Armenia - Country Commercial Guide
Energy

This is a best prospect industry sector for this country.  Includes a market overview and trade data.

Last published date: 2021-09-16

Overview

Armenia’s energy sector has moved from a state of severe crisis in the early 1990s to relative stability today.  A combination of policy, legal, regulatory, and institutional reforms have had good results.  Improvements in operating efficiency through a decrease in technical and nontechnical line losses, as well as a nearly 100 percent collection rate, have helped create commercially viable service providers.  However, issues related to energy supply, electricity market liberalization, and administration remain. 

Armenia faces three principal challenges in its energy sector:  an emerging supply gap; energy supply reliability; and the need to maintain affordable tariffs.  Armenia has limited energy resources and can meet only a fraction of the total demand for energy from domestic resources.  Armenia does not have oil or natural gas reserves and is thus highly dependent on imported energy resources.  It imports oil and petroleum products from Russia, Georgia, Iran, and Europe.  Natural gas is imported primarily from Russia through Georgia, with a limited volume of natural gas imported from Iran in an electricity-for-gas swap arrangement.  Nuclear fuel is imported from Russia.  Armenia has very low levels of energy efficiency compared to developed countries.  The government has adopted several laws focused on developing domestic, especially renewable, energy resources and implementing energy efficiency measures. 

The Law on Energy regulates relations between legal entities involved in the energy sector and provides the legal basis for producing and delivering electricity, heating, and natural gas to consumers.  The Law on Energy Efficiency and Renewable Energy seeks to identify mechanisms to improve energy efficiency and develop additional sources of renewable energy.  The law facilitates the development of renewable energy resources and specifies that all renewable energy produced is to be purchased by the electricity distribution company.  The regulator for the energy sector, the Public Service Regulatory Committee, has set attractive tariffs for newly constructed small hydro, wind, and solar power plants.  It has also stipulated that electricity off-take tariff rates apply for at least 15 years from the date of issue of an operating license for a new plant. 

The government amended the Law on Energy in 2017 to drive greater liberalization of the market.  The changes will be phased-in, and during the transition a hybrid model will continue.  Energy supplies will be guaranteed based on existing power purchase agreements.  Generators selling on the market will be obligated to pay the electric networks only for distribution.  New amendments in the law also provide for the introduction of competition among electricity suppliers, which will break up the control exercised by one firm, Electric Networks of Armenia, over distribution throughout Armenia.  With the changes in the law, consumers will be able to purchase electricity from other suppliers.  Large wholesale consumers will be able to enter the market and purchase and consume electricity generated from outside Armenia.  Mechanisms to implement the amendments are scheduled to come into effect by 2022.  

In 2019, the Ministry of Energy Infrastructures & Natural Resources and the Ministry of Territorial Administration & Development merged to become the new Ministry of Territorial Administration & Infrastructure.

In January 2021, Armenia adopted the 20-year Energy Sector Development Program, which is intended to build a transparent, diversified, and energy efficient system for sustainable development.  The Program will identify new power generation facilities, electricity transmission systems, and institutional issues related to market liberalization and associated legislative gaps.

Armenia has sufficient electricity-generating capacity to meet current domestic needs, but electricity demand is projected to grow by up to three percent annually.  Electricity in Armenia is generated primarily by the Armenian Nuclear Power Plant (ANPP), hydroelectric plants, and thermal plants.  Solar energy provides only a fraction of current power generation.

The ANPP, with an operating capacity of 385 megawatts (MW), meets about 40 percent of Armenia’s demand for electricity.  Armenia is under international pressure to decommission this plant for safety reasons.  However, the government is reluctant to close it and expects to obtain an extension of its operating license through 2026.  According to its Strategic Program, the government is prioritizing a further extension of the operational lifetime of ANPP into 2036.  After that, the government plans to maintain nuclear power in the country’s energy mix.     

Hydroelectric plants generally provide an additional 20 percent of Armenia’s electricity demand, but the levels of generation depend on seasonality and rainfall patterns.  Thermal power provides the bulk of the remaining generation. 

Since 2006, Electric Networks of Armenia (ENA) has been the sole electric power distributor in the country.  It is Armenia’s largest employer and serves approximately 985,000 electric utility customers.  ENA’s owner, Tashir Group, announced that, in cooperation with international financial institutions, it will invest about $900 million in upgrading the network infrastructure in the next few years.

The High Voltage Electric Networks–a state monopoly operated as a closed joint stock company—manages the assets of Armenia’s transmission network, performs operational and maintenance functions, and implements necessary investment programs.  The Electro Power System Operator CJSC is responsible for the strategic functioning of Armenia’s power system.  The Public Services Regulatory Commission establishes the procedures for setting and reviewing tariffs.      

The Fund for Renewable Energy and Energy Efficiency of Armenia is a state entity responsible for creating a favorable environment for the development of renewable energy and energy efficiency projects.  This organization examines potential opportunities for solar, wind, and geothermal energy development in Armenia. 

Leading Sub-Sectors

Armenia could reap sizable economic benefits from improved energy efficiency.  The electric power system of Armenia is considered to have significant potential for sustainable energy because of the presence of hydroelectric and other renewable energy sources.           

The total installed capacity of all hydropower systems is 1,293 MW.  Hydropower could support an even greater share of Armenia’s electrical needs due to inefficiencies in small hydropower plants, which lack modern control technologies, depend on unreliable equipment and materials, and suffer from poor engineering, and are not designed to meet modern environmental requirements.

Armenia also has notable solar energy potential.  The average annual amount of solar energy flow per square meter of horizontal surface is approximately 1,720 kilowatt-hours (kWh), which is high relative to an average European figure of 1,000 kWh.      

The government has recently prioritized the construction of solar power plants over other types of renewables.  Newly tendered solar deals are expected to comprise 210 MW of capacity by the end of 2022.  The government aims to increase the share of solar power generation at least to 15 percent of total capacity, or 1.8 billion kWh, by 2030.     

According to the Ministry of Territorial Administration and Infrastructure, which oversees the energy sector, wind energy potential in Armenia is approximately 450 MW of total installed capacity.  Mountain passes estimated to have high wind resources include Karakhach, Pushkin, and Jajur in the Bazum Range, Sevan in the Areguni Range, and Sisian in the Zangezur Range.  The government has in recent years entered into memoranda of understanding with developers and issued decisions to provide assistance to companies for wind projects with capacity of up to 150 MW.

The government has taken some steps to develop the country’s geothermal resources.  Recent studies have estimated that Armenia has approximately 150 MW of geothermal potential.  Potential sites for geothermal are concentrated in the southern part of Armenia, including at Karkar, Sisian, and Jermaghbyur.  Capacity at each of these sites has been estimated to have a capacity up to 30 MW.  However, further studies are necessary to evaluate the feasibility of potential projects.

Biomass is not widely used as a source of energy.  International donors are working to improve Armenia’s landfills in the coming years, which may delay any immediate prospects to utilize landfill gas for electricity generation.

Energy Opportunities

There are a number of promising opportunities in the energy sector, particularly for renewable energy projects.  The government has indicated potential opportunities for the development of medium-sized hydropower plants, including at Lori-Berd (60 MW) and Shnogh (76 MW) in the northern part of Armenia.  Among Armenia’s two large hydropower plants, the Sevan-Hrazdan Cascade is in need of tens of millions of dollars of rehabilitation, as its construction began in 1936.  There are new opportunities for solar development as the Government plans tenders for construction of seven more solar photovoltaic power plants with total installed capacity of about 520 MW.  There are also opportunities for smaller solar projects; the Tashir Group has signaled its interest in partnering with U.S. firms for consulting, design, procurement, installation, and commissioning on a solar installation as part of a data center project.  There are opportunities for wind projects as well.  Geothermal and biomass investments appear to be relatively speculative at present.

There are some opportunities in the natural gas space as well.  Gazprom Armenia is engaged in long-term investment programs in Armenia totaling in the hundreds of millions of dollars.  Major projects include the expansion of an underground gas storage facility, for which it will need various equipment, including gas compressors.

The government has expressed an interest in utilizing U.S.-licensed small modular reactor technology to eventually replace the Armenian Nuclear Power Plant, giving U.S. firms an opportunity to recognize a huge win and play a transformative role in Armenia’s energy security posture.

As part of the government’s efforts to promote greater energy efficiency, there are opportunities for U.S. investors and exporters to make contributions in this space.  At the beginning of 2020, the government estimated that the market for energy efficiency investments in Armenia stands at $2 billion.  Several projects are already underway to increase energy efficiency in residential buildings.    

Resources

  • Ministry of Territorial Administration and Infrastructure
  • Ministry of Economy
  • Public Services Regulatory Commission (PSRC)
  • Renewable Resources and Energy Efficiency Fund (R2E2)
  • Electro Power System Operator CJSC (EPSO)
  • High Voltage Electric Networks (HVEN)
  • Electric Networks of Armenia (ENA)
  • Armenian National Interests Fund (ANIF)
  • Enterprise Armenia
  • Statistical Committee of the Republic of Armenia
  • UNCTAD Investment Policy Review of Armenia
  • WTO Trade Policy Review: Armenia 2018
  • American Chamber of Commerce in Armenia
  • Spyur Information System