Armenia’s power sector has made significant progress in the last two decades. The sector has moved from severe crisis – characterized by crippling supply shortages, and near financial bankruptcy of the sector – to stability more characteristic of developed countries than emerging markets. The use and development of renewable energy has been an important part of the transition from crisis to stability, and will remain important in the years to come as demand grows and ageing thermal plants are retired.
The power system is unbundled and consists of independent electricity generation, transmission, and distribution companies as well as the electric power system operator (EPSO) and the settlement center. The power system is regulated by an independent regulatory agency – the Public Services Regulatory Commission (PSRC). The regulatory framework is adequate with tariff-setting methodology allowing for cost-recovery.
Generation
Independent companies providing capacity and energy services as per schedules agreed upon with EPSO and under electricity sale contracts with the power distribution company model of which is set by the PSRC.
Generation produces enough electricity to meet domestic demand, which is about 5915GWh (as of 2016) annually with an average growth of 2%. The total operating capacity of all generation units is about 2,500 MW. Domestic demand is covered by 32% nuclear, 35% thermal, and 33% hydro generation (as of 2016). Peak electricity demand is about 1,300 MW and is observed during November through February. Summer peak demand is around 900 MW. There is no seasonal deficit. Generation surplus consists of TPPs; the possible exporting capacity are thermals.
Transmission
Armenia has had a reliable transmission infrastructure since Soviet Union, it consists of 14 substations of 220 kV and 2 substations of 110 kV, which will be finally rehabilitated during the next 4 years. Currently the grid is interconnected with Georgia (110 kV and 220 kV, dedicated island operation for now); Iran (220 kV, synchronous operation); and Turkey (220 kV, not in operation). The interconnection capacity with Georgia is about 200 MW and with Iran is 300 MW. Transmission system losses are around 1.8%. The Transmission Operator (TO) is a government-owned company (“High-Voltage Electric Networks (HVEN)” GSC) that holds all the transmission assets within the country, but does not operate the system.
During next 3 years, a new 400 kV line with the capacity of 1000 MW, from Georgian to Iranian border will be commissioned including a B2B station on Armenian-Georgian border with the first stage capacity of 350 MW.
System Operation and Dispatch
EPSO is 100% state-owned joint stock company and is responsible for managing the transmission and dispatch of generation to meet the domestic demand, as well as to ensure electricity exports and imports. A supervisory control and data acquisition system has been installed on generation units and 220 kV substations.
Distribution
The 100% privately-owned Electrical Networks of Armenia (ENA) operates and develops the distribution network. ENA holds and operates all the distribution assets within the country.
ENA is the single buyer, single seller of electricity in the country and all generating plants are required to sell to ENA. There is no competitive power market neither on distribution nor on generation side. Distribution is not unbundled from supply.
The distribution system includes from 0.4 to 110 kV lines and transformers. Access to the grid is close to 100%. Household annual consumption is about 35%; large customers (i.e., industry, transport, water supply, and irrigation) accounts are about 30%; and the remaining 35% are public entities and small-to medium-size businesses. Distribution system losses are about 9%, metering is 100%, and the collection ratio is close to 100%. All customers (from 35 to 110 kV) and a large proportion (from 6 to 10 kV) customers are integrated into a data acquisition system. 30% of all customers are equipped with electronic meters.
Metering and Billing
The Settlement Centre is 100% state-owned joint stock company and conducts commercial settlements between electricity generators and a single buyer as well as electricity imports and exports. It has a balance sheet, but it does not take any risks in case of payment shortfalls by ENA. Given that the Settlement Centre receives a small fixed annual monetary payment for its services associated with domestic supply and a fixed per kWh fee for services related to exports. The data acquisition system installed in 2001 provides wholesale electronic meter data collection with 30-minute intervals at the Settlement Center for billing purposes.
Regulatory Framework
Armenia’s power sector is regulated by the Energy Law adopted in 2001. The Energy Law provides basic principles for national policy in energy sector. Main responsible governmental body for handing the national policy is the Ministry of Energy Infrastructures and Natural Resources.
The Energy Law also describes authorities given to the Public Services Regulatory Commission of Armenia (PSRC), which is a fully independent regulatory body.
The Regulator
The PSRC is responsible for overall power sector regulation, including tariff setting for electricity generation, transmission, distribution companies and end users. Except for small renewable energy plants (with installed capacity of less than 30MW), which have feed-in tariffs, the tariffs for all other generation companies are set following the “rate or return” methodology. Under this regime, the revenue that the generation, transmission, and distribution companies are allowed to cover includes: (a) eligible costs related to licensed activities such as fuel, operation and maintenance, repairs; (b) asset depreciation; (c) taxes and other fees; and (d) an allowed return on invested capital. The return allowed on invested capital is based on the estimated WACC. The allowed returns for existing power sector companies are in the range of 10-15% on pre-tax basis. The tariffs are computed in local currency.
Public Services Regulatory Commission (PSRC) responsibilities include:
Power Market
The wholesale power market of Armenia has no elements of competition; it is fully regulated by the PSRC. There are no explicit or implicit subsidies in the power sector, strong payment discipline for consumed electricity, and complete pass-through of all costs to end-usertariffs. The electricity bill collections were at 100% of sales starting from 2003. There are no budgetary subsidies in the sector.
Licensing
The Regulator issues a license within 80 working days of submission of the application. Generation units are receiving a single license for construction and operation for the time period covering both activities. Licensee should provide its legal documents, business plan, land permits, contact with an engineering company for design of the plant, payments to the state budget and a bank guarantee 2500 AMD/kW (5.2 $/kW) that will be exacted to the state budget if the licensee fails commissioning the unit.