Energy Transition in Georgia

Energy transition refers to the global energy sector’s shift from fossil-based systems of energy production and consumption — including
oil, natural gas, and coal — to renewable energy sources like wind and solar, as well as lithium-ion batteries.

The increasing penetration of renewable energy into the energy supply mix, the onset of electrification and improvements in energy
storage are all key drivers of the energy transition.

Georgia has developed an energy sector based largely on hydropower and fuelwood, in addition to imports of fossil fuels.
It is also an important transit country for the region, with major oil and gas pipelines running across Georgian territory.
Efforts are required to improve energy efficiency and capitalize on the country’s renewable energy potential. Georgia has
made solid progress in the past decade, both in improving the security of its energy supply and in transitioning to a cleaner,
more sustainable energy system. Although Georgia is still confronted with many challenges in its transition to a more secure,
sustainable, and affordable energy future, the government recognizes most of them and is considering various measures to
address them. Georgia is part of the EU4Energy Program, an initiative focused on evidence-based policy making for the
energy sector.

On 3 March 2022, Georgia submitted its application for membership of the European Union. On 23 June 2022, the European
Council recognized the European Perspective for Georgia and expressed readiness to grant the status of a candidate country
to Georgia once the 12 priorities specified in the Commission’s opinion on Georgia’s membership application have been
addressed. This important decision opened Georgia’s path towards the EU as it recognized that Georgia has the perspective
to join the European Union. The EU issues annual implementation reports to document the steps undertaken by Georgia in
the reform process.

On 8 November 2023, the European Commission recommended that that European Council grants Georgia the status of a
candidate country. The European Union and its associated countries have made significant contributions to the development
of Georgian energy legislation. It is under the influence of the regulations adopted by them that wind and, as a whole,
renewable energy are developing in the country. Moreover, the factor that raises interest in renewable energies is the Black
Sea submarine cable project, which meant to connect Georgia with Romania, from Anaklia to Constanta, running 1,195 km,
1,100 km of which underwater. The high voltage direct current (HVDC) cable would have a voltage level of 500 kV and a
capacity of 1,000-1,500 MW. The idea is that energy from the Caucasus and Caspian could be exported to the European
Union – with a particular focus on renewable energy, from hydropower and other sources. Therefore, it will unite the
Georgian and EU electricity markets. The energy produced in Georgia will be possible to sell on the European market,
where the price is higher. Besides, the country will be able to expand its transitional potential.

The Georgian energy market’s robust foundations have helped the country weather the storm of energy instability following
the conflict in Ukraine and ensuing supply chain tensions. In fact, the country has been energy independent for more than a
decade; the electricity market is thriving thanks to a combination of domestic hydro generation, sound market structures
and strategic import arrangements with other gas and oil partners like Azerbaijan.

Altogether, this has made Georgia an attractive destination for energy investors. By offering support for energy projects
through a contract for difference scheme – providing stable revenues for generators – the government is clearing the runway
for more power plants, with total capacity potentially topping 1,500MW over the next three years via competitive auctions.
Deregulation since 2008 has also helped turbocharge the energy market, and abolishing fees for connecting to the
transmission grid, scrapping export license requirements and sweeping VAT exemptions are helping the power market go
from strength to strength. Notably, approximately ten years ago the Ministry of Energy was eliminated and a small
department joined the Ministry of Economy and Sustainable Development. It was frequently expressed that the existing
capacity of the ministry does not meet demand from investors. Consequently, the process of RES development can be
slowed down.

In order to boost new renewable capacity development in Georgia, the tool was invented. The new investment instrument,
the Contract for Difference (CFD), has been launched since 2023. In contrast with PPA, here the government does not enter
a direct dialogue with an investor. CFD contracts will be signed on the basis of an auction, and the company with the best
price in the auction will receive a right to build a power plant and, in the future, sell electricity at the agreed tariff.

The documents available today regarding the development of the energy sector are inconsistent and, in some cases, far from
reality. Lack of feasibility studies and scientific papers is a hindering factor in the development of renewables. In this
direction, it is necessary to update the wind and sun atlas together with international partners, through which it will be easier
to attract investors.

Notably, energy investor in Georgia is facing resistance from locals. Based on previous bad experiences people are afraid
of building HPPs and are full of skepticism towards such projects.

Energy storage is key to secure constant renewable energy supply to power systems – even when the sun does not shine,
and the wind does not blow. Energy storage provides a solution to achieve flexibility, enhance grid reliability and power
quality, and accommodate the scale-up of renewable energy. Unfortunately, currently Georgia does not have any energy
storage system. However, there can be found feasibility studies funded by international organizations.

Energy storage systems do not follow a one size fits all approach. And the needs of developing countries have often been
overlooked. Developing countries frequently feature weak grids. These are characterized by poor security of supply, driven
by a combination of insufficient, unreliable, and inflexible generation capacity, underdeveloped or non-existent grid
infrastructure, a lack of adequate monitoring and control equipment, and a lack of maintenance. In this context, energy
storage can help enhance reliability. Deployed together with variable renewable energy like wind and solar, it can help
displace costly and polluting fossil fuel-generated electricity, while increasing security of supply. Storage can also help
defer or avoid the construction of new grid infrastructure.
References

1. https://www.iea.org/reports/georgia-2020
2. https://www.spglobal.com/esg/insights/esg-regulatory-tracker-october-2023
3. https://www.eeas.europa.eu/georgia/european-union-and-georgia_en?s=221
4. https://www.german-economic-team.com/en/newsletter/the-black-sea-submarine-cable-project-update-
from-tbilisi/
5. https://blogs.worldbank.org/energy/why-energy-storage-matters-global-energy-transition