Local electric or gas utility companies mostly operate in which market structure?

Georgia’s electricity sector is partially deregulated and unbundled into generation, transmission, distribution and supply companies. Most generation and distribution assets are fully privatised.

The wholesale electricity market operates predominantly under bilateral contracts, while the state-owned Electricity Market Operator (ESCO) purchases and resells unsold power through bilateral contracts. ESCO is responsible for balancing and settlement according to market rules, and exports surplus power. About 80% of all electricity generated is sold through bilateral contracts and the rest through ESCO.

The Georgian Energy Exchange (GENEX) is a new electricity market operator jointly owned by the Georgian State Electrosystem (GSE) and ESCO, created as a platform for electricity and power trade between market participants. GENEX will ensure the operation of day-ahead, intraday and bilateral contracts markets and manage financial clearance system for these markets. The formation of market rules and the trading platform is still in process, with the opening planned for January 2022.

GSE is an electricity transmission system operator. The company owns and operates 3 550 km transmission lines and 93 substations all over the country. The transmission network is managed by the National Dispatch Center, and its technical maintenance is provided by the three regional networks (East, West and Kakheti). GSE also manages the cross-border transmission lines interconnecting with the neighbouring countries: Russia, Turkey, Armenia and Azerbaijan.

Two distribution system operators (DSOs) operate in Georgia:

Energo-Pro Georgia – owned by Energo-Pro (Czech company)

Telasi – 75% owned by Silk Road Holdings B.V. (and ultimately Russia’s Inter-RAO) and almost 25% by Best Energy Group (Georgia).

Two suppliers, Telmico and JSC EP Georgia Supply, were unbundled and appointed as universal suppliers for the supply of electricity in their respective areas.

Electricity generators are regulated, partially regulated or deregulated. Regulated generators with Georgian Energy and Water Regulatory Commission (GNERC) tariffs are the state-owned Enguri and Vardnili hydropower plants (HPPs). Most other HPPs have tariff caps, while small HPPs (15 MW or less) and HPPs built after August 2008 are fully deregulated and can sell their electricity at competitive prices to ESCO or any other market participant.

The anticipated electricity market structure is given below:

Expected Structure Of Georgia's Electricity Market

The Georgian Oil and Gas Corporation (GOGC) is owned by the state-owned Partnership Fund, which has transferred 100% of GOGC shares to the MoESD for oversight as well as management rights. The GOGC administers the state’s share of oil produced under production sharing agreements (PSAs) and manages its processing, storage, transportation and sales. It owns the main gas pipeline system and contributes to unimpeded operation of transboundary oil and gas transportation systems on the territory of Georgia. The GOGC is participating in and implementing national and international projects to explore, transport and supply energy resources to ensure Georgia’s energy security and provide transit. The GOGC funded construction and commissioning of two 231.2 MW combined-cycle gas turbine plants in 2015 and 2019, and a 20 MW wind farm in 2016.

The Georgian Gas Transportation Company (GGTC) is a gas TSO that ensures stable operation of the main gas pipeline system, increases its efficiency, and promotes the uninterrupted and safe supply of natural gas. The company transports natural gas from Azerbaijan and supplies Georgian regional distribution companies. It also operates North South gas pipeline and delivers natural gas to Armenia. The GGTC is responsible for planning and developing the transmission system; designing and constructing new pipelines; and building, sustaining and operating necessary infrastructure.

The State Agency of Oil and Gas (www.saog.gov.ge) is a legal entity of the MoESD. Under the Oil and Gas Law, it regulates oil and gas operations, oil and gas refineries, and transportation.

The Association of Oil Product Importers and Distributors was established in March 2004. Its main objective is to assist in creating flexible, simple and clear customs and tax codes for oil production, import and distribution. It is involved in aligning oil market legalisation with the Georgian constitution and other legislation, and co‑operates with legislative and executive powers to prepare draft legislation. It also monitors available oil market information and conducts its own research. Private businesses carry out oil product import, storage and transportation.

Six investment companies are currently carrying out extraction work in Georgia: Ninotsminda Oil Company, Schlumberger Rustaveli Company Limited (Georgia), Frontera Resources Georgia, VPI Georgia Satskhenisi Georgia, Norio Khevi Georgia and GOGC. Seven other companies – GOG Limited, Elenito, Marexin, Georgia New Ventures Inc., Norio Oil Company, West Gulf Petroleum Engineering Company and Coalition Energy Limited Company – conduct exploration work only.1

In the gas sector, the GOGC administers the state’s share of gas obtained under PSAs and manages its preparation, storage, transportation and sale. The GOGC ensures the long-term sustainable development of the wholesale natural gas market to safeguard energy security. The GOGC has been unbundled from its ownership of the gas transmission system.

Ninotsminda Oil Company, a subsidiary of Blake Oil and Gas, extracts associated gas in the Ninotsminda oilfield, and Jindal Petroleum Georgia, an Indian company, extracts associated gas along with oil on the XI B licence block. The Romanian company Marexin is carrying out gas hydrate extraction on the Black Sea shelf, and American-owned Frontera Resources produces minor amounts of gas and has announced the discovery of huge gas reserves, although no progress or confirmation has yet followed.

Natural gas transmission, distribution and retail services are fully unbundled in Georgia. GOGC’s subsidiary GGTC is the gas TSO, and the numerous gas DSOs are all private companies. The State Oil Company of Azerbaijan Republic (SOCAR) is the largest DSO with its two subsidiary companies (24.94% and 36.05% on a retail market) and distributes gas to Georgian regions. Tbilisi Energy is a largest DSO in Tbilisi with a share of 24.87% on a retail market. Many private companies are involved in gas retail. GGTC operates the main gas pipeline system, except the Georgian section of the South Caucasus Pipeline (SCP), which is operated by SOCAR.

GNERC determines licensing rules and conditions for natural gas transportation and distribution, and regulates the tariffs for natural gas transportation, distribution, pass-through, supply and consumption.

Saknakhshiri LLC owns and operates all coal mines in Georgia.2 According to the issued licences, the proven reserves at Tkibuli mines is 331 Mt.

In 2020, seven large HPPs used for seasonal regulation of electricity generated 36.5% of the country’s total generation:3

• Engurhesi (1 300 MW) – state-owned
• Vardnilhesi 1 (220 MW) – state-owned
• Khrami 1 (113 MW) – owned by Inter-RAO
• Khrami 2 (110 MW) – owned by Inter-RAO
• Shaorhesi (40.3 MW) – owned by JSC Energo-Pro Georgia
• Dzevrulhesi (80 MW) – owned by JSC Energo-Pro Georgia
• Zhinvalhesi (130 MW) – owned by Georgian Water and Power Ltd.

The Division of Energy Efficiency and Renewable Energy Policy Promotion, as a structural unit of the Energy Reforms and International Relations Department at MoESD, is concerned with implementing state policies supporting renewable energy resource development and deployment of energy-efficient technologies.

In 2010, the Georgian Energy Development Fund (GEDF) was established by the government to realise the country’s energy potential by mobilising funding to develop and implement projects. The fund identifies prospective renewable energy projects and promotes their development through preliminary screenings, feasibility assessments and environmental impact assessments; it then finds investors and secures their interest in the projects.

LLC Qartli Wind Farm, a subsidiary of the GEDF and GOGC, constructed the first wind power plant, Qartli Wind Farm, with installed capacity of 20.7 MW and annual electricity generation of an all-time high of 90.8 GWh in 2020.

By the end of 2019, the Georgian parliament adopted the Law on Promotion of Energy from Renewable Sources. It promotes and encourages the use of renewable energy sources and sets the national targets for 2030. According to the law, the share of renewable fuels in all types of transport should be at least 10% of the total consumption in the transport sector. Also, the share of renewable energy should be 35% in total consumption in 2030 (29.5% in 2019). This target is, however, going to be revised down in the National Energy and Climate Action Plan under development, in view of reduced unsustainable use of biomass.

A market premium of USD 0.015/kWh was introduced in 2020 to provide potential renewable energy investors the effective tariff up to USD 0.055/kWh. The regulation on the net-metering system adopted in 2016 and revised in 2019 allows individual customers to connect microgeneration power plants up to 500 kW. According to GNERC, at the end of 2020 there were 243 prosumers with PV installations, with the total installed capacity of 3 848 kW.  

The MoESD and the Division of Energy Efficiency and Alternative Energy Resources are the key policy-making entities supporting development of energy-efficient technologies in Georgia.

The MoESD develops, implements and co‑ordinates country-relevant sustainability actions; it also supports and co‑ordinates energy efficiency in the industry, construction, transport and services sectors, and creates measures favouring a green economy.

In 2015‑2016, the European Bank for Reconstruction and Development helped the Ministry of Energy prepare, draft, adopt and publish the country’s first National Energy Efficiency Action Plan (NEEAP). The NEEAP identifies energy efficiency improvement measures and energy savings in the buildings, transport, power generation, industry and services sectors, based on the country’s potential.

Law of Georgia on Energy Efficiency adopted on 25 May 2020 transposes the Directive 2012/27/EU on energy efficiency. The purpose of this law is to determine the legal basis for the measures required to promote and implement energy efficiency in the country and to implement an energy efficiency policy, and its co‑ordination, control, supervision and monitoring in the country. The establishment of the procedures for developing a national energy efficiency target and adopting energy efficiency action plan are also in the scope of this law.

The Law on Energy Performance of Buildings, adopted on 21 May 2020, transposes Directive 2010/31/EU on the energy performance of buildings. The purpose of the law is to promote the rational use of energy resources and to improve the energy efficiency of buildings, considering the external climate and local conditions of buildings, the demand for indoor climate conditions and cost-effectiveness.

The Law on Energy Labelling was adopted on 20 December 2019 by the parliament of Georgia. It transposes Regulation (EU) 2017/1369 on energy labelling and sets the framework for labelling of products using energy that are placed on the Georgian market or put into service. The labels should provide information about energy consumption, energy efficiency and other standard information about the product, which will help the customer to choose more efficient products and reduce energy consumption.  

The new Law on Energy and Water Supply was approved by the Georgian parliament in 2019. The law was developed in co‑operation with the Energy Community and is in alignment with Energy Community membership-related requirements and the key EU principles. The law creates the legal framework to support development of a more independent, competitive and liquid market by unbundling and granting certification to transmission and distribution system operators.

In 2019‑2020, the parliament approved the following laws: Law on Energy Efficiency, Law on Energy Efficiency of Buildings, Law on the Promotion of Production and Use of Energy from Renewable Sources, and Energy Labelling Law. However, for effective implementation of these laws a number of secondary pieces of legislation are needed. Secondary legislation will be developed in 2020‑2021 period.

According to the energy efficiency law, the state policy envisages the creation of a legal framework for energy efficiency, the definition of a national energy efficiency target and the elimination of barriers that hinder energy efficiency development. On 23 December 2019, the government of Georgia approved the NEEAP 2019‑2020 for the implementation of the energy efficiency policy by Decree N2680.

The National Renewable Energy Action Plan (NREAP) was adopted by the government in December 2019. The NREAP includes activities only for the period 2019‑2021.

The MoESD is currently developing the integrated National Energy and Climate Plan (NECP) that is expected to be sent for approval by the middle of 2022. The NECP covers the following domains:

• energy security
• internal energy market
• energy efficiency
• decarbonisation and renewable energy sources
• research, innovation and competitiveness.

The targets for energy efficiency and renewable energy will be defined in the NECP and negotiated with the Energy Community.

The Law on Energy and Water Supply provides the legal basis for power-related secondary legislation, the main pieces of which are the Electricity Market Model Concept and the Electricity Market Rules. On 16 April 2020, the government of Georgia adopted the Electricity Market Model Concept by its Decree No. 246. Throughout 2020 several pieces of secondary legislation were adopted, mainly related to electricity trading on the GENEX platform.

The market concept introduces general principles for the organising and functioning of the wholesale trade market of electricity:

• competitive, transparent and free trade on the electricity markets
• avoidance of the conflict of interests and discrimination
• sale of electricity on the wholesale market by means of competitive market, particularly, by bilateral agreements and/or on organised electricity markets including day-ahead intraday and balancing markets
• trade of electricity only on the organised markets by public service provider energy enterprises and providers using the facilitation mechanism/scheme envisaged by the Law on Facilitation of Production and Use of Renewable Energy
• determining hourly schedules of generation and consumption, means of generation/consumption of electricity and their loading capacity by the responsible persons (self-dispatching)
• hourly trade on organised markets and, accordingly, liability of the market participants for the hourly imbalance
• purchase of electricity only on the day-ahead and intraday markets to reimburse the losses
• allocation of cross-border capacities in accordance with the transparent and fair rules.

In 2019 the first energy exchange was established in Georgia. GENEX is a neutral, unbiased and transparent organisation that acts as an operator of organised electricity markets. The exchange ensures introducing and operating day-ahead and daily markets through the software services of consulting company Nord Pool Consulting. Electricity Supply and Consumption Rules and the Electricity (Capacity) Market Rules (2006; amended 2010 and since) outline electricity and natural gas tariff methodology, and conditions for retail and power supply markets. In 2013 the government approved Resolution No. 214 on the Rule of Expression of Interest for Conduction of Technical and Economic Feasibility Study, Construction, Ownership and Operation of Hydropower Plants in Georgia.

The Law on Oil and Natural Gas (1999) has created a unified legal framework for state regulation, supervision, control and development of oil and gas resources and oil refining, gas processing and transportation, and for pursuing a unified national policy in these fields. It also defined the responsibility of the Oil and Gas Agency to regulate the subsector. 

Georgia’s electricity system is interconnected with those of Russia, Azerbaijan, Armenia and Turkey. ESCO has the authority to trade electricity with neighbouring countries to balance the needs of the Georgian market, and regional trade is arranged through bilateral agreements and memorandums of understanding. The TSO ensures operations with each neighbouring country and signs relevant agreements on technical issues.

In January 2012, an agreement on cross-border electricity trade using the Akhaltsikhe-Borcka interconnection was signed by Georgia and Turkey. The agreement sets out the competitive market trading rules and identifies the terms for managing electricity imports and exports on the line.

In 2015 the Khorga substation was completed under the Regional Power Transmission Enhancement Project funded by the Asian Development Bank, and the electricity transit corridor began operating from Russia to Armenia (daily average 30 MW) and from Azerbaijan to Turkey (daily average 80 MW). Energy transfer between Georgia and Turkey continues through the 700 MW high-voltage direct-current converter station and the related 500 kV and 400 kV lines.

In 2009, the Azerbaijan-Georgia-Turkey Power Bridge project was established by the TSOs of the three countries (AzerEnergy, GSE and TEIAS). The energy bridge became operational in 2015, and 813 million kWh of electricity were transited from Azerbaijan to Turkey in 2016. Existing and planned electricity interconnection lines are listed below.

Power exchange capabilities with neighbouring power systems

Note: TTC – total transfer capacity, S -synchronous mode, I-isolated mode, B-operation with Back-to-back station, R-in the reserve Source: Ten-Year Electricity Network Development Plan of Georgia for 2021 2031.

Georgia has gas pipeline connections with Armenia, Azerbaijan, Russia and Turkey; it imports natural gas from Azerbaijan and Russia and transits gas to Turkey and Armenia. The 1 200 mm and 700 mm North-South Gas Pipelines transport between 2 bcm and 2.4 bcm of natural gas from Russia to Armenia annually. The 692 km SCP, now operated by a SOCAR subsidiary, transported about 6 bcm of natural gas from the Shah Deniz gas field and connects to the Turkish gas system in Erzurum; after expansion of the pipeline system the SCP Extension has the capacity to transport 16 bcm/year, of which 10 bcm will be delivered to Italy.

Cross-border agreements are bilateral, with suppliers in neighbouring countries, but Georgia is also focused on developments in the transit of gas from the Caspian Sea to European markets to diversify its imports and to collect transit revenue.

The oil pipelines passing through Georgia are directly connected to the terminals on the Black Sea coast and, through Turkey, to Mediterranean terminals and Southeast European countries, and are integral to planned oil and gas pipeline projects (Trans-Adriatic Pipeline, Trans-Anatolian Natural Gas Pipeline, White Stream and the Euro-Asian Oil Transportation Corridor) as well as to the Azerbaijan–Georgia–Romania Interconnector LNG project. 

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