publication
Armenia Power Sector Policy Note

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Power lines in mountains of Armenia


The Policy Note informs the Government’s policy thinking by identifying the principal challenges that the power sector faces and outlining solutions for overcoming them. The Note also discusses some broader energy sector issues related to the gas tariff structure and demand.

Among the major challenges highlighted are:

1. Highest-cost and dilapidated Hrazdan TPP will need to run post 2016 to avoid supply gap because new lower cost CCGT cannot be realistically constructed earlier than 2020.

2. Several transmission assets are a threat to supply reliability. Many transmission lines and substations incur high outage rates, which could lead to system-wide failure.

3. Affordability is a growing concern. Climbing energy costs increased the share of household energy expenses to 10%. It will get worse as the much needed new investments are made.

4. Deterioration of governance and financial standing of state power companies. In recent years tariffs were frequently lagging cost-recovery, the financial management decisions were not always prudent, and a key generation asset was sold through a direct negotiated sale.


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The distance view of the Hrazdan thermal power plant in central part of Armenia


In order to address the above challenges the Government needs to:

1. Add new generation: Immediately focus public and private financial and implementation capacity on a new gas-fired generation unit of around 500 MW.

2. Revise tariff structure: Remove perverse tariff incentives that are accelerating winter electricity consumption and unnecessary gas consumption by public facilities and commercial establishments.

3. Rehabilitate key transmission assets: Rehabilitate key substation and transmission lines critical for system-wide reliability of power supply.

4. Implement financial recovery plan: Design and implement financial recovery plan for state-owned power companies, including consistent application of cost recovery tariffs.

5. Protect the poor: Top up social assistance program to make basic level of consumption affordable.







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Vigen Sargsyan
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