The strategic location of the South Caucasus region and its energy resources have played a major role in increasing the importance of the region and attracting international attention to it since the collapse of the Soviet Union. Since the 1990s, major investment has been made in new pipelines and the search for new oil and gas deposits. New strategic projects aimed at diversifying sources of energy supplies to EU countries bypassing Russia have emerged since 2006. Correspondingly, the region has found itself facing new political challenges which simultaneously provide an opportunity to become integrated into the European energy area. In addition to pipelines, a number of infrastructure projects that are to transform South Caucasus countries into electricity exporters have been planned and/or implemented over the past five years.
The political, economic, and social challenges Azerbaijan, Armenia, and Georgia face at present are completely different from each other and they have chosen different paths to cope with their respective challenges*. Having signed the Association Agreement with the EU, Georgia continues to follow its path towards Europe; Armenia chose to join the Russian-led Eurasian Union; and Azerbaijan takes maximum advantage of its abundant energy resources and is in no hurry to implement standards established by the West.
The energy sectors in the three countries have different vectors of development. Due to its geopolitical location, Armenia has failed to renounce its nuclear power plant up to now, believing that the construction of a new nuclear reactor is of vital importance for its energy independence. Georgia plans to make maximum use of existing hydro resources at its disposal, and Azerbaijan is trying to diversify markets for the export of its energy resources. Therefore, we chose the visual structure of the publication in accordance with these characteristic features. The yellow colour denotes an Armenia oriented towards developing nuclear energy, blue stands for a Georgia seeking to make maximum use of its water resources, and the dark colour is most appropriate for an Azerbaijan that is rich in oil.
It is noteworthy that all the three South Caucasus countries act on the basis of traditional energy scenarios and have not yet elaborated comprehensive climate and energy policies. However, for the purpose of cooperating with the EU or due to the aspiration to meet various international commitments, all the three countries are working on assuming certain commitments in the field of climate change and improving the legislation in the field of energy.
In 2014, the South Caucasus Regional Office of the Heinrich Boell Foundation started implementing a programme on climate change that advocates transparent change in energy policy and the shaping of sustainable energy systems in the region. The programme aims to analyse the situation in the South Caucasus countries through the lens of international experience. We also aspire to contribute to enhancing expertise in the region and critically interpret changes under way in the sector. The programme is focused on highlighting factors of mutual influence of the energy sector and climate change and supporting compromise solutions – a topic which at present is effectively not being discussed by local specialists.
This study was done within the framework of the climate change programme. Its goal is to identify the main features of the energy sectors of Azerbaijan, Georgia, and Armenia and enable readers to draw conclusions on the extent to which the vectors of energy development of the neighbouring countries coincide and whether there is a common vision for the development of the energy sector within the region. Another important priority of the Green Political Foundation was presenting a picture of the situation in the countries in terms of renewable energy and energy efficiency to the interested public. Doing so serves as a good impetus for public discussion on sustainable energy systems. In the future, this should facilitate the emergence and consolidation of groups supporting such systems in these countries.
"Sustainable Energy Pathways in the South Caucasus: Opportunities for Development and Political Choices" raises several important questions pertaining to the sustainability and social or economic benefits of the existing energy systems. For example, how realistic is it to build a new nuclear reactor in Armenia? Why are the South Caucasus countries not using the benefits of energy efficiency? What steps should be taken to facilitate the use of renewable energy resources? We also tried to elaborate such recommendations for each of the countries that are as practical and realistic as possible. The Heinrich Boell Foundation is ready to support discussion of these recommendations within the countries.
The Heinrich Boell Foundation is particularly grateful to all five authors of the study, who worked for several months to collect all data necessary for a comprehensive analysis. This has enabled us to have a general view of the energy sector of the South Caucasus region. Of course, the authors of the study are aware that much deeper research and analysis involving various institutions are necessary in order to gain an understanding of all issues raised in individual subchapters of this study. Accordingly, we will be happy if this study gives rise to in-depth research in the issues and problems identified in this study.
Tamar Antidze, the climate change programme coordinator of the South Caucasus Regional Office of the Heinrich Boell Foundation, deserves particular thanks, as this study would have been impossible without her knowledge, efforts, and hard work.
Table of contents
7 index of Figures
8 index of Tables
9 index of Abbreviations
13 Executive Summary
16 Introduction — 1.
20 Armenia — 2.
22 Brief Overview of Economic Development — 2.1
24 National Energy Markets and Future Trends — 2.2
24 Energy Supply and Demand — 2.2.1
26 Electricity Generation and Consumption — 2.2.2
30 Heat Generation and Consumption — 2.2.3
31 Energy Imports and Exports — 2.2.4
32 Institutional Framework of the Energy Markets — 2.3
32 Market Design and Regulation of Market Access — 2.3.1
32 Regulation of Tariffs — 2.3.2
36 Sustainable Energy Policies — 2.4
36 Energy Security — 2.4.1
37 Sustainable Energy Policies and Instruments — 2.4.2
44 Strategic Priorities for Sustainable Energy Development — 2.5
45 Recommendations — 2.6
48 Azerbaijan — 3.
50 Brief Overview of Economic Development — 3.1
52 National Energy Markets and Future Trends — 3.2
52 Energy Supply and Demand — 3.2.1
53 Electricity Generation and Demand — 3.2.2
54 Heat Generation — 3.2.3
56 Institutional Framework of the Energy Market — 3.3
56 Market Design and Regulation of Market Access — 3.3.1
57 Regulation of Tariffs — 3.3.2
58 Sustainable Energy Policies — 3.4
58 Energy Security — 3.4.1
58 Sustainable Energy Policies — 3.4.2
63 Strategic Priorities for Sustainable Energy Development — 3.5
64 Recommendations — 3.6
68 Georgia — 4.
70 Brief Overview of Economic Development — 4.1
72 National Energy Markets and Future Trends — 4.2
72 Energy Supply and Demand — 4.2.1
74 Electricity Generation and Demand — 4.2.2
76 Heating and Cooling — 4.2.3
77 Institutional Framework of the Energy Market — 4.3
77 Market Design and Regulation of Market Access — 4.3.1
79 Regulation of Tariffs — 4.3.2
81 Sustainable Energy Policies — 4.4
81 Energy Security — 4.4.1
82 Sustainable Energy Policies and Instruments — 4.4.2
86 Strategic Priorities for Sustainable Energy Development — 4.5
88 Recommendations — 4.6