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The Government of Georgia is inviting technically and financially qualified domestic and international developers to invest in its hydropower industry. Less than 25% of an estimated potential 40 billion kWh of economically feasible hydropower has been harnessed in the country. The government’s commitment to private sector led development of this remarkable natural resource, and the availability of outstanding sites combined with strong regional economic growth, means now is the time to invest in Georgian hydropower.  

Georgia is blessed with enviable water resources that are well suited to hydropower generation. Prefeasibility studies carried out by leading engineering firms reveal sites that are at the forefront globally in their ability to produce energy. Viability is further enhanced by the availability of multiple sites well suited for cascades. When combined with a relatively simple procedure to gain the right to Build, Own and Operate a hydropower plant, it becomes clear that the Georgian hydropower market is a compelling investment proposition.

The Georgian power system cannot meet electricity demand from local sources during winter months. The country imports large volumes of energy to address this seasonal supply and demand imbalance. The government’s Energy Policy, adopted by Parliament in 2006, will reduce dependence on imports by encouraging further development of domestic hydropower resources. It is within this context that the government is inviting developers to enter or expand their presence in the hydropower industry.

The business case for investment into the Georgian energy sector is underpinned by an eye catching macro story. Real GDP grew by over 8% year on year in the second quarter of 2010. The economy is expected to continue expanding rapidly through 2011 and 2012. This will mark a return to a startling GDP growth trend that neared double digits in 2006 and reached 12% in 2007. Further evidence of macro level improvement is reflected in S&P’s recent raising of Georgia’s long-term sovereign credit rating to B-plus, based on the country’s relative economic strength and growth prospects.

According to the World Fact Book, in 2009 Georgia’s annual per capita electricity consumption was 1,800 kWh, as compared to 8,000 kWh in Germany, 8,500 kWh in Japan, 13,500 kWh in the US and 24,300 kWh in Norway. By making its leading hydropower sites available to qualified developers, the Government of Georgia is offering an unprecedented opportunity to secure a foothold in an economy and a power market that have a good track record in sustaining high growth.

Regional economies and energy markets are also expanding fast. Demand for power in neighboring Turkey specifically, could double between 2010 and 2020. An increasing and irreversible international appetite for electricity generated from renewable sources, and the highly productive nature of its rivers position Georgia to become a significant provider of export power in the midterm.

The government is improving its technical capacity to facilitate increased cross-border energy trade, harmonizing sector legislation and expanding interconnections in multiple directions.

The addition of a new, soon to be completed transmission line between Georgia and Turkey is a significant step towards realization of the country’s export potential.  When other new transmission lines become operational, total capacity between Georgia and Turkey will reach about 1,400 MW, ten times more than currently available.

Reform within the Georgian power sector has already produced impressive results. Collection rates are up from 20% in 2000 to over 90% in 2009. End user tariffs have risen and companies along the industry value chain have been privatized and are profitable. Government policy is to continue to commercialize the sector. Against this backdrop of reform, increased private ownership of hydropower generation is a logical next step forward.

Multiple changes have already been made to stimulate increased commercial activity in the industry. Barriers to market entry have been removed. Tariffs and tariff policies intended to secure the sector’s economic sustainability and enable service providers to achieve cost recovery have been adopted. The use of direct contracts between power generators and wholesale purchasers has been expanded. Transmission and distribution networks are managed on an open access basis. 

In order to attract investment into new hydropower plants with a capacity of up to 100 MW, Georgia passed a Renewable Energy Law in 2008. This Law makes clear the government’s support for private sector construction, operation and ownership of hydropower plants under the principle of Build, Own and Operate. Highlights include levy-free third party access to the national grid, freedom to enter sales contracts using deregulated tariffs, and the right to export for nine months of the year. Power produced during winter months may be sold to any buyer in Georgia or to the Electricity System Commercial Operator (ESCO) under a guaranteed PPA.

Georgia has taken other important measures to create an attractive environment for investment, prompting the World Bank to observe that “no other country has made so many deep reforms in so many different areas so consistently.” In fact, the World Bank reported in 2010 that it was now easier to do business in Georgia than in 22 of the 25 EU nations. Georgia also ranked 3rd in Eastern Europe & Central Asia for ‘protecting investors’. These results reflect clearly Georgia’s determination to harness private investment to meet its energy sector development goals.

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