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Energy Policy
The maximum utilization of  the abundant hydro-resources is one of  the  priorities of the state. The main objective of the long-run energy policy is the attraction of  foreign investments for the construction of  the new power plants. 
One of the objectives of this policy is the complete satisfaction of  the country’s demand with its own resources, which should be implemented in stages: first, the import, and then the thermal generation replacement. 
According  to  the potential of   high-capacity power generation and the increasing demand, the main objectives of the energy policy were identified: 
• Rehabilitation of the infrastructure connecting to the neighbour countries’ energy systems
• Construction of the new transmission lines and substations
• Export of  the surplus power generated in new and existing power plants.

Market Structure
The new model of  the Georgian energy market provides a clear distinction between the duties and responsibilities of the subjects functioning in the energy sector.  
Ministry of Energy and Natural Resources carries out the state policy in energy sector, participates in adoption of the state strategy and programs, studies their implementation and draws up the relevant recommendations. 
One of the main objectives of the Ministry is to create the competitive environment in the energy market. Ministry has the right to make decisions on  deregulation or  partial deregulation of a specific segment of the sector. 
According to the state energy policy, Ministry’s priorities include the preferential utilization of renewable and alternative resources and the attraction of foreign investments in the energy sector. In this regard, the State Program –“ Renewable Energy 2008” was adopted in 2008, which has been successfully implemented since then. 
In  addition, the Ministry is responsible for the environmental safety  and ecological aspects during the project design. 
Georgian National Energy and Water Supply Regulatory Commission is the regulatory body for the energy sector. It is established on the basis of state property and doesn’t depend on the state organizations. The main source of its finance  is the regulatory payment  paid by the licensees, importers, providers and Electricity System Commercial Operators. Commission consists of  5 members appointed and dismissed by the President of Georgia. 
Regulatory  Commission issues  the generation, transmission, dispatching and distribution licenses. It should be noted, that power Stations less than 13mw do not need generation license.  
Georgian National Energy and Water Supply Regulatory Commission approves the tariff methodology. According  to this methodology, commission identifies and  regulates the generation, transmission, dispatching, distribution, transition, import, export, supply and consumption tariffs, as well as  the tariffs of  the  system's commercial operator services, the guaranteed capacity fee and   the guaranteed  capacity source’s  power generation tariff. It should be also noted, that hydropower plants greater than. 13 MW built after August 1,. 2008, have been fully deregulated and are entitled to trade electric power at deregulated tariffs. There  are 13  licensees and 25 low- capacity power plants in Georgia. Among  them, only “Engurhesi” and “Vardnilhesi” have been remained in state ownership.
The total installed  capacity of the country is around  3300 MW and the average  annual output equals to  10 bln  KWh. 90 % of  the domestic demand for electricity is satisfied with the existing hydro power plants. After the launch of  the new HPPs this figure will increase to 100%. 
 
Electricity transmission and  transit  are  carried out by the two transmission licensees:
1. Listed in the fixed assets of "Georgian State Electrosystem” are 35–110–220 kV  transmission  lines and 500/220/110/35  kV substations. GSE is owned 100 % by the state.

2.  JSC  “Sakrusenergo”  manages the 220/330/500 kV transmission lines.
Georgian electricity system is connected to the  four neighbouring countries’ power grids  through the transmission lines.

   MW  GW/H  
 Total  1,740  15,235  
   800  7000  Georgia - Russia
   250  2190  Georgia - Azerbaijan
   160  1400  Georgia - Russia
   80  700  Georgia - Turkey
   180  1580  Georgia - Armenia
   80  700  Georgia - Russia
   80  700  Georgia - Russia
   30  265  Georgia - Armenia
   80  700  Georgia - Armenia


In order  to promote the utilization of  hydro potential and electricity export, the government made decision to  increase cross border transmission capacity. In this regard, construction  of  the 500/400  kV high-voltage transmission line (Black Sea Regional Transmission Line) has begun, which connects Turkey and Georgia. Cost of the Black Sea Regional Transmission Line is 260 mln.  euro. It has been financed by the International Financial Institutions, such as  KFW, EBRD, EIB.  Transmission line will be launched in  December, 2013. It  should be noted, that the priority for the usage of the new  transmission line will be given to the newly constructed plants. In addition, there are plans to construct  the  500 kV  transmission line connecting  Azerbaijan  and  Georgia,  and  the  400  kV line  connecting Georgia  and Armenia. After the implementation of hese projects Georgia will become the major energy hub of  the region. 

JSC "Georgian State Electric System" is the only dispatch licensee. It is in charge of Georgian power system operative management, bearing also responsibility for 500-220-110-35 kV transmission facilities’ proper operation as well as for power system stability.  The central dispatchers provide the operation of the power system as an unified object in both normal  and accidental regimes. 

Three companies carry out distribution of electricity  in Georgia: "Telasi",supplying Tbilisi and its surrounding area, "Kakheti Energy Distribution" supplying Kahketi region,  and "Energo- Pro Georgia", supplying  the other territory of  the country. 

Consumers using more  than  7 mln kV/h electricity , are direct consumers. They purchase electricity  from the  system’s commercial operator  or producer through the direct agreement. According to the state energy policy,  the margin of  access of  the  third party  to the electricity transmission and distribution networks  will be  reduced in stages  and  by 2017 it  will equal  to  1 kW/h.
 
There are 7 direct consumers registered in Georgia:

1) Ltd.  City of Light
2) Ltd. Georgia Water and Power
3) Ltd. Tbilisi Transport Company
4) Ltd. Georgian Railway
5) Ltd. Georgian Manganese 
6) Ltd.  Saqnakhshiri (GIG Group)
7) Ltd. Rustavi Water

Electricity System Commercial Operator  (ESCO) ensures purchase and sale of balance Electric Power (capacity) (including by means of conclusion of middle- and long-time import/export agreements),  and sets up the  unified data base on wholesale purchase and sale (including creation and management of unified registry of reporting) and submits relevant information. 

In terms of  the MOU on  construction of  a new power plant, signed  between the Georgian government, ESCO and the relevant person, commercial operator  is required to sign a direct agreement with the relevant person about the purchase of  the electricity generated in newly built power plant, under  the conditions, which were agreed by the Georgian government, ESCO and  the relevant person. 

Electricity Trade
According to the electric power marker rules, the license carriers of electric power sector make short term (one year) or long term (5 years) direct contracts on sale and purchase. The contracts are made between the customer and the producer, while the contract on the balance capacity purchase is made with the commercial operator.
The commercial operator balances the difference between the actual consumption and the amount of the electric power specified by the direct contract between customers and producers. 
The electric power trading is carried out by the commercial operator in two ways. 

1) First way is either the unplanned over consumption or when the direct contract is not made. In this case the customer automatically purchases the electric power from the commercial operator.
2) According to the second variant the commercial operator and the customer make a contract, which doesn't specify either the amount or the price of the required electric power.After each concrete request the sides offer the prices acceptable for them, in this case the trading is carried out in the so-called electric power exchange format, which doesn't affect the consumer tariff. The system's commercial operator renders services according to the tariffs established by GNERC (Georgian National Energy And Water Supply Regulatory Commission).

Note, that the customer is able to purchase the balanced electric power not just from the commercial operator but also by the direct contract.
The purchaser is obliged to have reserve power amounted to 10% of its utilized power (minimum 5% of this amount should be supplied by local sources. ) for ensuring energy security of the country. It is possible to supply the reserve power by direct contract, private sources or commercial operator.  
10% quota of the years 2013-2015 is to be completely supplied by local sources. 2016-2019 required reserve quota will be raised to 15%, which will have to be fully supplied by local sources.

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