The Project is an integral part of Georgia's power sector development plan and the selected components are under GSE's investment priorities. The project objective is to enhance regional power trade by (i) rehabilitating and improving 11 existing substations, and (ii) constructing a new substation.
The project impact will be the contribution to expanding Georgia's power trade in the Caucasus region. Net power exports are expected to increase from 10% of domestic power generation (2011) to 20% by 2019. The project outcome will be a reliable, stable and efficient power operation system to meet increasing demand for power export and transit.
The project outputs consist of the following components:
(i) Substation rehabilitation and improvement. Rehabilitate 11 existing substations by installing modern digital control and relay protection systems to achieve full functions of the existing supervisory control and data acquisition system and energy management system for efficient power dispatching operation.
(ii) Khorga substation. Construct a new 220/110 kV substation with 220 kV and 110 kV line bays and associated equipment.
(iii) Project supervision and management. Provide assistance to GSE for project supervision and management.
(iv) Study of potential hydropower investment projects. Help the government conduct necessary feasibility studies and due diligence assessments of safeguards on future potential hydropower investment projects.
|Project Rationale and Linkage to Country/Regional Strategy
Sector Overview: Georgia has made significant progress in energy sector reforms over the past ten years to address the chronic power shortages and the poor financial condition of electricity companies. Since 2007, the levels of generation production have surpassed the annual demand, due to rehabilitation of existing HPPs, improvement in the efficiency of energy use, and reductions in losses. Currently, Georgia has power trade with Russia, Turkey, Azerbaijan and Armenia. In 2010, Georgia exported 1.5 TWh of electricity power, accounting for 15% of the country's total electricity generation.
The Government has launched a large hydropower investment promotion campaign since 2008 and a number of concession agreements for HPP construction have been awarded. It is estimated that an additional 1,400 MW of new HPPs by 2016-2017 can be added to the existing 2,510 MW of HPPs, providing an additional 3.8 TWh of capacity available for export at an economic value to Georgia of $300 million per year. Of Georgia's potential export markets, Turkey is the most attractive given its summer peak in demand, projected capacity shortfalls and high market prices . There is also the possibility for transit trade from Azerbaijan and Armenia to Turkey. Through the power transit in Turkey, it is expected that the rich energy resources in the Caucasus could eventually be exported to the European market. Georgia could therefore act as a regional hub for energy dispatch and transit through the Caucasus area.
Key Problems and Constraints: To develop the hydropower potential and expand power export, and especially to attract private sector capital for these investments, two critical technical issues need to be resolved: (i) ensuring the stability, reliability, and efficiency of Georgia's power transmission system, and (ii) enlarging the transmission capacity and providing market access to the most promising export markets for surplus power. There is also a significant generation-load regional imbalance within the Georgian power system: two-thirds of Georgia's energy resource is located in the Northwest, while two thirds of the domestic demand is located in eastern Georgia. Additionally most of the potential export market is located in the south of Georgia. The major potential export market, i.e. Turkey, is experiencing rapid growth in electricity demand. Other countries such as Armenia and Azerbaijan whilst experiencing modest or indeed at times zero demand growth, are likely to avail of a relatively cheap supply of hydro-energy from Georgia to augment and indeed offset thermal and thermal-nuclear power generation. Power delivery to these markets requires a reliable high voltage transmission network.
To accelerate the hydropower development, the Government also requested ADB to consider financing a run-of-the-river HPP with a capacity of 40-50 MW in 2012. The generated power will be required to meet the increased demand of domestic water utilities due to rehabilitation and expansion of water supply system . Part of the generation may be exported to neighboring countries. After screening potential project sites and conducting pre-feasibility studies, the government will officially propose that ADB finance the HPP.
Sector Policy and Priorities: The government recognizes that the development priority for power is the effective development and utilization of rich hydropower resources. The energy sector policy has a strong focus on (i) efficient utilization of power resources; (ii) rehabilitation of existing generation, transmission, and distribution facilities; (iii) interconnection with neighboring countries to promote energy trade, including transit; and (iv) attraction of investment and privatization. Due to its geographic location, the government aims to establish Georgia to act as a transit country for import export and transit operations of energy carriers in the Caucasus region. This will move the Caucasus countries closer to establishing a regional power market to facilitate flexible and mutually profitable cross-border energy exchanges. It will eventually result in regional energy resources being used in an efficient and environment-friendly way.
Due to the geographic location of Georgia, the Government wishes Georgia to act as a transit country in import-export and transit operations of energy carriers in the Caucasus region. This will move the Caucasus countries closer towards establishing a regional power market which facilitates flexible and mutually profitable cross-border energy exchanges. It will eventually result in regional energy resources being used in an efficient and environment-friendly way.
ADB's Operations and Sector Strategy: Under its long-term strategic framework, Strategy 2020, ADB will exploit the great promise that regional cooperation activities offer for accelerating economic growth. ADB will assist its member countries realize growth through integration and closer links with their neighbors. The Project is in line with the ADB's Strategy for Georgia, which focuses on upgrading and developing energy infrastructure and enhancing regional energy trade through development Caucasus regional energy market.
ADB has no lending operations in the energy sector yet and the Project provides a unique opportunity for ADB to enter the energy sector. Presently, the Government funding is not sufficient on the scale needed for expansion and rehabilitation of the power system. ADB's involvement can not only contribute to fill the funding gap but also enhance private sector's confidence in the power sector investment. In addition, the Project will complement with other ADB support for the infrastructures including the development of transport and water sectors.
ADB will work with the Government and development partners to improve the structural, legal and regulatory framework needed to attract private sector funding in the sector. Development partners, including the European Bank for Reconstruction and Development (EBRD), European Investment Bank, European Union, the German development cooperation through KfW, the United States Agency for International Development (USAID), the World Bank, and the European Union, recognize Georgia's vast renewable energy potential and the country's prospect to become a regional power trading hub that capitalizes on the unique geographic location. Substantial progress in the sector reforms and strong improvements in the efficiency of power sector operations were achieved in recent years. This has generated strong commitment among the donor community to continue supporting the sector through project finance, institutional reforms and capacity building.