The degree of deregulation in the electricity market is set to increase in 2018. According to the changes to the Law on Electricity and Natural Gas, the minimum threshold for deregulation will increase from 13MW to 40MW as of January 1, 2018. Based on our estimates, this change will result in an increase in the share of deregulated power plants from 15.5% to 20.5% of total installed capacity and about 3.1TWh will be supplied to the Georgian market at unregulated prices annually over 2018-2019.
Direct consumers are set to account for at least a quarter of total electricity consumption in Georgia. According to the changes to the Law on Electricity and Natural Gas, starting May 1, 2018, consumers connected to high voltage (35kv and above) transmission lines will automatically be registered as direct consumers. This change will result in an increase in the number of direct consumers from two to over 60, with aggregate annual consumption of at least 3.1TWh.
GNERC has recalculated natural gas end-user tariffs for the three leading gas distribution companies, which together accounted for 89.8% of the market in 2016. Old tariffs varied by region and supply pressure, while the new methodology sets a uniform, transparent tariff structure. The end-user tariff is comprised of three components: transmission, cost of gas, and distribution. The transmission tariff is now set at 1.884 tetri/m3 for all consumers, an average increase of 0.5 tetri/m3. Cost of gas is set at 26.8 tetri/m3 (a decrease of 12.5%) The distribution tariff, designed to cover the distribution licensee’s investment costs, is the only remaining driver of tariff differences among distribution companies.
Kakheti Energy Distribution was sold for GEL 21.7mn at a public auction. The buyer was Energo-Pro Georgia, whose market share will increase from 60.2% to 64.6% as a result of this transaction. Energo-Pro Georgia will become the sole electricity distributor in Georgia outside of Tbilisi. Kakheti Energy Distribution has operated in bankruptcy since 2011, managed by a representative of the National Bureau of Enforcement.
Electricity exports increased 8.6% y/y in June 2017 to 230.1 GWh and 7.4% y/y in 1H17. 28.3% of exported electricity went to Turkey, down 38.8% y/y. The top exporters to Turkey were Georgian Urban Energy (58.0% of total) and Adjar Energy 2007 (26.2% of total). Exports to Armenia decreased 2.3% y/y and accounted for 18.4% of total exports. Exports to Russia almost doubled (+98.2% y/y) and accounted for over half of electricity exports (53.3%), with ESCO being the sole exporter. The reason behind the increase in exports to Russia was an unexpected surplus of generation in the second half of the month and inflexibility of other markets to import additional electricity on short notice. Overall, ESCO accounted for 63.4% of total electricity exports in June 2017.
