Untapped potential for renewable energy. If harnessed, Georgia could produce 32 TWh of hydropower annually, 4x more than currently. The extra capacities would allow for 6.3 TWh of exports by 2020. The country would also become self-sufficient in energy, have the flexibility to replace more costly imports (currently required to meet peak demand) with hydro power, and substitute a hefty share of more expensive domestic thermal electricity.
Georgia boasts the region’s cheapest energy supplies. The generation tariff for hydroelectricity in Georgia is the lowest in the region at around US$ 0.02/KWh. This compares favourably with the tariff for Azeri thermal power plants (US$ 0.03/KWh), despite their subsidized gas prices. Turkish and Armenian generating costs are even higher. Although the construction of new capacities is likely to raise costs across all countries, we believe Georgia will remain very competitive, with only select Azeri producers able to operate below Georgian costs if the country continues to subsidize gas prices.
Strong export capacity. Georgia is poised to grow export capacities 1.7x by 2015 and 6.7x by 2020. Turkey’s high electricity prices and its proximity to Georgia, as well as Georgia’s low production costs for hydropower, set the stage for future growth in exports. Turkish electricity demand grows on average 7% annually, and we see the country posting a deficit of 118 TWh by 2020. This fits well with the projected increase in Georgia’s generating capacities, with 6.3 TWh of excess power available for export by that time. In 2011, the average wholesale electricity tariff in Turkey (US$ 0.08/KWh) was well above the cost of production of newly built hydropower generators in Georgia (around US$ 0.06/kWh). The potential for increased electricity exports to Russian regions neighbouring Georgia and the EU also look promising.
Attractive regulatory regime mitigates greenfield risks. Newly built hydro stations will remain the property of investors through a Build Operate-Own system. Moreover, HPPs with an installed capacity of less than 13 MW will have the right to operate or export without a license, sell generated power directly to consumers, and set tariffs at their discretion. Currently, 55% of Georgia’s electricity generating capacity is privately owned; the remaining 45% is represented by two stations that are partially or fully located in the occupied region of Abkhazia, meaning they cannot be privatized.
