2021 April-May Analysis

How the Enguri HPP shutdown played out for Georgia and its breakaway Abkhazia region

You might not have noticed because the lights stayed on, but Georgia’s largest single source of electricity, the Enguri hydroelectric power plant (HPP), was shut down for repairs for three months on January 21.

The plant supplies nearly 40% of Georgia’s annual electricity consumption, and nearly all that of the country’s breakaway, Russian-occupied region of Abkhazia. Investor.ge looked into how the shutdown of the Enguri HPP has played out both for Tbilisi and breakaway Sokhumi.

Georgia: increasing dependence on neighbors


Fortunately, the shutdown of the Enguri HPP passed without much of a hitch on Tbilisi-controlled territory, as “in [the winter period] nearly the entirety of the volume generated by the Enguri HPP would still have been consumed by Abkhazia,” energy expert Murman Margvelashvili told Investor.ge.

Had the shutdown taken place at any other time, it may have been more problematic, as Georgia has become increasingly more reliant on energy imports in recent years. Between 2010 and 2016, Georgia was largely self-sufficient when it came to power, importing little electricity from its neighbours.

Starting around 2017, the picture began to change as direct energy imports from neighbors into Georgia began to increase. In 2019, the energy deficit was 1.8 TWh, or 14% of the 12.8 TWh the country consumed that year. By 2025, studies predict the energy deficit will have risen to 3 TWh.

Despite much talk of the country’s under-utilized hydro energy resources, the internal generation picture hasn’t changed much in recent years, with thermal and hydropower plants retaining a very rough 25% and 75% share respectively, while imports have risen gradually since 2016 with the exception of 2020 due to decreased energy consumption in the first year of the Covid-19 pandemic.

One positive takeaway is that Georgia has been able to diversify its energy imports away from heavy reliance on Russia, adding Turkish and Azerbaijani power imports to make Russian energy of secondary or even tertiary importance when it comes to imports.

While energy prices did go up during the Enguri shutdown, this was a scheduled tariff increase established by the Georgian National Energy and Water Supply Regulatory Commission, which fell short of the request for large price hikes made by transmission companies seeking higher fees to offset their expenses caused by the depreciation of the Georgian lari.

Thanks to subsidies from the Georgian government to pay the electric expenses of households that consumed electricity within certain bounds due to the Covid-19 pandemic and a pledge to cover increased electricity costs for households, the closure of the HPP did not significantly affect prices.

Though Georgia has steadily moved away from its reliance on the HPP located on the administrative boundary line and energy shortfalls have been readily made up for by imports, Enguri remains of critical importance, and the repairs being carried out on the HPP promise to extend its lifespan and increase efficiency by as much as 30-35%; preventing water leakage in the dam’s diversion tunnel may mean as much as an additional 100 million kWh of electricity generation per year starting in May once the HPP is scheduled to resume operations. More than 95 million GEL has been invested in the project, and projected profits over the next 15 years thanks to the repairs are in the range of 230 million GEL and up.


Russian-occupied Abkhazia in the dark

Breakaway Sokuhmi has had a rougher go of the shutdown, which has revealed gaping holes in its energy system and raised fears that this could cast the region further into Russia’s orbit and control.

Abkhazia has historically been entirely dependent on the Enguri HPP. An agreement between Tbilisi and Sokhumi stipulates that the energy produced by the Enguri HPP is to be shared 40%-60%, with the larger share going to Tbilisi-controlled territory. However in recent years Abkhazia’s share has steadily increased, and in certain periods of the year, such as the winter, the region consumes nearly all of the plant’s energy, while it has been tapping the Enguri HPP for as much as 60% of its total generation during other seasons.

This is in large due to the recent proliferation in cryptocurrency mining in the region in the past two years, and which by some estimates accounts for nearly one-third of the region’s energy consumption.

The culprit: ultra-low electricity tariffs. A recent ISET-PI study reads: “The increase in electricity consumption in Abkhazia in recent years is mainly due to the fact that electricity bills are much lower than in the rest of Georgia. The Telasi tariff for 1 kWh of electricity ranges between 0.04-0.07 USD, while the population of Abkhazia pays much less (0.0063 USD). This circumstance leads to inefficient consumption of electricity and increased demand (households and companies, cryptocurrency mining).”

A December 2020 ban on cryptocurrency mining and the import of mining machines into Abkhazia will remain in place until June 1, 2021, and hundreds of cryptocurrency “farms” have been disconnected and confiscated since, however many illegal farms remain connected. Blatant daylight robberies are responsible for a number of the disconnections as owners have no recourse to the police. It is speculated that the attempt to eradicate mining has been stymied by both de facto Abkhaz officials’ and Russian business interests.

As a result, power outages and unusably low current are now the norm in the region.

The timing of the Enguri shutdown did not make things easier: the occupied region’s energy consumption in the January-April period traditionally exceeds the total output of the Enguri HPP and the Vardnili I and Vardnili II HPPs as well.

Director of the Enguri HPP Levan Mebonia points out what many feared in the run-up to the shutdown: “During this time, Abkhazia has had no alternative but to purchase energy from Russia, however I cannot say whether they are paying a monetary price or in some other way.”

In the past, Georgia has bought electricity from Russia to make up for the region’s deficit and supplied it to Abkhazia, but this time, Economy Minister Natia Turnava announced shortly before the shutdown, this would not take place.

To manage, unrecognized Sokhumi took out a nearly $8 million loan from Russia to purchase 200-250 million kWH hours from Inter RAO (the Russian operator of electricity imports/exports).

There have been heated public arguments about the advisability of Georgia’s decision not to fund the winter in Abkhazia.

On one hand, there is an argument to suggest that the Georgian government’s effective electricity subsidy is responsible for the region’s cryptocurrency boom. Others point out that the only other option is to let Abkhazia turn to Russian assistance, which rarely comes without a catch. In this particular case there have been multiple such strings. The one particularly relevant for our purposes: Russian companies have long eyed Abkhazia’s energy system, whose struggling electricity operator has public debt estimated at around $26.5 million, and which would struggle to become profitable even with improved collection measures.

In the recently published program of “harmonization of the legislation of Abkhazia and the Russian Federation,” which has riled the Abkhaz public itself, one of the points suggests “the denationalization of the Abkhaz energy sector,” which includes transmission networks and the admission of Russian businesses to the market.

Moscow has persistently asked Abkhazia to allow Russian companies into the sector, but the de-facto Abkhaz authorities have declined. Now, many are wondering whether there will be any choice in the matter.

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