The FINANCIAL — Telasi sold electricity to household consumers amounting to about GEL 115 million excluding VAT in 2012, according to Telasi, one of the major network companies of Georgia, carrying out distribution and sale of electric power in Tbilisi.
“The results for 2013 can be estimated to be about GEL 110 million excluding VAT. The reduction is due to the power tariff reduction. Total consumption of Georgian residential consumers of electricity was about GEL 265 million (excluding VAT) in 2013. We did not manage to find similar information for gas bills,” Norberto Pignatti Coordinator of the Concentration in Energy and Natural Resources Management, ISET, told The FINANCIAL.
There are no official statistics about the total amount paid by Georgian households and firms for gas and electricity in Georgia in 2013. The Ministry of Energy and Natural Resources of Georgia, Georgian Oil and Gas Corporation and Georgian National Energy and Water Supply Regulatory Commission say they do not collect such data and cannot provide it.
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Georgian Energy Minister Kakha Kaladze said on 6 May that the country should diversify its energy partners, noting that there is still a need for more suppliers – including Russia. Georgian President Mikheil Saakashvili responded by saying that “considering Russia as a serious alternative for energy supplies means fundamentally reviewing Georgia’s independence”.
Georgia switched to Azerbaijani gas in 2006, after Russia left the country without gas during the cold winter months.
Today, Georgia is supplied by Azerbaijan state company SOCAR which is often considered by experts to be the absolute monopolist on the local market.
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The consumption of gas was 1,912,426.140 cubic meters, according to the Georgian Oil and Gas Corporation. The average tariff for gas consumption is 30 Tetri. Total money paid for the gas amounted to approximately GEL 573 million. As for the electricity, its consumption was 10 billion kilowatt-hours, according to ESCO. The average tariff is 3.38 Tetri which means that it was paid GEL 709 million for the electricity.
“There is a difference between the total paid by firms and consumers and the “cost for Georgia”. The bills are what consumers and firms pay. However, what they pay goes partially to compensate producers and distributors. If distributors and/or producers are Georgian they, once their costs are covered, make profits. What if the gas and/or the electricity consumed come from abroad? Also in this case part of the money will still go to distribution companies and constitute their profits. Therefore, also in this case adding up the bills paid would not give an exact measure of the cost “for the country”,” said Pignatti.
Q. What is the real cost for Georgia then? And how can we say whether it is better for Georgia to consume natural gas or electricity?
A. In order to answer we need to: a) As far as the electricity/gas are imported we have first of all to look at the cost of imports; and b) Secondly, we have to compare this cost with the opportunity costs associated with internally produced energy sources.
For example, the internally generated energy source could be employed (or sold abroad) in a more remunerative way if it did not have to be used to “replace” one unit of imports. Even if these opportunities did not exist, one should still take into account the production cost of this unit of energy. If we have to spend more to generate an extra unit of energy than we pay for imports we might want to import and use the money we save in some more profitable way.
To make things even more complicated, costs of imports and internal production costs (or potential gains from alternative uses of internally produced energy sources) are not constant but change continuously. For example, the cost of generation of one unit of electricity in Georgia is highest in winter (when electricity generated by hydro power plants – HPPs – is at a minimum) and lowest in spring/summer months. Not only that, but generation costs also change during each day.
Moreover, potential costs and revenues now are not necessarily going to be the same in a few years. Any decision taken now is likely to have a long lasting impact on the country and affect the future outcomes.
It should be clear by now why speaking of losses, gains, costs and benefits for “the country” can be very misleading. Gains and losses from alternative policies usually do not accrue to the same individuals/group of individuals. For example, covering the gap between internal generation and internal demand of electricity in winter with new HPPs or with new Thermal power plants (using imported gas) or by importing electricity or by building wind farms will lead not only to different gains/losses but also to different winners/losers.
Moreover, the identity of final winners/losers and the amount of gains/losses associated with each policy depend crucially on many other factors (e.g. the taxation of profits, the way tariffs are calculated, the structure of the electricity market, the environmental and social consequences of the different choices, etc.) and can change over time.
Identifying the “best” option is in most cases not a purely “technical/scientific” task. Economists can point out the expected costs and gains associated with alternative choices and suggest who they expect the winners and losers will be. The final decision however in most cases will depend crucially on the weight given to costs and gains (which will usually depend on the identity of the winning/losing groups).
The ideal solution is, from my point of view, that the public is informed about the existing alternatives, their potential costs and benefits, and a final decision is taken after a public debate.
It could be technically feasible to satisfy all demand for electricity internally (and, possibly, exporting the excess supply abroad) if the investments in generation capacity continued. With some more difficulty it might also be possible to satisfy all energy demand (might be easier in the future, in the presence of substantial technological changes). However, for all that we have just said, all this might not be desirable from an economic point of view.
Q. Georgia has potential in the energy sector, according to different experts. Is it possible for Georgia to use only electricity during the whole year without import and gas consumption? If it is possible – then how?
A. At this stage it is not possible, mostly because of the seasonality in electricity generation (high in spring/summer and low in winter). It might be possible if substantially more generation capacity was installed. Again, it is not clear whether it would be desirable. It could turn out to be extremely more costly than just importing electricity and gas in periods in which the demand reaches its peak (unless one could sell very profitably the excess electricity abroad). Something that could help is: increasing the number of HPPs capable of storing water (with reservoirs); integrating HPPs with wind farms (who could generate electricity in periods when hydro generation is low and demand is high – i.e. winter – and help refilling reservoirs when demand is low); devising other ways to store energy and to increase the efficiency in the use of energy by households and firms.
Q. What is the loss Georgia suffers when importing resources from other countries?
A. It is clear that whenever we consume energy we have to pay its cost (whether this energy is generated internally or externally). We would have a “loss” – when importing a unit of energy – only if we could have substituted that unit with an internally produced one with a lower production cost. This is not always the case. Energy demand is not constant. It is a very well known fact that energy demand fluctuates during the year but also during the day. By studying energy demand one can usually identify both “baseline” consumption (the minimum level of demand during the day and/or during the year – for example) and the “peak” consumption (which occurs only in special parts of the day and/or of the year). Most countries can cover easily and cheaply the “baseline” consumption with nationally based power plants.
However, generating enough electricity to satisfy “peak” consumption can turn out to be much more complex and costly (not least, because a plant built to cover peak consumption would risk being inactive most of the time). This should explain why, in several cases, importing electricity and/or gas can turn out to be cheaper than expanding the internal generation capacity enough to satisfy completely (i.e. including peak periods) internal demand. In this case importing would help the country save money (and generating gains, not losses).
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