Energy Industry of Armenia

8/8/2019 Energy Industry of Armenia

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Introduction

Energy is not only a key strategic resource, but also rather profitable

resource for trading. This sector can provide extensive benefits to

developing and transition countries by improving economic growth,

enhancing governments fiscal position and helping poverty alleviation. The

energy sector is one of the most important sectors for growth of the society

and well-being of its citizens. Access to reliable energy is essential for

economic growth. The shortages of energy, on the contrary, directly impact

industrial productivity, thus slowing economic growth. Energy sector

strengthens government fiscal position by filling the state budget and

increasing GDP of the country. It also lessens the poverty in the country by

increasing economic and job opportunities for people and helping meet the

basic need such as health and education.

Armenia has very good energy resources which can be traded to

boost economic growth in the country. The key to success in energy trade is

wise government policies and balanced use of natural resources providing

energy. In a world with finite quantities of energy resources, the need for

reasonably priced and accessible energy is growing day by day.

Energy efficiency must be another important consideration for

Armenian government. It plays key role in increasing production rates in

developed countries. The measures and energy saving policies must be

developed too.

The most prosperous source of energy for Armenia can be renewable

energy. Armenia only meets 35% of the energy demand by its domestic

energy sources. It also lacks energy efficiency. So the primary goal of our

country must be developing domestic energy resources to secure the


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sustainable development of the country. Inclusion of the energy efficient

technology and renewable energy in the fuel-energy mix a key role in

increasing domestic supply of the energy and ensuring balanced level of

energy efficiency.


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Brief History of Armenian Energy

The main purpose of the history of Armenian enrgy sector is to take

lessons from past mistakes and show the potential that Armenia always have

had in energy sector.

The first electricity producing station in Armenia was built in Syuniq

Marz on the coast of the river Voghji one hundreed years ago. It was the

beginning of the development of energy sector in Armenia. Then mainly

hydropower plants were being constructed in Armenia. There were built 13

small stations by the First World War and they were producing 10 mln. KWh

electricity. In 1950s the construction of thermal power plants was introduce

to Armenia to meet the growing electricity demand. By the end 1950s all

hydropower plants of the Sevan Hrazdan were functioning. In 1970s the

consumption of hydroenergetic power was greatly exceeding the production,

so it was decided to build nuclear power plant. It was ready in 1976. By the

end of 1970s the production of electricity per capita in Armenia was not only

exceeding Turkey, Iran and Iraq but also such countries as Italy, Spain,

Ireland, Portugal and etc.

At the same time Armenia had one of the best electricity networks in

the region. Very important role played also energetic science and education.

In 1972 the faculty of energy was established in Yerevans Polietechnichal

University. These trends of the development of the energy sector during

Soviet Armenia had its reasons. The sector was considered to have

preeminent political dimension. For example, Lenin said: Communism is

Soviet power plus the electrification of the whole country.1

1 Vladimir Ilyich Lenin,. Report on the Work of the Council of Peoples Commissars, Dec. 22(1920), reproduced in Collected Works, vol. 31 (1966). Cited in The Columbia World ofQuotations. 1996.


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In 1992 nuclear power plant was stopped to be repaired. As the main

share of electricity was produced by nuclear power plant, the country stuck

in very difficult situation. Armenia had very great deficit of energy. The

blockade prevented to buy another energy sources and energy crisis of

1990s began in Armenia.

Current Structure of Energy Sector

Currently Armenia depends on three types of power generation:

thermal, hydropower and nuclear. The installed capacity of the thermal

power plants (TPPs) is 1756 Megawatts (MW). Thermal power is primarily

needed to cover seasonal peaks during the fall and winter low water and cold

seasons.

The following figure shows the shifting mix of power actually

generated between 1992 and 2003. The shift from hydropower to nuclear

and thermal power since 1995 was due to the restart of Medzamor Unit 2. It

was followed by the reduction of generation at the Sevan-Hrazdan

hydropower plant (HPP) cascade, caused by strict limitations on water use

from the (Sevan) lake for the purpose of irrigation only, with quantity of

water use regulated by special decrees of the Government of Armenia.

Figure 1:Evolution of Armenia's generation mix


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More recent data is included in the Table 1. You can see from the

table that nuclear power has a great share in Armenias mix.

Table 1: Share in total generation of electricity by source

Nuclear Thermal Hydro2005 43% 28.9% 28.1%2006 44.4% 24.8% 30.7%2007 43.3% 25.3% 31.4%

The main companies that are currently in energy industry of Armenia

are: High Voltage Electrical Networks CJSC (HVEN CJSC), Electric Networks

of Armenia CJSC (ENA CJSC), Computation Centre CJSC, Energy System

Operator CJSC and ArmRusgazprom CJSC. The main objects and goals of

HVEN CJSC are the transmission of energy via 220-110kV electrical networks.

ENA CJSC is owned by CJSC RAO UES INTERNATIONAL. Computational

Centre CJSC provides computing services to energy market participants

since October 1, 2004. Energy System Operator CJSC got the energy

system operator license with validity period expanded till December 9, 2010.

The company has an exclusive right to perform fundamental functions of

energy system operator such as coordination of energy system, planning of

energy import, export and distribution and etc. The last, but not least, player

in the industry is ArmRusgazprom. It is considered to be the owner of the

whole gas transmission and distribution system of the Republic of Armenia.

The constituters of the company are the Ministry of Energy of the Republic of

Armenia, Gazprom OSC and ITERA International LLC. The authorized

capital stock of the company makes USD 280 million.


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Figure 2

Government, its role, its benefits

Energy always was and will be first of all strategic resource for any

country. This industry should be thoroughly regulated to prevent any

dangerous consequences. The energy industry also helps government to

maintain growing and developed society. For example, the country with well

incorporated energy saving policies and measures into economic

development strategies can significantly increase energy efficiency of the

GDP, which in turn will increase the production rates.

As a strategic resource energy is very important especially for

Armenia, as we have conflicts with our neighbors, the borders from Turkey

and Azerbaijan sides are closed, so if, for example, by any reason the border

with Georgia will be closed we will be in very hard situation. Armenia

currently can meet less than 50% of the total demand for energy with its

domestic resources, thus it is very dependant on imported energy resources.


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In addition energy efficiency within the Armenian economy is much lower

than that of developed countries in the region. Therefore, in order to secure

the sustainable development of Armenia, priority must be given to the

development of domestic energy resources and widespread implementation

of energy efficiency throughout the economy. If Armenian is to achieved

sustained economic growth, it must increase efficiency in all energy

consuming sectors and develop renewable energy resources.

Another important thing to consider is that energy can be traded in

international market and governments can really make good money from

that sector. Armenia doesnt have any domestic sources of fossil fuels, the

only domestic energy source is electricity. But cheap and reliable electricity

is crucial nowadays.

Electricity consumption and demand has decreased considerably

since Armenias independence. A number of factors contributed to this,

including the decline of Soviet industry, a reduction in technical and

commercial losses, gradual increases in tariffs, and expansion of the gas

network, which allowed for substitution from electric to gas. The following

figure illustrates the pattern of consumption.

Figure 3: Production, consumption and commercial losses in the Armenian ESI


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Table 2: Pattern of electricity consumptino (2005-2007)

Production Sales Commercial Losses2005 5000.4 4374.4 626.02006 5292.7 4527.5 765.22007 5539.1 4764.6 774.5

The production numbers can be greatly improved as installed

capacities of plants allow more, they are less nowadays because of poor

operating conditions, or, in the case of hydropower plants, environmental

restrictions.

Based on the information regarding its domestic demand and supply

balance and the relative interconnection infrastructure (See Table 4 in

Appendix) it is evident that Armenia has become a net electricity exporter to

its neighbors over the past few years. This was also the case before

independence. As a Soviet Republic, the Armenian power sector played an

important role in supplying electricity for the region. The re-commissioning

of Medzamor Unit 2 in 1995 boosted production of electricity considerably

and has allowed for expanding electricity export activities. At present, two

types export/import activities are carried by Armenia:

Swap of electricity with Iran. Thus we buy in winter and sell in summer.

The net sum is positive, we buy less than we sell.

Electricity export to Gerogia.

Table 3: Aggregate Electricity Imports and Exports in Armenia

91 92 93 94 95 96 97 98 99 00 01 02 03 04

Export

(GW

h)

728336

134

58 63 0124

399

704

816

701

586

600

813

Import

(GW

2999

670

115

12 2 0 67 78 463

352

330

159

300

50


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h)

Renewable energy, the way to go

Renewable energy is the future of whole energy industry of the world.

First it is getting more and more cheaper compared to other sources, as the

prices for fossil fuels are increasing year by year. Second other sources of

energy are finite and limited, but some renewable energy sources are very

huge.

There were attempts to practice renewable energy in Armenia. Lori 1

Wind Power plant is the first Armenian wind power plant located in Lori and

Pushkin pass. The construction of wind power station was conducted

according to agreement signed between governments of RA and Islamic

Republic of Iran.

There are many attempts for receiving solar energy in Armenia.

Energy Law of RA currently guarantees the market for electricity produced

by utilization of solar energy in the country. According to this law, adopted in

April 2001, electricity (capacity) generated at small hydro power plants, as

well as from renewable sources of energy within the next 15 years shall be

purchased pursuant to the market rules.

Some regional investigations were conducted that revealed

anomalous geothermal sites on the territory of Armenia. The results of the

investigations were presented to the World Bank for approval and

earmarking grant funds for drilling of a pilot well. Currently, the technical

documentations are being processed.


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Another source of renewable energy are bio-diesels and bio-fuels.

Armenia currently is under 100% dependency level from import of engine

fuels. In such circumstances the transport sector of the republic becomes

extremely vulnerable from the point of view of any disruptions in import of

engine fuels. Thus, reducing this dependency level should become one of the

main components of power diversification strategy of the Republic.

Unfortunately, till now little progress is recorded in this direction.

Conclusion and Recommendations

There is definitely need to achieve high investment scenario for

Armenian energy sector. To achieve high growth and high investment

scenario different policy measures would have to be implemented, including

setting rationale tariffs. Equally importantly, a more favorable environment

for foreign investment would have to be established; this is a particular

challenge, as the general environment for Foreign Direct Investment (FDI) is

being affected negatively by the global financial crisis.

As you can see from Table 4 (see Appendix) we have interconnected

network with Turkey and it only needs repair. As noted President of RA: Serj

Sargsyan on April 27 (2010) meeting, Armenia has very good potential for

exporting energy to Turkey and than through Turkey to Europe. Today every

country needs reliable and cheap energy sources and we can be the one

they need. The development of renewable energy will only help us on that

way.

References


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1. Juan A. Belt, USAID, The Potential Ways to increase efficiency and

sustainability of power sector.

2. USAID, 2007. National Program on Energy saving and renewable

energy of republic of Armenia

3. Energy Information Administration, data on imports and exports.

4. Ministry of Energy of RA

5. The Innogate Programme on its web address

IFIs and Donors engaged in sphere

KfW Entwicklungsbank, World Bank in Armenia, EBRD (The European Bank

for Reconstruction and Development ) in Armenia, USAID, EU TACIS-

EuropAid, UNDP, Armenia Renewable Resources and Energy Efficiency Fund,

GEF Global Environment Facility


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Appendix

Table 4: Information on Armenia's Electricity Interconnection

Country Connection Type Operational state

Azerbaijan Line HVL-330 kV (100km)

Out of Service

Line HVL-220 kV (63.5km)

Out of Service

Line HVL-110 kV (98km)

Out of Service

Line HVL-110 kV (30km)

Out of Service

Georgia One line HVL-220 kV(65 km)

Operational

One line HVL-110 kV(35.8 km)

Operational

One line HVL-110 kV(19 km)

Operational

One line HVL-400 kV Under constructionTurkey One line HVL-220 kV

(65 km)Out of Service

Iran One line HVL-220 kV(78.5 km)

Operational

One line HVL-220 kV OperationalOne line HVL-400 kV Under construction


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Figure 4: Transmission system of Armenia

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Energy Industry of Armenia