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Energy reforms in Armenia: On the way to energy security

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  • Energy reforms in Armenia: On the way to energy security

    US Fed News
    April 28, 2011 Thursday 11:25 AM EST


    ENERGY REFORMS IN ARMENIA: ON THE WAY TO ENERGY SECURITY


    WASHINGTON, April 28 -- The World Bank issued the following feature story:

    Entrepreneurs like Marcos Gharibyan are fueling the growth in
    renewable energy in Armenia by investing in small hydro-power plants.
    Gharibyan took a risk and got a loan to invest in two small hydro
    power stations. "We have a small gardening firm. We thought that since
    we were bringing in irrigation water, we could just as well build a
    hydropower station on that water flow," Gharibyan explains.

    After he built the station, Gharibyan took another leap of faith and
    built a 10 kilometer long high voltage power line to connect his
    stations so they can feed into the national power grid and he can
    recoup some of his investment. Built on a stream of the Azat River,
    the stations operate for only 4 months a year. However, regulations
    and incentives help to insure a profit.

    The market for small hydropower stations is well developed in Armenia
    and the government has created incentives for investment. Energy law
    mandates that the power distribution grid buy electricity generated by
    small hydro power stations for 15 years after they become operational.
    The Public Services Regulatory Commission has established feed-in
    tariffs for the electricity they produce.

    "The feed-in tariffs enable developers to assess, based on technical
    parameters, whether it makes business sense to invest without having
    to rely on any state official, and the guarantee of 15 years of
    purchase meant that the developers could confidently invest in this
    area," says Robert Nazaryan, Chairman of the Public Services
    Regulatory Commission.

    The end of the energy crisis in the 90's was the beginning of a new
    era for Armenia. One of the lessons learned was to use local resources
    efficiently to ensure the country's energy independence and security.
    And as its energy resources are limited, renewable energy is of great
    importance.

    "The development of renewable energy in Armenia is of triple
    importance. First, it uses local energy sources, second it uses
    renewable energy sources and third, it uses clean sources of energy,"
    says Arayik Marjanyan, Renewable Energy Program Coordinator, Renewable
    Resources and Energy Efficiency Fund.

    The World Bank provided a $5 million dollar credit to ensure
    investments in the sector. The co-financer, the European Bank for
    Reconstruction and Development, invested $7 million dollars; the
    Cascade Universal Credit Organization owned by the Cafesjian family
    foundation invested $3 million dollars. Many commercial banks are now
    providing loans for the construction of small hydropower stations.
    Thus, a favorable legal framework is coupled with the opportunity to
    get financing.

    Ninety four small hydropower stations are operational in Armenia,
    providing about 3 percent of Armenia's domestic demand for
    electricity. Of those, 27 were built under the World Bank's Renewable
    Energy Project. An additional 65 hydropower stations are under
    construction. Once they start operating, small hydro power stations
    will meet 6 percent of the internal demand for electricity.

    Besides providing electricity, small hydropower stations provide jobs.

    "There is a lot of construction of small hydropower stations going on
    in Vayots Dzor now and it is very efficient; first of all, even the
    smallest hydropower station creates 7 new jobs," says Gagik Avetisyan,
    operator of the Yeghegnadzor hydrostation.

    The "Artavan-1" small hydropower station is under construction now.
    Armen Mikayelyan from Artavan village has been working on it for a
    year.

    "We are employed now, which is good. If I did not have this job, I
    would have to go and cultivate my land and breed the cattle, barely
    managing. It isn't good going abroad for seasonal work, either: you
    leave your family behind and your children unattended. It's better to
    work here than abroad," Mikayelyan says.

    The World Bank's Renewable Resources and Energy Efficiency Fund works
    towards securing investments in clean energy. Armenia got a $3 million
    dollar grant from the Global Environment Facility (GEF) to identify
    its renewable energy potential and attract private investments. The
    project designed the scheme for small hydropower stations, and
    developed model business plans and guidelines for the renewable energy
    sector. This information is available at www.r2e2.am.

    Despite remarkable achievements, Armenia's energy sector faces new
    challenges. A main electricity generator- the Metzamor nuclear power
    plant - is set to close, as are several thermal power stations.
    Depending on demand, Armenia will need an additional 850 to 1350
    megawatts of electricity generation capacity.

    Its state-owned high-voltage transmission network desperately needs
    investments, which are being supported by the the World Bank through a
    transmission line rehabilitation project.

    Also, the energy sector is vulnerable to interruptions in imported
    fuel supply. And the price of imported natural gas is constantly
    rising, leading to higher heating and electricity supply tariffs.
    Affording energy is a growing concern, especially for the poor.

    In order to ensure a reliable and affordable energy supply system,
    energy efficiency is key for Armenia.

    "We should not produce as much as we want, but rather as much as we
    need, and this difference between how much we want and how much we
    need is the energy efficiency that we must achieve" explains Armen
    Movsisyan, Minister of Energy and Natural Resources. "Otherwise, this
    will lead to increase in tariffs, and decrease in reliability and in
    the level of energy security. This approach must be applied
    country-wide, so that we can have a more reliable and secure system."

    The International Energy Agency says it is 3 times more expensive to
    produce one kilowatt/hour of electricity than to conserve it. Thus
    energy conservation, too, is a source of energy. A 2008 World Bank
    study concluded that energy efficiency improvements could save the
    country more than $360 million dollars annually, equivalent to almost
    4.5 percent of its 2009 GDP.

    "Armenia has a well established energy sector, the institutional
    reforms that were implemented have created solid basis for future
    development and yielded tangible results," says Gevorg Sargsyan, World
    Bank project leader for the Renewable Energy Project. "However, the
    sector faces serious challenges, which may jeopardize its
    sustainability. If no measures are taken today, Armenia will face
    electricity deficit again. The energy sector needs serious investments
    to reinforce the implemented reforms and secure the country's bright
    and warm future."




    From: A. Papazian
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