2022 October-November Analysis

Georgia’s renewable energy opportunity

Georgia’s tremendous potential for diverse, climate-friendly, renewable energy generation is demonstrated by its many hydropower projects, the Gori wind farm’s proven high capacity, and its growing number of solar installations. This potential translates into significant opportunities for investing in Georgia’s renewable energy resources at the industrial, commercial, and residential scales. U.S. government support to this sector, and its cooperation with the Government of Georgia, have offered expanding climate-friendly investment opportunities that will increase Georgia’s energy capacity and diversify its energy sources.

With the World Bank forecasting GDP growth rate of 5.5% for 2022, Georgia’s economy and its demand for energy are rapidly expanding. Rebounding economic growth is expected to drive a similar increase in Georgia’s electricity demand to serve the needs of heating, air-conditioning, increased economic activity, and the country’s expanding fleet of electric vehicles. Electricity consumption in Georgia has grown at an average of 4.2% y/y over the last decade, while annual domestic generation during the same period only grew by an average of 2.3%, according to GNERC.

That leaves Georgia vulnerable to international market risk. Domestic energy production covers less than one-fourth of Georgia’s total energy demand, with the country importing all its natural gas and most of its oil. Energy imports from Russia include 5 to 10% of its gas–reaching up to 20% during winter months. Russia accounted for 13% of Georgia’s electricity imports in 2021 (not including imports to Abkhazia). Russia’s invasion of Ukraine, and the associated turmoil in European gas markets, have reinforced the inherent risks to such supplier relationships. It is time for Georgia, and international investors, to invest in clean, resilient energy production and minimize dependency on foreign sources of fossil fuels and power.

Georgia’s 2030 Climate Change Strategy and Mitigation Action Plan and the long-term National Energy Policy both prioritize international and domestic investments in new renewable energy infrastructure. The Climate Change Strategy includes a vision to support renewable energy so that its share of electricity production reaches 87% by 2030, up from 72% today. Accomplishing this goal requires significant private sector investment in renewable energy projects to realize the additional 1,054 MW of renewable energy capacity.

Georgia is building on the solid progress made in attracting renewable energy investments by developing a new National Energy Policy, increasing regional energy trade, and introducing market-based incentive mechanisms that pave the way for further investment. Total foreign direct investment inflow in Georgia was $1.2 billion in 2021, with the energy sector exceeding $157 million, or 14%, making it the second highest source for foreign direct investment after the financial sector. Expected forthcoming market-based incentive schemes should increase opportunities for investment.

Georgia’s focus on energy resilience aligns with its longstanding interest in developing renewable resources, deploying cleaner sources of energy, improving energy efficiency, and tackling climate change. While hydropower is a very developed sector in Georgia, the country also has immense untapped potential in solar, wind, and energy efficiency. Successful clean energy installations, such as the Gori wind farm, have demonstrated that Georgia can build efficient clean energy installations to increase its energy security.

Small and medium-size renewable energy projects have emerged as the principal near-term opportunities to quickly tap Georgia’s proven clean energy potential and offset energy imports. This will contribute greatly to Georgia’s energy security all while making a positive contribution to addressing global climate change. Due to their short development period, small and medium renewable energy projects, particularly hydropower, can be online quicker than larger, industrial-scale initiatives. These can also take advantage of new transmission infrastructure being added in remote areas.

Gori Wind Farm has demonstrated the possibility for other high capacity wind generation. Photo credit: USAID/Georgia

The U.S. government, through its various agencies and in close cooperation with other donors and financial institutions, has been supporting Georgia’s advances to improve its clean energy investment climate. Thanks to USAID’s technical and advisory assistance, private sector investors recently committed to nearly 260 MW of new generation capacity, including four wind projects—representing the mobilization of over $358 million of new investment.

Pending developments in the governance sphere, the United States Development Finance Corporation (DFC) will resume consideration of multiple renewable energy projects, including Georgian Renewable Power Company’s (GRPC) 54 MW wind power project in Kaspi, which is estimated to cost up to $71.5 million. GRPC and DFC are also negotiating U.S. support for a 54 MW wind power project near Tbilisi at a project cost of up to $66.5 million.

International investors, such as the Caucasus Clean Energy Holding (CCEH), that bring EU and U.S. investments in small and medium hydropower projects provide powerful examples of successful investment in Georgia’s renewable energy. To date, CCEH has invested in five hydropower plants including Bakhvi 3, Lakhami, Achi, Intsoba, and Akhalkalaki with a total installed capacity of 37.7 MW. It is now developing additional hydropower plants with a total installed capacity of 43 MW.

Tbilisi’s hosting of the Energy Regulators Regional Association’s Renewable Energy Investment Conference from October 26 to 28 is another indication of international recognition of Georgia’s renewable energy investment potential. To move the investment climate forward, USAID is partnering with the private and public sector to finalize the implementation of a competitive wholesale electricity market in the medium term. In the coming year, the developments in Georgia’s power and renewables markets should provide the foundation for successful investment and the construction of new generation capacity that will propel Georgia ahead toward meeting its energy security and climate change goals.