COUNTRY REPORT ARMENIA Authors: Tigran Arzumanyan Mikael Abovyan Lead by NAS RA, with the support of TTA 2014 This Country report has been developed and funded within the FP7 project ENER2I - “ENErgy Research to Innovation: Reinforcing cooperation with ENP countries on bridging the gap between energy research and energy innovation” supported by the European Commission under the grant agreement № 609532. ener2i - 609532 19/11/2014 Table of Contents ABBREVIATIONS ............................................................................................................. 3 CHAPTER 1: INTRODUCTION ......................................................................................... 4 CHAPTER 2: CURRENT ENERGY SITUATION IN THE COUNTRY ..................................... 4 2.1 LEGAL FRAMEWORK IN THE FIELD OF ENERGY ....................................................... 6 2.1.1 Energy Law ............................................................................................................... 6 2.1.2 Energy Efficiency and Renewable Energy Law......................................................... 7 2.1.3 Water Code .............................................................................................................. 7 2.1.4 Energy Security Concept .......................................................................................... 7 2.1.5 Energy debates ........................................................................................................ 7 CHAPTER 3: CURRENT SITUATION WITH EE/RES .......................................................... 8 3.1 HYDROPOWER ............................................................................................................. 10 3.2 WIND………. .................................................................................................................. 10 3.3 BIOMASS ...................................................................................................................... 10 3.4 SOLAR ................................................................................................................ ………..11 3.5 ENERGY EFFICIENCY ..................................................................................................... 11 CHAPTER 4: INNOVATION SITUATION IN THE ENERGY SECTOR ................................ 11 CHAPTER 5: OVERVIEW OF CRITICAL STAKEHOLDERS ............................................... 22 CHAPTER 6: ANALYSIS ................................................................................................. 24 REFERENCES ................................................................................................................. 28 List of Tables and Figures Figure 1: Primary Energy Supply In Armenia, 2008-2012 ............................................. 5 Table 1: Inogate Projects ............................................................................................ 21 Table 2: Swot Analysis Of The Innovation System In Armenia .................................. 27 2 ener2i - 609532 19/11/2014 Abbreviations CDM = Clean Development Mechanism EaP = Eastern Partnership countries EBRD = European Bank for Reconstruction and Development EE = Energy Efficiency GWh = Gigawatt Hour HPPs = Hydro Power Plants IFC = International Finance Corporation IMF = International Monetary Fund KTOE = Kilotonne of Oil Equivalent NPP = Nuclear Power Plant R&D = Research and Development RES = renewable energy sources RTD = Research and Technological Development S&T = Science and Technology SMEs = Small and medium enterprises 3 ener2i - 609532 19/11/2014 Chapter 1: Introduction The objective of this Country Report is to conduct the analysis of the energy sectors in Armenia and the identification of stakeholders as basic information for the initiation and stimulation of further innovation and research support activities for energy efficiency (EE) and renewable energy sources (RES) to be carried out within ener2i project. It will focus on existing potential in EE/RES and provide overview of available technologies and technology providers, opportunities and barriers and address relevant policies and energy strategies. This analysis will also constitute the basis for the formulation of policy recommendations and the definition of a joint roadmap to be addressed to the responsible public institutions. The analysis is carried out on the basis of common methodology developed within WP2 of ener2i project also to allow conducting a comparative analysis focused on the local energy innovation systems in Armenia, Belarus, Georgia and Moldova. Chapter 2: Current energy situation in the country Armenia, officially the Republic of Armenia, is a landlocked mountainous country in the Caucasus region of Eurasia. Located at the crossroads of Western Asia and Eastern Europe, it is bordered by Turkey to the west, Georgia to the north, the de facto independent Nagorno-Karabakh Republic and Azerbaijan to the east, and Iran and the Azerbaijani exclave of Nakhijevan to the south. A former republic of the Soviet Union, Armenia is a unitary, multiparty, democratic nation-state with an ancient and historic cultural heritage. Armenia has no indigenous sources of oil, coal or natural gas. It imports and consumes 47,000 barrels of oil a day, most of which is imported from Russia. It also imports and consumes about 9 mln cubic meters of natural gas of which two-thirds is imported via pipelines from Russia that runs through Georgia, and one-third comes from Iran. In 2008, Armenia imported 2.2 bn cubic meters of gas from Russia. On December 23, 2009, Iran and Armenia reached an agreement for Armenia to import about 150 mln cubic meters of natural gas from Iran. Armenia was importing 1-1.5 mln cubic meters of natural gas, which it paid for by exporting electricity to Iran. Natural gas from Iran is imported via a 140 km pipeline that was completed in 2008. The pipeline is controlled by ArmRosGazprom (ARG), a Russian-Armenian joint venture that up until 2013 was 80% owned by Gazprom of Russia. In autumn 2013, Armenian Government announced the decision to hand over the state’s remaining 20% stake in joint venture to Gazprom thus ceding almost total control of energy supplies to Russia.1 Heavy reliance on imported fuels and the old and under-maintained transmission and distribution assets put Armenia at risk of supply interruptions, price fluctuations, and possible outages. The average age of the transmission lines is around 45 years and the transmission company did not make any substantial investments in rehabilitation of the lines. Moreover, Armenia is dependent on the imports of gas and nuclear fuel used to generate over two-third of the country’s electricity. Armenia currently has sufficient capacity to meet its demand. However, depending on the power demand growth scenarios, generation capacity shortage of 520-920 MW to meet the peak electricity demand is estimated to emerge after the planned shutdown of the existing nuclear power plant (if the construction of a new nuclear power plant is not implemented), and the phasing out of inefficient and old (>40 years) thermal power plants. The shortage is expected to reach 1,150 – 2,270 MW by 2020. 1 http://www.reegle.info/profiles/AM 4 ener2i - 609532 19/11/2014 Figure 1: Primary Energy Supply in Armenia, 2008-20122 Electricity consumption grew by an annual average of 2% from 2008 to 2012, with the distribution of consumption by customer category remaining largely the same. Out of a total annual primary energy supply of 2,586 thousand tonnes of oil equivalent (ktoe), 1,372 ktoe are from natural gas, 688 ktoe are from nuclear power, 394 ktoe from petroleum products, 157 ktoe from hydroelectricity plants, and 1 ktoe from RES. Wind power from Lori-1 WPP and other renewable energy projects such as the Lusakert biogas plant represented around 0.03% of electricity production in 2012. Although Armenia imports nearly all of the fuels needed to meet its primary energy needs, it is a net exporter of electricity, with net exports of 27 ktoe. Primary energy supply chart of the country is given in Figure 1. Hydropower and nuclear power are the main indigenous sources of energy. There are 9 major hydro power plants. The largest is the Sevan Hrazdan Cascade plant, which is 90% owned by United Energy System (UES) of Russia. The second largest hydro plant, the Vorotan facility, was acquired by US energy company in January 2014. Under the takeover agreement signed with the Armenian government, the New York-based group Contour Global is to pay $ 180 million and invest $ 70 million in the three plants making up the Vorotan Hydro Cascade.3 The Meghri hydropower plan, a joint project of Iran and Armenia, is currently under construction. The USD 2.3 bn plant will have a capacity of 130-140 MW and will be built by Iranian companies. Construction is expected to be completed in 2015. There is one nuclear power plant (NPP). The Metsamor NPP was built in 1979 and has an installed capacity of 815MW but only 1 of its 2 units is operational and stands for 407.5 MW. Nuclear fuel is flown in from Russia. Although the government owns the plant, UES signed an agreement in 2003 to operate the facility. The plant was scheduled to close in 2016, but in September 2013 Russia announced an agreement to extend the life of the plant by ten years, and in May 2014 Russia agreed to a $300 million loan for upgrading the plant to enable life extension to 2026. 2 Source: Preparation of SREP Investment Plan for Armenia, Task 1 and 2 Report, 26 September 2013 http://www.azatutyun.am/content/article/25246857.html 5 ener2i - 609532 19/11/2014 In 2007, Armenia adopted a new energy strategy focusing on security of supply through diversification and the use of nuclear energy as well as renewable energy sources. Later in 2007, the energy minister announced a feasibility study for a new unit at Metsamor, the investigation being carried out with assistance from Russia, the USA and the International Atomic Energy Agency. The new plant was then expected to go on line about 2016. In February 2009, the government announced a tender for a new 1000 MWe unit, the Armenia New Nuclear Unit (ANNU). In May 2009, Australian company Worley Parsons was chosen to administer the project, and a $460 million management contract was signed in June. Legislation providing for construction of up to 1200 MWe of new nuclear capacity at Metsamor from one or more reactors was passed in June 2009. In December 2009, the government approved establishment of Metzamorenergoatom, a 50-50 Russian-Armenian joint stock company set up by the Ministry of Energy and Natural Resources with Atomstroyexport, with shares offered to other investors. This is to build a 1060 MWe AES-92 unit (with a VVER-1000 model V-392 reactor) with a service life of 60 years at Metsamor. It would have two natural-draft cooling towers. In March 2010 an agreement was signed with Rosatom to provide the V-392 reactor equipment for it. In March 2011 the environmental assessment report was presented to the Ministry of Nature Protection, and in October 2012 Revision 1 following public consultation became available. In August 2010, an intergovernmental agreement was signed to provide that the Russian party will build at least one VVER-1000 reactor, supply nuclear fuel for it and decommission it. Construction was to commence in 2013 and was expected to cost US$5 billion. The customer and owner of new reactors, as well as electricity generated, will be Metzamorenergoatom, and Atomstroyexport will be the principal contractor. Armenia undertakes to buy all electricity produced at commercial rates, allowing investors to have their capital returned, for 20 years. CJSC Metzamorenergoatom is to fund not less than 40% of the construction, and early in 2012 Russia agreed to finance 50%, though in late 2013 this was reported as 35%. In May 2014 the government approved construction of the new reactor, starting 2018.4 2.1 Legal Framework in the field of Energy 2.1.1 Energy Law5 "Energy Law of the Republic of Armenia" was adopted by the Armenian Parliament in April 2001, to regulate interrelations between legal entities involved in the energy sector, electricity, heating and natural gas consumers pursuant to the law and the state bodies. Currently, the Law guarantees the market for electricity produced by all small hydropower plants (SHPPs, total capacity up to 10 MW per plant) in Armenia. According to this Law (Article 59, Clause 1.c), "All electricity (capacity) generated at small hydro power plants, as well as from renewable sources of energy within the next 15 years shall be purchased pursuant to the Market Rules". Some of the basic principles of the state policies for energy sector stated in the Law are as follows  Enhancement of competition and efficient operation in the energy sector.  Regulation on energy sector operations.  Protection and balance of interests between consumers and economic entities. 4 http://www.world-nuclear.org/info/country-profiles/countries-a-f/armenia 5 www.parliament.am/law_docs/210301HO148eng.pdf 6 ener2i - 609532 19/11/2014  Efficient use of domestic and alternative sources of energy, and the creation of economic and legal mechanisms to serve that purpose.  Encouragement of investments, safety and environmental protection in the energy sector.  Encouragement of scientific-technical progress and employment of new energy-efficient and energy-saving technologies, as well as encouragement of personnel training and re-training.  Separation of the generation, transmission, and distribution system operators, etc. 2.1.2 Energy Efficiency and Renewable Energy Law6 According to the Energy Efficiency and Renewable Energy Law, ratified in December 2004, the principles of Armenian policy in energy saving and renewable energy are:  Increasing the level of supply of indigenous renewable energy carriers to satisfy the energy demand of the economy;  Implementation of energy saving strategies, as well as development and enforcement of legal and economic mechanism for the promotion of renewable energy,  Ensuring increasing usage of renewable energy resources as well as the application and development of new renewable energy technologies aimed at its promotion,  Ensuring competitiveness of renewable energy resources and protection/enforcement of the rights of businesses engaged in the area of renewable energy,  Ensuring high priority of issues of environmental protection and efficient (economic) usage of natural resources while implementing measures/activities aimed at the development of energy saving and renewable energy, etc. 2.1.3 Water Code7 This Code, which has been adopted on 4 June 2002, establishes procedures to obtain water permit for hydro power plants. According to this Code water permit for a hydro power plant is given for 3 years at the first, but once the plant is operational or even if it is under construction, then the permit is extended for a much longer period. The purpose of this provision is to prevent people getting a water permit and then not proceeding to construct the project. However, land lease for the project outlined in the Land Code dated 2 May 2001 is not in synch with this provision because there are not such time limits for the land lease. 2.1.4 Energy Security Concept8 The Energy Security Concept of the Republic of Armenia was approved by the President in October 2013, outlining the main directions of energy security arrangements and stipulating the development of the Action Plan 2014-2020 within a short period of time. The document mentions development of renewable energy sources and increasing energy efficiency as one of the directions of ensuring energy security in the country. 2.1.5 Energy debates In Armenia, Japan’s nuclear accident has raised a debate over the safety of Metsamor nuclear power station which is also situated on an earthquake-prone zone, and prompted the Armenian 6 http://www.parliament.am/legislation.php?sel=show&ID=2119&lang=eng 7 www.parliament.am/legislation.php?sel=show&ID=1310&lang 8 http://www.minenergy.am/en/en/2013-12-18-11-49-40 7 ener2i - 609532 19/11/2014 government to invite an IAEA inspection to the plant. Metsamor currently provides more than 40% of the electricity in Armenia. The country suffered from severe electricity shortages during the time Metsamor was closed. Therefore, the nuclear plant is very important for Armenia in terms of energy production. Armenia plans to replace Metsamor with a new nuclear power plant at the same location. Since 2007, the EU provides assistance in nuclear safety through the Instrument for Nuclear Safety Co-operation (INSC), and the Armenian Ministry of Energy receives Commission assistance for the decommissioning of the ageing Medzamor nuclear plant. Projects range from “on-site assistance” – for example, making sure the plant operates safely until shutdown – to the development of alternatives to nuclear energy, such as hydro power, electricity and gas. Chapter 3: Current situation with EE/RES Armenia passed through an energy crisis in 1991-1995 as the result of its energy security loss what was the consequence of a conflict in the region and following an economic and fuel blockade by Azerbaijan and Turkey, as well as low self-sufficiency by Armenia’s own energy resources. This has caused an economic decline, environmental disruptions, and a decrease in the quality of life. In order to overcome the created situation, the re-opening of the Armenian Nuclear Power Plant, which was decommissioned after the 1988 earthquake, was necessary.9 Generally, Armenia can meet only 35% of the total demand for energy with its domestic resources and it is thus highly dependent on imported energy resources. It produces, however, a significant share of about 40% of the annual production of electricity from hydropower (2010). Energy efficiency within the Armenian economy is much lower than that of developed countries in the region. Therefore, in order to secure the sustainable development of Armenia, priority has to be given to the development of domestic energy resources and widespread implementation of energy efficiency throughout the economy. During the last decades a number of studies, strategy papers and legal documents were adopted in Armenia to ensure sustainable development of the economy and energy sector based on increasing energy efficiency and renewables.10 Armenia's Energy Law, which was enacted in 1997 and revised by the National Assembly in 2001 states among others (Article 5) that the main principles of the state policy in the energy sector are:  Efficient use of local energy resources and energy renewables and the application of relevant economic and legal measures for that purpose;  Ensuring energy security;  Promotion of the energy independence of the republic, including the diversification of local and imported energy resources and ensuring maximal use of capacities; and  Ensuring environmental security. Armenia’s commitment to promote renewable resources relates to its need to diversify its energy resource base and reduce energy imports. The country has taken concrete steps to make renewable energy development part of its energy law and energy strategy. In 2004 legislation was passed on the Law of the Republic of Armenia on Energy Efficiency and Renewable Energy. The Public Services 9 http://www.lumes.lu.se/database/alumni/01.02/theses/hovhannisyan_karen.pdf 10 http://r2e2.am/wp-content/uploads/2011/07/National_Program_eng.pdf 8 ener2i - 609532 19/11/2014 Regulatory Commission of Armenia has set high tariffs for newly constructed small hydro power plants operating on natural water flows and other renewables. Law on Energy Efficiency and Renewable Energy was adopted on November 9, 2004. It was amended in 2011, and another round of amendment is currently underway. The objective of this law is to identify mechanisms of state policy principles for development of energy efficiency and renewable energy and the mechanisms of their implementation, targeted at:  Strengthening the economic and energy independence of the RA,  Raising the economic and energy safety, energy system reliability of the RA,  Creation of new industries and organization of services to promote development of the energy efficiency and renewable energy.  Decrease negative impact on environment and health of people. Towards implementation of the provisions of the Law on Energy Efficiency and Renewable Energy, Armenian Renewable Resources and Energy Efficiency Fund was created in 2006 with a main mission to facilitate investments in energy efficiency and renewable energy and provide an array of comprehensive assistance to project developers, investors, banks, condominiums, researchers and other stakeholders. It provides professional expertise to the government in issues related to green energy development strategies and legislation. The Fund continuously analyses situation identifying barriers and proposing solutions to relevant government agencies. It also established financing mechanism through a revolving lending tool, which finances energy efficiency and renewable energy projects through the banks and credit organizations. National Programme on Energy Saving and Renewable Energy of the Republic of Armenia was developed in 2007 by the Research Institute of Energy within a USAID funded project with the main aim of setting the targets for the energy saving and renewable energy development in the country and outlining mechanisms of its implementation.11 Renewable Energy Roadmap for Armenia was developed in 2011 by Danish Energy Management A/S within Global Environmental Facility (GEF) and World Bank (WB) funded project to identify the economically and financially viable potential of renewable energy (RE) in Armenia. It defines short (2013), mid-term (2015), and long-term (beyond 2020) targets for the development of RE as well as outlines specific steps towards achieving those targets. It includes milestones to allow regular tracking of progress towards the established goals. According to the main results of the Armenian RE Roadmap project, the contribution of the renewable electricity in Armenia can increase by fivefold in 2020 in comparison to the present energy production from RE. In 2010, RE production generated 310 GWh, and it is forecasted to generate 740 GWh in 2015, and 1500 GWh in 2020. It is important to emphasize that the achievement of targets is much more dependent on politically implemented measures than on technical capabilities. The findings of a comprehensive review of RE potential in Armenia have ranked electricity from small hydropower plants (SHPP, up to 10 MW) and solar hot water heaters as the most advanced renewable energy technologies (RET) and the most economical for Armenia in the short to medium- term, followed by grid connected wind farms and the use of heat pumps. Photovoltaics, geothermal power, and biofuels, especially bioethanol from cellulosic feedstock, are ranked as more costly in today’s prices and are not expected to be commercially viable in the short 11 http://r2e2.am/wp-content/uploads/2011/07/National_Program_eng.pdf 9 ener2i - 609532 19/11/2014 to medium-term, but may play a more important role in the longer term, and in the development of RE high-tech industry. Biomass was also considered for both heat and electricity production for the short term, under several conditions, including replanting of harvested trees and biofuels using fractionation process. In addition, hydrogen was considered as a possible fuel for transportation in the longer term. Finally, although not strictly a renewable resource, municipal solid waste in landfills was considered a practical source for generating methane for power production near municipalities.12 All these activities are indicative of prioritization of EE/RES issues in the country at the highest decision-making level. It is also to be mentioned that in May 2010 the government adopted a resolution on Science and Technology Development Priorities for 2010-2014 where Renewable Energy & New Energy Sources is one of the 6 priority fields. Below is the brief description of the situation and development potential in separate RES sectors. 3.1 Hydropower The hydro potential of Armenia has been evaluated to be about 21.8 billion kWh/year, including 18.6 billion kWh from large and medium rivers and 3.2 billion kWh from small rivers. According to the Renewable Energy Armenia webpage, the economically feasible hydropower potential is about 3.6 billion kWh, with 1.5 billion kWh already utilized. The remaining hydropower potential is to be developed during the next 15 years. As of 2012, there were more than 110 commercial size small hydropower plants (SHPP) operating in Armenia. About 60 of these have been developed and constructed in the past decade. There are also numerous small units that are operated by individuals to satisfy their own electrical needs. The forecast is that SHPP generation would grow from its current 5% penetration level of the total electricity generation to 10% within the next 10 years.13 3.2 Wind The average annual wind velocity in Armenia is distributed unevenly in the range of 1.0 to 8.0 meters per second. In some regions, particularly in the Ararat Valley, strong mountain valley winds are quite common. For instance, during the summer months the velocity of these winds often reaches 20 m/s or more. Despite a relatively attractive wind regime in many parts of the country, the only operational wind power facility in Armenia today is the 2.6 MW Lori-1 pilot wind power project comprised of four 660 kW Iranian-assembled Vestas wind turbines. A second one, the Iran-Armenia Wind Farm, is under construction. 3.3 Biomass Biomass energy in Armenia has the potential to provide significant power, if utilized. Armenia has reasonable areas of land covered by forests and lands for agricultural industry, including farming of plants and animals. These areas can potentially produce residues which could be used as fuel for biomass combustion or gasification, as well as biogas production through anaerobic digestion. Forest residues (slash from forest thinning or waste wood from sawmills) can provide a concentrated resource to be used as fuel for energy production. Agricultural residues can provide a range of residues, including crop residues (corn stover, nutshells, fruit tree branches, etc.) and animal wastes. The Lusakert Biogas Plant (LBP) is the first industrial size state of the art biogas plant based on 12 http://r2e2.am/wp-content/uploads/2012/07/Renewable-Energy-Roadmap-for-Armenia.pdf 13 http://www.armenianweekly.com/2013/07/25/electricity-production-in-armenia/ 10