Battery storage in Armenia: Role and potential for energy security
The Armenian electricity system has been undergoing significant changes in the last decades. Steep demand growth, search for increased energy independence and decarbonisation efforts are prompting large investments in renewable energy sources (RES), mainly solar PV. While these are steps in the right direction, variability of RES also presents challenges for the electricity grid.
Battery Energy Storage Systems (BESS) could help Armenia to overcome the destabilising effects of variable RES while leveraging domestically sourced green electricity for energy security. However, the extent of their benefits is closely intertwined with possible developments in cross-border interconnections.
Background: The energy security conundrum
Armenia is heavily reliant on energy imports, with 81% of its primary energy supply and 100% of its electricity-generation fuel sourced from abroad – primarily from Russia and, to a lesser extent, Iran. This dependency, further compounded by an ageing thermal generation fleet, has been driving new generation capacity deployment in the country. Solid solar irradiation levels and rapidly falling costs, combined with key benefits in energy independence and decarbonization have established solar PV as a key technology for Armenia. With a highly attractive government support scheme, solar deployment experienced a steep growth in recent years. However, this velocity in deployment is outpacing grid development, raising concerns about grid stability. Solar’s significant intraday variations in power output require flexible assets to operate alongside it. Dispatchable generation must quickly ramp down during the day to accommodate solar energy and ramp back up at night to meet demand. Armenia’s inflexible generation fleet has proven inadequate for this task. The Armenian Nuclear Power Plant and other thermal assets are being forced into undesirable – and concerning – operating patterns, while outages are becoming increasingly frequent.
Two potentials solutions are being discussed
To address Armenia’s electricity system challenges, two main options are currently discussed: the expansion of transmission capacity with Iran and Georgia to export surplus solar energy, as well as deploying energy storage systems to shift solar generation to peak demand periods.
Two cross-border interconnection projects are underway. The new line with Iran, set for completion this or next year, will boost capacity from 350 MW to 1,200 MW. With Georgia, the delayed back-to-back (B2B) project will enable seamless transfer, increasing capacity from 150 MW to 350 MW initially, with potential expansion to 700 MW later.
Plans for energy storage systems in Armenia remain less concrete. A range of technologies must be considered to ensure sound investments. Pumped hydro, while cost-efficient for long-term storage, faces high implementation costs and lengthy permitting. Battery energy storage systems (BESS), though unsuitable for long durations, excel in addressing short-term variability and complementing intraday fluctuations of RES.
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Lithium-ion batteries – a promising option
Driven by a steep fall in production costs of 85% in the last decade and benefiting from economies of scale, lithium ion-based BESS outclass other chemical storage technologies and are being rapidly deployed across the globe. Prominent examples of this are the 8.5 GW of installed capacity balancing high solar volumes in California and a 250 MW battery project newly announced by one of the German transmission system operators (TSOs) TransnetBW to be used as a grid enhancer.
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Analysing BESS deployment scenarios for Armenia
To analyse the potential and role of battery storage, the German Economic Team investigated optimal deployment of lithium-ion BESS, focusing on energy balancing and energy security considerations. For this, a techno-economic model of Armenia’s 2030 electricity system was developed, incorporating factors such as projected demand growth and renewable energy expansion.
Expanding transmission capacity with Iran and Georgia would enhance balancing capabilities and minimise storage requirements. The impact of these developments on the optimal use of BESS was assessed in a scenario-based analysis. Additionally, energy security risks were evaluated under two conditions: a sharp rise in gas import prices and a combination of this price hike with reduced electricity trade with Iran and Georgia.
Finally, the modelling results were complemented by an economic evaluation, analysing financing rates, revenue streams, and the impact of investments on gas consumption, alongside associated CO2 savings.
Unpacking the benefits of BESS in Armenia
The modelling results highlighted two investment options for different grid conditions. With current interconnections, a tandem battery system (60 MW-2h+ 20 MW-4h) is cost-optimal. Once transmission projects with Iran are completed, battery deployment appears less urgent.
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Yet, when energy security is factored in, a 30 MW (4h) battery becomes valuable as a hedge against risks such as steep gas import price hikes or unexpected drops in electricity trade with Iran and Georgia.
With overnight capital costs of USD 78 million for the first option and USD 41 million for the second, and similar maximum revenues, neither option presented a clear standalone commercial case, even with preferential interest rates of 1.5%. Based on this model-based analysis, a 30 MW (4h) battery offers the best risk-revenue balance. Additionally, further calculations for gas consumption reductions and CO2 savings revealed that these benefits, though present, are marginal and should not be the primary justification for investment.
Outlook
With the interconnection project with Iran nearing completion, thus reducing the need for larger storage capacities, deploying a 30 MW-4h BESS would strengthen Armenia’s grid and mitigate risks from external market fluctuations. This option strikes the best risk-revenue balance given its lower investment costs. To ensure cost-effective implementation, a feasibility study should assess optimal storage allocation, ownership models, and grid tariff impacts, forming the basis for a targeted policy framework. Securing concessional financing through international financial institutions could lower costs for government-led projects. Additionally, regular assessments are advised to adapt storage strategies to evolving energy demands and renewable integration.
This newsletter is based on the Policy Study “Battery Energy Storage Systems (BESS) in Armenia: Potential and role for energy security”.
