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Jente Mork and Sebastian Staske

Investments and reforms remain vital for the electricity sector

Georgia’s electricity sector continues to face challenges as demand exceeds domestic generation capacity. Hydropower plays a key role, but its seasonal availability leads to reliance on thermal power plants and electricity imports during the winter months. In the future, Georgia would like to utilise its seasonal export potential to a greater extent and become a net exporter.

  • Georgia
NL 62 | January-February 2025
Energy and Climate

Various measures, such as auctions for renewable energies, the expansion of transmission capacities and the establishment of an electricity market, are intended to tackle these challenges and bring Georgia’s electricity sector more in line with EU energy legislation as part of its membership of the Energy Community. However, achieving the ambitious expansion targets will require significant infrastructure investment, progress in project implementation and a sustained engagement with international partners.

Demand growth and seasonality

Economic growth and relatively low electricity prices have driven a significant increase in electricity demand. Since 2010, peak load and annual consumption have grown by 47% and 55%, respectively, exceeding the increase in domestic generation (+43%). As a result, Georgia was a net importer of electricity from 2012 to 2024 (with the exception of 2016 and 2023).

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Hydropower (HPP) accounts for 74% of the total installed capacity of around 4,600 MW. Of this, reservoir hydropower plants make up 59% and provide essential system flexibility. Due to the seasonal variability of hydropower, Georgia has export potential in the summer. Thermal power plants (TPPs), contributing 26% of the installed capacity and relying entirely on imported natural gas, are vital for meeting winter demand. However, as their capacity is insufficient to fully replace hydropower, Georgia additionally relies on imports in winter.

Ambitious plans for generation expansion

In addition to meeting its own demand, Georgia is also aiming to better utilise its seasonal export potential in summer and become a net exporter of electricity in the future. The transmission system operator Georgian State Electrosystem (GSE) has set out its plans for this in the Ten-Year Network Development Plan (TYNDP). Generation is to be increased to 36 TWh by 2034, more than double the current level and almost double the demand forecast of 19 TWh. Central to these plans is the expansion of hydropower capacity to 7,222 MW by 2034, supported by large HPP projects like Khudoni (702 MW), Namakhvani (433 MW) and Nenskra (280 MW). However, local oppositions as well as financial uncertainties pose risks for the implementation of these key projects.

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Experience has shown that projected plans for generation expansion, as outlined in the TYNDP, have frequently lagged. This is partly because the TYNDP is based on active contracts and relies on the assumption of finalisation on schedule, even if such timelines may be unrealistic.

Auctions for the expansion of renewable energies

An important step towards the expansion of renewable energies were two auctions in 2023 and 2024, in which contracts with a total capacity of 1,100 MW were awarded. The auction winners will enter into contract for difference (CfD) agreements with the government and the Electricity System Commercial Operator (ESCO). There is some uncertainty regarding the implementation timeline, as none of the projects from the two auctions have progressed to the implementation stage. An initially planned third auction was replaced by direct contracts, using tariffs determined in the second auction to simplify the procedure.

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Expanding transmission with neighbouring countries

For trade, the transmission capacities with neighbouring countries are also crucial. With a total of 3,420 MW, Georgia is already well connected. Turkey is currently the most important export market, as the high electricity prices in summer make exports particularly attractive. To supplement the planned expansion of generation and fully utilise the seasonal export potential, the transmission capacity is to be increased to 5,350 MW by 2034. The timely realisation of these expansion projects faces challenges, as some key infrastructure, such as the back-to-back station needed to connect Georgia’s and Armenia’s asynchronous electricity systems, has been under consideration for several years.

Financial viability of BSSC uncertain

In addition to the lines with neighbouring countries, the proposed Black Sea Submarine Cable (BSSC) with a capacity of 1,300 MW intends to connect Georgia with Romania. The project remains in the preparatory stages, with its realisation and timeline contingent on outstanding financial, legal, and technical questions. The costs are estimated at around USD 3.5 bn. A previous study by the German Economic Team noted the uncertain economic case, particularly if the expansion of renewable energies does not proceed as planned. A feasibility study, commissioned by GSE and World Bank and conducted by CESI, was completed in summer 2024. It confirms the technical viability but finds financial viability dependent on strict financing assumptions.

Market opening on voluntary basis

Institutionally, the introduction of a fully open electricity market would be an important step for the energy sector. As a member of the Energy Community, Georgia is obliged to open up this market. In the long term, a competitive market model could offer efficiency gains, greater price transparency and stronger incentives for the expansion of renewable energies. After a three-year delay, a first step was taken on 1 July 2024 with the introduction of a voluntary electricity market. In the first phase, this comprises day-ahead trading for generators and large consumers, except for reservoir and large hydropower plants. However, trading activity remained low in the first few months: the traded volume was less than 1% of daily generation. This shows that both suppliers and consumers are still being hesitant. The traditional bilateral contract model currently offers more price certainty and requires less precise forecasting, as adjustments can be made during the month. In contrast, the electricity market entails penalties in the event of deviations. A complete transition to an open market requires mandatory participation, which is currently planned for summer 2025.

Outlook

Georgia’s electricity sector is undergoing a transformation. The expansion of generation and transmission capacities offers the opportunity to establish the country as a regional electricity producer. International partnerships, such as the one with Germany via KfW, remain an important factor. Such cooperations have contributed to the development of the sector in the past. However, they require a stable and predictable environment, which is particularly important given the complexity of the current political context. Achieving the ambitious plans to expand generation and interconnection capacity, utilise the export potential and create a fully liberalised market will thus not only require substantial infrastructure investment and progress in project implementation, but also sustained engagement with international partners.

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This newsletter is based on our Energy Sector Monitor 2024. Our previous analysis on the Black Sea Submarine Cable can be found here.