ENERGY EFFICIENCY CENTRE GEORGIA Georgian electricity and gas

ENERGY EFFICIENCY CENTRE GEORGIA Georgian electricity and gas market models – comparison with the EU models by Prof. Teimuraz GOCHITASHVILI Prof. Vidmantas JANKAUSKAS George ABULASHVILI Athens 8 -9 October 2008 1

ENERGY EFFICIENCY CENTRE GEORGIA Contents Legal framework n Regulators role n Electricity market model n Proposed changes n Gas market model n 2

ENERGY EFFICIENCY CENTRE GEORGIA Law on electricity and natural gas n n n defines the role and functions of the Ministry of Energy in details describes the status and role of the National Energy Regulatory Commission describes the wholesale electricity market defines licensing: who issues to whom at what conditions declares the tariff setting principles briefly describes the access to the grid principles 3

ENERGY EFFICIENCY CENTRE GEORGIA Main steps in the electricity sector liberalisation Restructuring Vertical unbundling of generation, transmission, distribution and retail activities Horizontal splitting of generation and retail supply Competition and Markets Wholesale market and retail competition Allowing new entry into generation and retail supply Regulation Establishing an independent regulator Provision of third-party network access Incentive regulation of transmission and distribution networks Ownership Allowing new private actors Privatising the existing publicly owned businesses 4

ENERGY EFFICIENCY CENTRE GEORGIA Law lacks (if compared with the EU legislation) n n n objective to develop liberalized, competitive electricity and gas markets objective to protect consumers and definition of the public service obligations definition of supply as a separate activity and its unbundling from the monopolistic distribution activity requirement of the legal unbundling not only accounting definition of system services needed for the safe operation of the system harmonized definitions for the electricity and gas sectors 5

ENERGY EFFICIENCY CENTRE GEORGIA Main directions of the state energy policy (2006) n n sets the main energy policy objectives: selfsufficiency, security of supply, rehabilitation of the infrastructure, development of international trade, gradual liberalization of the market sets the deadlines for the electricity market opening, envisages competitive gas market development envisages gradual deregulation of the electricity generation market encourages regional cooperation 6

ENERGY EFFICIENCY CENTRE GEORGIA Georgian electricity system 7

ENERGY EFFICIENCY CENTRE GEORGIA Georgian electricity model HPP Generation HPP GSE Transmission Distribution and supply Sakrusenergo Energo-Pro Consumption EC 1 TPP Telasi EC 2 power flow contracts eligible consumers Import ESCO Kakheti Regulated consumers 8 Wholesale

ENERGY EFFICIENCY CENTRE GEORGIA National energy regulatory commission n n in-line with the EU requirements independent as commissioners are appointed by the President of Georgia for fixed term, it has an independent budget it may take decisions in licensing, tariff setting, dispute resolution and decisions are final Commission’s meetings are public, decisions are taken by the majority vote 9

ENERGY EFFICIENCY CENTRE GEORGIA But in a competitive market GNERC should have additional duties n n to monitor if unbundling is properly done, to make proposals for the unbundling to promote competition in the energy sector: with deregulation of the electricity generation it becomes one of the important functions to impose contractual relations between suppliers and consumers and protect consumer interests to control quality of service 10

ENERGY EFFICIENCY CENTRE GEORGIA Consolidation and possible competition Enguri Tbilskan Vardjikhe Gumati Vardnili Shaori Rioni Lajanuri Mtkvari Tbilsresi Atshesi Dominant state owned Thermal plants – reserve capacities Energo Pro Sakartvelos 11

ENERGY EFFICIENCY CENTRE GEORGIA Electricity generation in 2007 12

ENERGY EFFICIENCY CENTRE GEORGIA Regulation of the generation tariffs n n n “Main directions of the state energy policy” declare gradual deregulation state owned hydro generation may be merged and regulated as a dominant new small hydro plants supported by introducing feed in tariffs thermal plants (maybe some hydro also) will dominate as providers of the reserves – will be regulated public service obligations to be introduced 13

ENERGY EFFICIENCY CENTRE GEORGIA Role of TSO coordinates all the operational schemes n provides ancillary services n balances imbalances n operates, maintains, plans and develops the system n 14

ENERGY EFFICIENCY CENTRE GEORGIA Establish strong TSO possible merger of Sakrusenergo and GSE n alternative – independent system operator n in any case system operator should provide to the market system services n 15

ENERGY EFFICIENCY CENTRE GEORGIA Alternative model - ISO n Alternative is "Independent System Operator" (ISO) n Vertically integrated companies may be permitted to retain ownership of their network assets provided that the transmission network is managed by an ISO which performs all network operator functions, subject to permanent regulatory monitoring 16

ENERGY EFFICIENCY CENTRE GEORGIA Independent System Operators n EC proposes ISOs as alternative (second best) to the TSO ownership unbundling ISO in charge also for maintenance and network investment n Asset owner reduced to mere capital ownership n n ISOs are currently already in place in the US with varied success 17

ENERGY EFFICIENCY CENTRE GEORGIA Legal unbundling n n Objective: To make a distinction between the performance of TSO and DSO functions as separated from other activities not related to transmission and distribution In principle, legal unbundling means that transmission and distribution are to be done by a separate “network” company 18

ENERGY EFFICIENCY CENTRE GEORGIA Unbundle distribution and supply n n in Georgia electricity distribution and supply are provided as one product electric energy as a product can be separated commercially from transmission/distribution as a service electricity bill to be split into an electricity (commodity) and system (transportation) charges EU Electricity Directive requires legal unbundling 19

ENERGY EFFICIENCY CENTRE GEORGIA Georgian gas system 20

ENERGY EFFICIENCY CENTRE GEORGIA Development of Georgian gas market impressive changes during the last couple years n new transport routes and new external suppliers n security of supply increased significantly n further rehabilitation of the system n further privatization n 21

ENERGY EFFICIENCY CENTRE GEORGIA Georgian gas market model Ext. supply Gazprom Azeri Gas Compan y BP Gas Transportation System GOGC Transportation Distrib. and supply Consumption Mtkvari Itera C 1 … C 2 Cn Gas flows Contracts 22 Energ oinves t Azoti

ENERGY EFFICIENCY CENTRE GEORGIA Operation of the gas market n n n Gas Transportation System (GTS) is a wholesaler: it buys gas from abroad and sells it to distribution companies and large consumers GTS is a subsidiary of GOGC – legal unbundling gas transportation (transmission and distribution) tariffs are regulated, supply – deregulated under the recent order of the Minister for Energy 23

ENERGY EFFICIENCY CENTRE GEORGIA Further developments needed unbundling distribution and supply (legal unbundling is necessary) n removal of cross-subsidies in the gas transportation tariffs n 24

ENERGY EFFICIENCY CENTRE GEORGIA THANK YOU 25