Wind power, however, yields the potential to alleviate the seasonality problem and the difficulties deriving from it.

 

chart3

Source: ESCO

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Guest - blintu on Friday, 04 October 2013 21:56

Waiting for the second part :)

Waiting for the second part :)
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