This is a best prospect industry sector for this country. Includes a market overview and trade data.
Last Published: 2/12/2019

Overview

Table: Power Generation in Armenia; unit: Thousand U.S. Dollars
 2015201620172018 (Estimated)
Total Local Production547,864553,221535,869550,732
Total Exports81,14361,83561,24065,835
Total Imports7,28510,84312,31112,500
Total Market Size474,006502,229486,940504,397
Exchange Rates478480483485
Data Sources: State Revenue Committee; National Statistic Committee:: Yearbook 2017 and Social Economic Situation in Armenia 2017 January-December,

Armenia’s energy sector has moved from a severe crisis in the early 1990s to relative stability. A combination of policy, legal, regulatory, and institutional reforms have had good results.  Improvements in operating efficiency such as a decrease in technical and nontechnical line losses, and a nearly 100 percent collection rate, have helped create commercially viable service providers; however issues related to energy supply, subsidies and administration remain.

Armenia faces three principal challenges in its energy sector: (i) an emerging supply gap; (ii) the need to maintain energy supply reliability; and (iii) the need to maintain affordable tariffs.  Armenia has limited energy resources and can meet only 35 percent of the total demand for energy from domestic resources.  Armenia has no confirmed oil or natural gas reserves, and is thus highly dependent on imported energy resources.  It imports oil and oil products from Georgia, Iran, Russia and Europe. Natural gas is imported from Russia through Georgia (with a limited volume of natural gas imported from Iran in a gas for electricity swap arrangement) and nuclear fuel is imported from Russia.  Exacerbating the situation, Armenia has very low levels of energy efficiency compared to developed countries. Therefore, the government has adopted several laws focused on developing domestic, especially renewable, energy resources and widespread implementation of energy efficiency measures.

The Law on Energy regulates relations between legal entities involved in the energy sector and provides the legal basis for producing and delivering electricity, heating, and natural gas to consumers. The Law on Energy Efficiency and Renewable Energy seeks to identify mechanisms to improve energy efficiency and develop additional sources of renewable energy. The law facilitates the development of renewable energy resources, and specifies that all renewable energy produced is to be purchased by the electricity distribution company. The regulator for the power industry, the Public Service Regulatory Committee, has set attractive tariffs for newly constructed Small Hydro Power Plants (SHPPs), wind, and biomass plants. It has also stipulated that the electricity off-take and these tariff rates will apply for 15 years from the date of issue of an operating license for a new plant.

The Government amended the Law on Energy in 2017 in order to liberalize the market. The changes will be phased-in, and during the transition a hybrid model will continue. Energy supplies will be guaranteed based on existing power purchase agreements with any excess generated electric power able to be sold by generators to the wholesale market.  Generators selling on the market will be obligated to pay the electric networks only for distribution. New amendments in the law also provide for the introduction of competition among electricity suppliers, which had formerly been limited to the "Electric Networks of Armenia."  Consumers will be able to purchase electricity from other suppliers. Another innovation relates to the entry of large wholesale consumers into the market, which will now be able to purchase electricity directly from generation facilities outside of Armenia, import it and use it for their own needs. However mechanisms to implement the law are still under development.

Armenia has sufficient electricity-generating capacity to meet current domestic needs, but electricity demand is projected to grow by two to three percent annually. Electricity in Armenia is generated by: 1) the Metsamor nuclear power plant, which generates 30-50% of the electricity needs, depending on plant uptime and ability to purchase nuclear fuel. Armenia is under international pressure to decommission this plant, which is considered to be unsafe. However, the Government is reluctant to close this plant and is in the process of obtaining an operation extension to 2028.  The expected costs of the extension are about USD 300 million and will be financed through a Russian loan.  Building replacement capacity for the ANPP remains a serious challenge facing the country in terms of energy stability; 2) hydro-electric plants, which generate about 20-40% of the country’s needs, depending on rainfall, which exhibits a significant variation 3) thermal plants, which provide the remainder, from natural gas.

Armenia’s thermal power plants are operated by two private companies (RazTES and Gazprom Armenia) and one government-owned plant (Yerevan TPC).  RazTES operates Hrazdan TPP with an operating capacity of 400 MW (installed capacity of 1 110 MW), and an annual generation for the internal market of about 500 GWh, accounting for some 8 percent of domestic supply.  Gazprom Armenia operates Hrazdan Unit 5 (commissioned in 2011) with an operating capacity of 440 MW (installed capacity of 467 MW), and an annual generation for the internal market of about 500 GWh (accounting for 8 percent of domestic supply).  However, Hrazdan Unit 5 is more oriented towards exporting capacity.  Yerevan TPC operates Yerevan CCGT (commissioned in 2010) with an operating capacity of 220 MW (installed capacity of 238 MW), and an annual generation for the internal market of about 950 GWh (accounting for 15 percent of domestic supply).  The Yerevan CCGT is working  under a gas-electricity exchange contract and exports about 500 GWh annually.
Since 2006, “Electric Networks of Armenia” (ENA) is the sole electric power distributor in the country.  It is the biggest employer in Armenia and also one of the largest taxpayers. It serves approximately 985,000 electric utility customers. The company has 11 branches. 7 branches serve 0.4-110 kV electric networks in the regions of Armenia and 4 branches serve Yerevan, one of which is for 35-110 kV networks and the other three are for 6(10)/0.4 kV networks.  Despite the recent change in law allowing competition in this sector, no new company has emerged to compete with ENA.

In 2015, the previous owner of ENA "Inter RAO”, a Russian open joint stock company, sold it to Tashir Group—a Moscow-based group of companies controlled by a Russian billionaire of Armenian origin, Samvel Karapetyan. According to some independent estimates, the Armenian electricity distribution monopoly may have sold for as much as $720 million. However, the final amount might have been determined by the company’s outstanding debts as well as political considerations.  Tashir Group announced  that, in cooperation with international financial institutions, it will invest about $900 million in upgrading the network infrastructure in the next few years.
The High Voltage Energy Network (HVEN) of Armenia is a state monopoly operated as a closed joint stock company.  Its main goal is to secure the transmission of energy via 220-110kV electrical networks, including its service operation, maintenance, reconstruction, retooling and design works, as well as expansion of the network by the construction of energy facilities and high voltage transmission lines. According to Ministry of Energy and Natural Protection HVEN has 15 220kV substations, with 36 power transformers, the total installed power of which is 2561.0 MVA, and one "Agarak" 220kV Switching Point. The length of  HVEN’s open air high voltage transmission lines is 1914.73km; including 330kV -127.62km long, 220kV-1366.51km long and 110kV-420.6km long according to design capacity. The energy system of Armenia is connected via interstate lines with the energy systems of Iran and the Georgia. The German infrastructure bank KfW is investing around $250 million to construct a second high voltage transmission line between Armenia and Georgia which include also the following activities:
  • Constructtion of the first 350 MW module of B2B substation and connect to 220 kV Alaverdi-Gardabani TL in 2015-2018. Electricity exchange – 220-230 MW.
  • Construction of first circuit of 400 kV Hrazdan-Ayrum line and second 350 MW module – 2017-2021. Electricity exchange – 700 MW.
  • Install third 350 MW module; construct second circuit of 400 kV Hrazdan-Ayrum line. Electricity exchange – 1,050 MW.
The “Electro Power System Operator” CJSC (EPSO) as the independent operator has a monopoly over the strategic functioning of the power system. It is responsible for the technical and economic coordination and control of the system. In addition, EPSO provides coordination and long term planning for the power system operations. This includes the production, import, export and delivery of electricity based on existing contracts and initial calculations. EPSO has an affiliate company “Settlement Center” which is responsible for overseeing the operational and process interaction of the power system and dispatch control.

Chart describing Armenia's Electricity Market Scheme

The Public Services Regulatory Commission (PSRC) establishes the procedures for setting and reviewing tariffs. According the Energy Law, the PSRC can either set the specific monetary value of the tariff or establish a clear formula for calculating the tariff based on parameters defined in the Energy Law. According to the Energy Law, a tariff should cover:
  • Justified operation and maintenance costs
  • Loan service costs
  • Costs related to environmental standards
  • Mothballing and preservation costs
  • Costs of the safe keeping of the utilized nuclear fuel and requisite allocations to the Nuclear Plant Decommissioning Fund
  • Technical and commercial losses.
  • Other justified costs as provided by Legislation.
The tariff should also provide the operator with the opportunity to make a reasonable profit. 
The PSRC or the Licensee can request a tariff review every six months. Once requested, a tariff review must be submitted within 90 days. The PSRC is authorized to set long term tariffs for more than six-months if it is considered necessary to provide investment security. Once a tariff is set, licensees cannot appeal the level of a tariff. The only recourse for altering an assigned tariff is to petition the PSRC’s tariff methodology.

Leading Sub-Sectors

Armenia could reap sizable economic benefits from improved energy efficiency. While Armenia is one of the less energy-intensive economies in the region, largely due to a lack of significant industrial activity, the potential for further efficiency improvements is substantial. A 2008 World Bank study found that Armenia could save more than $360 million annually, equivalent to 4 percent of GDP, through energy-efficiency investments. The study estimated that energy-efficiency investments in public facilities would have the highest returns, with paybacks of 2–10 years. The implementation of energy-efficiency programs has been hampered by informational, technical, financing, and legal obstacles. Improvements in energy efficiency could contribute to addressing the energy sector challenges.

The electric power system of Armenia is considered to have significant potential for sustainable energy because of the presence of hydroelectric and other renewable energy sources. According to Western experts, if Armenia can increase production of renewable energy and reduce its cost, the dependence on expensive natural gas can be reduced.

The most advanced renewable energy technology in Armenia is found in the hydropower sector, both in the use of large-scale power (e.g. - waters of Lake Sevan) and the more recent installation of small, run-of–the-river hydropower plants (SHPPs) throughout the country.

Total capacity of all hydropower systems is 1,032 MW. Plants on the Hrazdan and Vorotan rivers generate the majority of the country’s hydroelectric power. The Sevan-Hrazdan cascade consists of six power plants with a total capacity of 560 MW. The Vorotan cascade consists of three power plants with a total capacity of 404 MW. In 2015 the Armenian government approved the sale of the Vorotan Cascade Hydro Power Plant to U.S. company ContourGlobal and the deal was finalized in July 2015.  The company will invest 70 million USD in upgrading and refurbishing the facilities over the next few years.

Tashir Group will  invest in the construction of the Shnokh HPP, a 76 MW power station which will provide 6% of the total electricity consumption in Armenia. The Snhogh project will be located on the Debed River in the Lori region. A tripartite framework agreement on the design, construction, financing, construction, management and ownership of the project was approved by the government in August 2017 and signed by the government, Debed Hydro as the developer and the Investors Club of Armenia as a sponsor (both belonging to Tashir Gruop). The project will cost about $ 200 million. The program will also involve the American company The Robbins Company and the World Bank's International Finance Corporation. The construction is planned to be completed within four years. A memorandum of cooperation between The Robins Company and the Debed Hydro’s Charter Capital (Tahsir Group company) was signed in November 2017. According to the memorandum, The Robbins Company will invest in Debed Hydro’s Charter Capital, providing a 22-km-long water tunnel drilling machine, as well as local training for machine operation and technical assistance throughout the tunnel drilling.
There are currently about 170 private small HPPs (under 30 MW), which were generally constructed during the last ten years. Their installed capacity is about 300 MW, and annual generation is approximately 700 GWh (covering about 11 percent of domestic supply).  Dzoraget HPP is the largest, with 10 mini-hydro units having 26 MW of installed capacity. Hydropower could provide an even greater percentage of Armenia’s electrical needs over the next decade, as about 23% of the annual generation potential of SHPPs is still unrealized and many of the installations are inefficient.

According to Wind Energy Resource Atlas of Armenia developed by NREL(National Renewable Energy Laboratory) in 2003, the economically justified potential of wind energy is about 450 MW. Feasibility studies for Wind Power Projects (WPPs) with total capacity of 195 MW and a generation capacity of 0.55 GWh per year have been conducted. The national target for wind power is 500 MW of grid connected capacity by 2025. The main perspective sites are located in Zod pass, in Bazum Mountain (Qaraqhach and Pushkin passes), in Jajur pass, in the territory of Geghama Mountains, in Sevan pass, in the region of Aparan, in highlands between Sisian and Goris, in the region of Meghri. Small hydropower and wind power generation are less expensive than thermal electricity generation. However, there are a number of emerging problems which could slow future growth. These include inconsistencies and omissions in the legal/regulatory framework, technical shortfalls, and continuing business/commercial barriers. The main technical problem with SHPPs in Armenia has been the lack of automation and utilization of modern control technologies. Other factors include poor performance and low reliability of imported Chinese and Iranian equipment, metallurgical and materials problems resulting from the re-use of salvaged piping from irrigation systems, substandard engineering design and poor quality control during construction, as well as abandoned hydro facilities that are no longer operational.

Armenia has significant solar energy potential. The average annual amount of solar energy flow per square meter of horizontal surface is about 1720 kWh (the average in Europe is-1000 kWh). One fourth of the country’s territory has solar energy resources at a level of 1850 kWh/m2.

According to the Ministry of Energy, currently, eight heliostations are under construction with a planned  total installed capacity of 8 MW. The Ministry of  Energy plans to put them into operation before the end of 2018. Last  year, three solar power plants started operating in the market – one each in Kotayk, Armavir and Aragatsotn regions. Their total installed  capacity is 2.5 MW. At the same time, the upper limit of the renewable energy generation by autonomous stations has increased to 500 kW/h from the previous 150kW hour.

The Ministry of Energy plans to build industrial-grade solar stations with a capacity of up to 110  megawatts. Of the six surveyed areas, the Spanish consulting  company Aries Engineering has already submitted feasibility studies for two projects.  The studies’ sites are in the localities of Masrik, Gegharkunik region and  Dashtadem, Aragatsotn region.  Feasibility studies on the remaining four  localities continue. In Masrik, there is already an  international tender winner, the Dutch Fotowatio  Renewable Ventures (FRV) and the Spanish FSL Solar SL, who offered  the lowest tariff from the future solar generating facility - $  0.0419 of electricity without VAT or 20.11 AMD per 1 kWh of  electricity, that is, 20% cheaper than from small hydropower  facilities in Armenia (equal to 23.8 drams per 1 kWh of electricity).  According to the Ministry of Energy, since the proposed tariff in the new Dashtadem project was  in fact lower than expected, the government is considering to liberalize the market for all newcomers and provide permit without holding a tender to fix the tariff. The Fotowatio Renewable  Ventures (FRV) and FSL Solar S.L are interested in building a larger solar installation in the same Masrik area.

Since 2015, the Ministry of Energy has carried out measurements and an assessment of Armenia’s solar power potential. Four meteorological stations measured  and estimated the solar resource.  As a result, the Ministry has completed a "solar map", which is accessible online.  However, despite this research and government attention, Armenia only generates 70 MW of electricity from solar energy facilities by policy choice, as the government is concerned over a possible negative impact on the system from the potential increase in electricity tariff and seasonal fluctations. The Ministry of Energy will monitor both the introduction of new technologies and  their impact on the market, as well as the security and reliability of the system with the goal of increasing the share of solar power to 150 megawatts. As a result, by 2030 the share of RES (hydro  and other renewable energy sources) in the energy balance of the  country should be about 70%. 

Solar water heaters have been installed on the roofs of many buildings, such as kindergartens, houses, and medical centers by international donors and charitable organizations. Photovoltaic demonstration modules have been installed in small capacities. Assistance from the World Bank and the Global Environmental Facility Trust Fund (GEF) was used to create the “Fund for Renewable Energy and Energy Efficiency of Armenia”.  This organization examines the potential for creating a photovoltaic (PV) industry in Armenia and has prepared a Renewable Energy Investment Plan.

The Government of Armenia has taken steps to develop the country’s geothermal resources, as they can become an affordable source of base-load electricity generated from indigenous resources, thus contributing to the country’s energy security. The total potential for geothermal power in Armenia is currently estimated to be at least 150 MW. Of the known areas, the Karkar field was assessed to be the most promising site; however, further studies are needed to make sure it is a commercially viable project. Development of the Karkar geothermal site was one of the projects included in the World Bank’s Scaling-Up Renewable Energy Program (SREP) Investment Plan (IP), which identified geothermal power, utility-scale solar photovoltaics (PV), and solar heating as priority areas for support and future scale-up.

Also considered in Armenia’s national electricity strategy is the use of landfill gas, particularly from the Nubarashen landfill site serving Yerevan.  International donors are working to improve Armenia’s landfills in the coming years, which may delay any immediate prospects to utilize landfill gas for electricity generation.

Italian construction firm Renco is planning to build a $300 million worth thermal power plan unit for the existing Yerevan thermal power plant, which will is planned to be completed in the next 25-28 months. According to the government, when built the unit will generate an additional 250 MW of electricity. The program will be implemented by Siemens in cooperation with international financial institutions.
Opportunities.

Armenia’s renewable energy resources already compete with conventional resources in the generation of electricity. Most of the viable projects are in the hydropower sub-sector. Among the large rivers, the Debed River along with its tributaries the Dzoraget Stream and Araks River are still untapped in terms of energy generation. The Government is for looking partners for the construction of the following HPPs:
  • Meghri HPP /about 130 MW capacity and around 800 million kWh annual electricity generation on Araks River
  • Loriberd HPP / about 66 MW capacity –and around 200 million kWh annual electricity generation on Dzoraget River.

For more details please visit the Ministry of Energy and Natural Resources website.
US engineering businesses can also sell their services and equipment to Armenian energy sector companies.
A state-owned Russian company, RusHydro, has reaffirmed its intention to sell off Armenia’s second most important hydroelectric complex Sevan-Hrazdan Cascade.  Sevan-Hrazdan Cascade was commissioned during 1940 and 1962 and is operated by the International Energy Corporation.  It consists of seven HPPs - Sevan (34 MW), Hrazdan (81 MW), Argel (224 MW), Arzni (70 MW), Kanaker (102 MW), Yerevan1 (44 MW) and Yerevan3 (5 MW), with and overall operating capacity of 552 MW (installed capacity of 560 MW).  The annual generation is around 450 GWh, thus covering about 6 percent of domestic supply. Several upgrades were done on the Cascade’s power plants during the last fifteen years. At present, the Yerevan HPP is under reconstruction with investment costs of USD 40 million.

Armenia has proven experience in PV technologies and has significant deposits of raw materials for developing a whole PV chain locally. Energy-efficiency investments are another potential area for consideration, for which financing from international donors may be available.

The Government of Armenia is planning a construction of a new nuclear power plant and has shown interest in small modular reactors (SMRs). “Electric Networks of Armenia” is planning a $900 million investment program and is looking for partners to implement it.  The Investment Program to be implemented by Electric Networks of Armenia JSC comprises two parts.  The first part has been approved by the Public Services Regulating Commission within the limits of USD 201 million.  This project mentioned was launched in early 2016, and the sources of funds were EBRD, ADB and own assets of the Company.  The cost of the second part has been estimated at USD 515mln, and currently all the appropriate works on adjustments of cost estimates and volumes assessments are in progress, upon the completion of which the Company will submit the results to the Public Services Regulating Commission for approval. The investment program details are provided below in millions U.S. Dollars:

Armenia Investment Program details chart


Web Resources

Ministry of Energy Infrastructures and Natural Resources of the Republic of Armenia
(http://www.minenergy.am/en)
Energocredit (http://www.energocredit.am/)
R2E2 (http://r2e2.am/en/)
Invest in Armenia (http://www.investmentprojects.am/)
Development Foundation of Armenia (http://www.dfa.am/ )
Business Armenia- (https://www.businessarmenia.am/en/site/index)

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Armenia Energy Trade Development and Promotion