Georgian electricity and gas market models – comparison with the EU models

1. 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

2. Contents • Legal framework • Regulators role • Electricity market model • Proposed changes • Gas market model

3. Law on electricity and natural gas • 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

4. Main steps in the electricity sector liberalisation

5. Law lacks(if compared with the EU legislation) • 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

6. Main directions of the state energy policy (2006) • sets the main energy policy objectives: self-sufficiency, 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

7. Georgian electricity system

8. HPP HPP TPP Import GSE Sakrus-energo ESCO Energo-Pro Telasi Kakheti EC1 EC2 Regulated consumers power flow contracts eligible consumers EC1 Georgian electricity model Generation Wholesale Transmission Distribution and supply Consumption

9. National energy regulatory commission • 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

10. But in a competitive market GNERC should have additional duties • 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

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

12. Electricity generation in 2007

13. Regulation of the generation tariffs • “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

14. Role of TSO • coordinates all the operational schemes • provides ancillary services • balances imbalances • operates, maintains, plans and develops the system

15. Establish strong TSO • possible merger of Sakrusenergo and GSE • alternative – independent system operator • in any case system operator should provide to the market system services

16. Alternative model - ISO • Alternative is "Independent System Operator" (ISO) • 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

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

18. Legal unbundling • 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

19. Unbundle distribution and supply • 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

20. Georgian gas system

21. Development of Georgian gas market • impressive changes during the last couple years • new transport routes and new external suppliers • security of supply increased significantly • further rehabilitation of the system • further privatization

22. Gazprom Azeri Gas Company BP Ext. supply Gas Transportation System GOGC Trans-portation Energoinvest Itera Mtkvari … Distrib. and supply Consum-ption C1 C2 Cn Azoti Gas flows Contracts Georgian gas market model

23. Operation of the gas market • 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

24. Further developments needed • unbundling distribution and supply (legal unbundling is necessary) • removal of cross-subsidies in the gas transportation tariffs

25. THANK YOU