The Armenian government approved the Energy Sector Development Strategic Programme (hereinafter “Energy Strategy”) in January 2021, setting the path for the sector’s transition through 2040. The publication and approval of this strategic document are welcomed and should form a useful basis for Armenia’s future energy legislation. The 2021 Strategy replaces the government’s previous energy policy document, which dates from 2015.
According to the 2021 Strategy, the government’s priorities in the energy sector through 2040 are:
- Maximum use of the country’s potential for renewable energy and energy efficiency;
- Extending the life of the ANPP beyond 2026, as well as construction of a new nuclear power plant to replace it;
- Construction of a “North-South Corridor” by increasing power transmission links between Armenia and Georgia and between Armenia and Iran; and
- Gradual liberalisation of the domestic electricity market.
The principal bodies involved in energy sector governance in Armenia include the Ministry of Territorial Administration and Infrastructure (MTAI), which is responsible for overall energy policy-making, the Ministry of Environment, the Public Service Regulatory Commission (PSRC) and the Committee on Nuclear Safety Regulation (ANRA). The Statistics Committee (ArmStat) is the main provider of energy-related data and statistics
In a recent government restructuring, the former Ministry of Energy Infrastructures and Natural Resources was integrated into the MTAI. The transfer and addition of the energy agenda to the already large portfolio of responsibilities of the MTAI risk placing existing resources under pressure and causing insufficient coordination among ministries and other governmental entities dealing with energy-related policies. This could negatively impact effective and timely implementation of several important programmes in the sector.
Regional market integration
Armenia has made considerable progress in enhancing regional market integration. The country has signed and ratified the Comprehensive and Enhanced Partnership Agreement (CEPA) with the EU that entered into force in March 2021 and includes a timetable for the approximation of Armenian laws and regulations to relevant EU laws over the next few years, and by 2029 at the latest. Armenia is also a member of the Eurasian Economic Union (EAEU), which aims to establish common EAEU gas and electricity markets by 2025. Implementing these ambitious objectives will require close cooperation and coordination between different institutions to achieve regulatory consistency and to eliminate potential contradictions and conflicts.
Since the last IEA review in 2014/15, the government has taken decisive steps towards implementing a liberalised electricity market, with a launch in February 2022 (as this report was going to press) featuring a new wholesale market model, direct contracts, a balancing mechanism and long-term direct capacity contracts. Free and open trade, as well as cooperation among all energy market participants, as envisioned by these reforms, would help promote investments from the international community and strengthen regional integration.
Energy supply security
Armenia has a diverse generation mix that includes thermal, hydropower and nuclear. However, all of its thermal generation relies on gas, around 85% of which is imported from Russia. Furthermore, Armenia imports all of its nuclear fuel from Russia. Armenia therefore effectively relies on fuel imports from one country to produce nearly 70% of its electricity, raising concerns about the diversity of supply.
Energy data management and use
Armenia has adopted the international energy statistics methodology and standards and has released energy balances in the internationally comparable format since 2015. The cooperation of the national stakeholders to achieve this is to be commended. Unfortunately, however, compilation of the energy balance and GHG inventory does not receive funding from the state budget. Complementing and gradually replacing external funding with contributions from the state budget would ensure sustainability for these activities and help retain relevant trained human capacity.
Modelling based on good-quality data is a key component of effective policy-making. Policies and measures contained within the Energy Strategy were based on modelling performed by a local research institute. However, staff turnover in this and other key research bodies is high, risking frequent institutional memory loss and lack of staff for establishing regular monitoring systems to follow up on policy developments. Moreover, modelling capabilities in the country rely heavily on financial and (in some cases) personnel support from international donors. These might tailor modelling assumptions and parameters to their own needs, making comparison among models difficult. Furthermore, economy-wide modelling has not been carried out, as significant energy users, such as industry and transport, have been omitted.
An improved approach could include enhancing the government’s own modelling capabilities and institutional learning capacity. The development of comprehensive energy system models demands sufficient and targeted allocations from the state budget, regardless of whether modelling is outsourced or capacities are developed within the ministry.
Exploration of modelling scenarios extending to 2050 and beyond will also be important for mapping pathways to reach Armenia’s climate goals under the Paris Agreement. Since the energy sector is the largest source of GHG emissions in Armenia, a resolute and consistent implementation of its National Programme on Energy Saving and Renewable Energy will prove essential for reaching its recently updated Nationally Determined Contributions (NDCs).