The Republic of Armenia (Armenia) is a landlocked country in the southern Caucasus region between the Black and Caspian seas, bordered by the Republic of Türkiye (Türkiye) on the west, Georgia to the north, Azerbaijan on the east and Iran to the south. The country is approximately 29 800 km² with a population of 2.969 million. Yerevan, the capital, is the largest city with 1.092 million inhabitants.

Armenia’s economy has undergone numerous reforms since the economic crisis of the early to mid-1990s. It has evolved from having a Soviet-era centralised structure to a partially market-oriented economy, with privatisation of most enterprises. An influx of foreign capital and funding from donors since the early 2000s has contributed to healthy economic growth, and Armenia’s real GDP increased 5.72% per year from 2002 to 2021 (measured in US dollars at 2017 PPP prices). Real GDP per capita was USD 4 670 in 2021, roughly six times what it was in 2002.

Armenia’s reliance on export-oriented industries and high remittances from the Armenian diaspora (which accounted for 10.5% of GDP in 2021) expose the economy to price and demand fluctuation risks. During the latest global financial crisis, the country’s real GDP fell 15% and poverty rose from 27% in 2008 to 35% in 2011. However, targeted social expenditures and pension increases have induced economic growth, and the poverty level had fallen to 27.0% in 2020.

Lacking indigenous resources, Armenia imports natural gas and oil for most of its energy needs (78.6% of total energy supply in 2020), mainly from the Russian Federation (hereafter, “Russia”). Natural gas is imported from Russia via pipeline through Georgia, but also from Iran through a barter agreement under which it exports electricity in exchange.

Armenia also trades electricity with Georgia, though volumes are low since the countries’ networks are not synchronised. Energy interconnections with Azerbaijan and Türkiye are currently inactive for political reasons.

Prompted by a severe electricity supply crisis in the mid-1990s, Armenia has revamped its energy sector over the past 20 years. Parts of the sector have been privatised, some companies have been restructured, most households now have access to gas, and cost-reflective tariffs have been introduced. This has led to ample investment in capacity and networks, which has considerably improved reliability; funding came mainly from the donor community, upon which Armenia still relies for support.

Energy policy is now focused on developing indigenous energy sources, mainly renewables, and on extending the lifetime of the nuclear reactor that supplies nearly one-third of the country’s electricity. The government has begun to pay more attention to energy efficiency issues, and the second National Energy Efficiency Action Plan (NEEAP-2) was developed in 2020.

Armenia’s regional policy focuses on strengthening its position and broadening market integration. The European Union and Armenia completed negotiations for an Association Agreement and the Deep and Comprehensive Free Trade Area in July 2013; soon after, however, implementation was suspended because Armenia expressed strong interest in joining the Eurasian Customs Union with Belarus, Kazakhstan and Russia. Armenia subsequently became a member of the Eurasian Economic Union in January 2015 with Belarus, Kazakhstan and Russia, and Kyrgyzstan joined in August 2015. It has been an observer to the Energy Community since 2011 and a member of the Eastern Partnership since 2009.

• Although Armenia’s energy demand averages more than 3 Mtoe (3.59 Mtoe in 2020) and the country does not produce any fossil fuels, it manages to cover 27% of energy demand with domestic energy production. This production (0.96 Mtoe in 2020) comes mostly from nuclear and hydro resources.
• Natural gas dominates the energy mix (59.6% of total energy supply in 2020), but the electricity mix is more diversified.
• In 2021, Armenia produced 7.7 TWh of electricity, of which natural gas covered 44% (3.4 TWh), hydro and other renewables 30% (2.3 TWh) and nuclear 26% (2.0 TWh). In the Caucasus region, Armenia is the only country producing nuclear energy.

• Armenia’s energy demand averages more than 3 Mtoe (3.59 Mtoe in 2020).
• Energy consumption (final consumption excluding transformation) more than doubled between 2000 and 2020 (+136%), and heavily outpaced global demand in the same period (+36%).
• Total final consumption (TFC) in 2020 was 2.61 Mtoe. Residential and transport consumption were on a par in 2020, with both sectors consuming 0.86 Mtoe (33% of TFC). Households use mainly natural gas and electricity, whereas transport consumption consists of natural gas and oil products. In recent years, transport has also been the main driver of demand growth.

• All fossil fuels are imported: natural gas represents over 80% of Armenia’s energy imports (2.147 Mtoe out of 2.8 Mtoe in 2020), followed by oil products (0.63 Mtoe in 2020).
• Russia is its predominant supplier of natural gas (87.7% in 2021), the rest coming from Iran.
• Armenia is a net exporter of electricity, although most of it is exchanged for natural gas from Iran.

Armenia relies on imports of natural gas and oil for most of its energy needs, which exposes it to supply risks and dependence on a single supplier. As the government considers energy security and the development of indigenous sources to be of prime importance for the energy sector, renewables and efficiency measures are key areas. To satisfy expected demand growth while increasing reliability, the government aims to increase capacity and promote domestic energy sources.

In 2013, the government developed a National Energy Security Concept that outlines strategies for fuel diversification mainly through renewables and nuclear power, building fuel reserves and increasing power generation capacity. Then, in 2014 it approved a Schedule of Activities for 2014‑2020 for implementing its security concept. The security concept complements previous energy sector development strategies as part of the 2005 Context for Economic Development to 2025, including the National Programme on Energy Saving and Renewable Energy (2007) and the Ministry of Territorial Administration and Infrastructure (MTAI) Action Plan (2007). The latest energy sector development documents approved by the government of Armenia on 14 January 2021 are the Republic of Armenia Energy Sector Development Strategic Programme to 2040 and the Action Plan to Ensure Implementation of the Republic of Armenia Energy Sector Development Strategic Programme, which outlines the government’s vision for least-cost strategies to develop the entire energy system and the measures necessary to implement this strategy.

This strategy and its accompanying action plan are Armenia’s main energy policy documents. Their targets and objectives aim for an energy sector that is:

• free, competitive and non-discriminatory
• inclusive and diversified, and energy-independent at the highest level
• clean and energy-efficient, with development that is sustainable
• of regional significance
• reliable and safe
• digitalised and innovative, science-based and highly technological
• predictable and transparent
• accessible and fair for everyone, including vulnerable groups, and attractive for investors.

In 2014, the government developed the Scaling-Up Renewable Energy Programme Investment Plan. It is an update of the Renewable Energy Roadmap developed in 2011 and includes comprehensive analyses of renewable energy potential, costs and benefits, and the viability of specific technologies. It also sets targets and objectives for renewable energy to 2025, including a plan for financing.

The investment plan describes the first geothermal and solar PV projects, which are being developed by the government and serve as examples for other investors. Nuclear energy accounts for nearly one-third of the electricity supply and is of strategic importance. Therefore, although the existing reactor is old, its service lifetime has been extended to 2026, at which time the government intends to extend its lifetime once again to at least until 2036. This second extension is forecast to require an additional USD 150‑million investment.

The government’s ambitious plan to increase renewables to 66% of the power generation mix by 2036 (from 7% in 2012) includes small hydro, wind and solar PV resources, but excludes biofuels. To reach this target, Armenia will need to have 2 185 MW of new renewable energy capacity installed by 2036. Estimated projected capacity additions comprise 50 MW of small hydro and 141 MW of large hydro, 500 MW of wind, and 950 MW of solar PV.

Energy efficiency measures are based on the government decision of 24 March 2022 on Approving the Programme on Energy Saving and Renewable Energy for 2022-2030, the Action Plan Ensuring Implementation of the First Phase (2022-2024) of the Programme on Energy Saving and Renewable Energy for 2022-2030. Financial assistance from the R2E2 Fund (established in 2006 within the framework of the Energy Efficiency Project with Armenian government support), the World Bank and revolving fund financing, has been used to initiate energy efficiency measures in schools, kindergartens, universities, hospitals and other social and administrative buildings, as well as in municipal street lighting.

Regulatory reforms have supported power sector advances since the mid-1990s. A commitment to cost-recovery tariffs has facilitated investment in infrastructure and attracted substantial private-sector investment, resulting in improved reliability, service quality and operational efficiency.

Strengthening regional integration is also a key component of Armenia’s energy policy. In addition to having political disagreements with two of its neighbours, Armenia’s electricity interconnection with Georgia is not fully functional because their systems are asynchronous, and its connection with Iran is operating under limited conditions. Armenia plans to increase its electricity production to sell more to Georgia and Iran during the summer months, and to rely on electricity imports in the winter if necessary. To synchronise its system with those of its neighbours and provide electricity at competitive prices, Armenia will have to open its relatively closed electricity market.

The Ministry of Territorial Administration and Infrastructure (MTAI) is responsible for developing and implementing energy policy. It develops relevant primary and secondary legislation, as well as investment plans for state-owned enterprises. The regulator for nuclear energy is the State Nuclear Safety Regulatory Committee.

The Ministry of Nature Protection oversees the protection and conservation of natural resources and is responsible for environmental impact assessments. It is the designated national authority for projects under the Kyoto Protocol’s Clean Development Mechanism.

The Public Services Regulatory Commission (PSRC) is an independent body responsible primarily for tariff methodology and review, licensing procedures and import/export regulation. The PSRC also regulates water, waste, telecommunications and rail transport.

Armenia does not have a dedicated agency for renewable energy policies, so the Renewable Resources and Energy Efficiency (R2E2) Fund is responsible for implementing renewable energy and energy efficiency projects.

Armenia’s primary energy legislation is the Law on Energy (2001): included in it are provisions for market rules and ownership structure. The law on Energy Saving and Renewable Energy (2004) defines the policy principles for renewables and energy savings, and efficiency licensing and tariffs are regulated mainly by the PSRC’s laws on licensing and energy.

The Law on the Construction of New Nuclear (2009) legislated construction of a new 1 000‑MW nuclear unit and decommissioning of the operating plant. However, for electricity supply security reasons, in 2012 a ten-year extension to 2026 was granted to Unit 2 of the existing plant (commissioned in 1980), provided that rehabilitation work is carried out.

Armenia has a three-tiered judicial system consisting of courts of first instance, courts of appeal and a Supreme Court. Courts of first instance include the courts of general jurisdiction and the Administrative Court. Courts of general jurisdiction examine all civil and criminal cases, whereas administrative cases are heard by the Administrative Court.

Decisions of the courts of general jurisdiction and the Administrative Court can be appealed to the courts of appeal; these include the Civil Court of Appeal, the Administrative Court of Appeal and the Criminal Court of Appeal. The Supreme Court can review and revise rulings of the courts of appeal.

Also within the judicial system is the Constitutional Court of Armenia, the country’s highest body of constitutional justice. The Constitutional Court primarily settles disputes, assesses the conformity of laws and regulations with the Constitution, resolves election-related disputes, and assesses compliance of international treaties with the Constitution.

Disputes between foreign investors and the Republic of Armenia must be resolved in Armenian courts through the application of domestic legislation, according to the Law on Foreign Investment. In cases of mutual consent, businesses may opt to settle disputes through commercial arbitration either in Armenia or abroad. Arbitration is regulated by the Law on Commercial Arbitration, which provides a sound framework for conducting both domestic and international commercial arbitration in Armenia, and for enforcing awards made in other countries in Armenian courts of arbitration.

The government always honours arbitration judgements, and other dispute resolution procedures such as mediation, mini-trials and neutral negotiation are also available in Armenia. The Permanent Arbitration Body of the Chamber of Commerce and Industry was established in 2007 based on the Law on Commercial Arbitration, and Armenia is a signatory to the 1958 Convention on the Recognition and Enforcement of Foreign Arbitral Awards. It is also a signatory to the International Convention on Investment Disputes.

Armenia’s 2001 Energy Law regulates the power sector. The Energy Law provides basic principles for national policy, but it does not specify the authority of the government or MTAI to make policy decisions, nor does it define MTAI’s role in the power sector. At the same time, it describes in detail the authority granted to the PSRC, which is generally in compliance with international best practice. The regulator issues licences for wholesale power market participants, for both import and export transactions; sets the tariffs for generation, transmission and distribution, including end-user tariffs and service fees for the System Operator and Settlement Centre; sets the market rules in co‑operation with MTAI; and determines the distribution rules, including connection rules. The regulator also sets tariffs for imported electricity.

The PSRC also regulates gas, water, electronic communications and thermal energy. Although energy companies may have more than one licence, the Law on Energy prescribes certain limitations on the size of shareholdings.

Electricity and natural gas tariffs are regulated by the PSRC on a cost-plus basis that allows a set rate of return for the operators after accounting for fixed and variable costs. The government applies a cost-recovery policy on tariffs, but in recent years the increasing cost of electricity services and government concern about affordability have led to a departure from cost-recovery tariffs, and subsidies and below-cost pricing have increased.

The tariff-setting procedure is fully transparent. An operator applies for a tariff review on the official PSRC website, which is then subject to consultation with consumer protection organisations and other interested parties. The PSRC reviews the matter and makes its decisions available on its website; it is expected to make a decision within 80 working days from the date of application for most operators, and 25 working days for small hydropower and other renewable generators.

For electricity generators participating in the balancing market controlled by the power system operator, the tariff structure has one- or two-part components (energy or both energy and capacity) for payments; for other generators, a one-part tariff is applied. The gas supply system uses a single tariff structure.

At the retail level, electricity rates for residential consumers increased 77% from 2009 to 2021, and natural gas rates rose by 178% from 2005 to 2021. In 2016, the import gas price was reduced from USD 165 per 1 000 m³ to USD 150 per 1 000 m³ under the purchase agreement for Gazprom Armenia. The current gas price at the border is USD 165 per 1 000 m³. The table below presents PSRC gas tariffs in force as of 1 April 2022 (inclusive of 20% VAT).

Electricity rates have a time-of-day element for metered consumption. The introduction of an automated metering and data acquisition system and computerised customer billing have significantly improved collection rates since the mid-2000s. In 2021, collection rates were 100.0% for electricity and 100.6% for gas.

Under the Law on Energy, small hydropower plants (HPPs) and other plants generating electricity from renewables are afforded feed-in tariffs for a period of 15 years from their licence date. The tariffs are specified on an annual basis to account for exchange rate fluctuations between the Armenian dram and a foreign currency (USD or EUR). Feed-in tariffs were introduced in 2007, and by January 2022, 389 MW of small hydropower, 4.23 MW of wind power and 56 MW of solar PV had come on line.

Armenia uses state standards for technical applications. They are aligned with the directives of the International Organization for Standardization (ISO), the International Electrotechnical Commission and the European Committee for Standardization (CEN). With a government resolution in 2012, Armenia was on its way to harmonising its standards with those of the European Union. The National Institute of Standards had worked out an action plan for 2013‑2015, including a schedule of harmonisation up to 2020, but Armenia instead joined the Customs Union with Belarus, Kazakhstan, Kyrgyzstan and Russia. This is likely to result in a different set of standards for harmonisation.

The National Statistical Service of the Republic of Armenia (ArmStat) is the government institution responsible for collecting and validating energy data. Two statisticians of ArmStat’s industry division dedicate part of their time to energy statistics, and the MTAI compiles an energy balance from data provided by ArmStat and other sources.

Survey data for energy consumption in the transport, industry and construction sectors, as well as for households, are available from 2015 onwards (although a test survey was conducted in 2014). Supply data are collected directly from data providers (the Customs Service of the Republic of Armenia and the main electricity companies).

Armenia’s first official energy balance following international methodology was produced for 2015 (although an experimental balance was released for 2014). ArmStat and MTAI co‑ordinated its preparation and dissemination.

ArmStat shares annual data with the International Energy Agency (IEA) through five joint IEA/Eurostat/UN Economic Commission for Europe questionnaires. All data for Armenia published by the IEA have come directly from ArmStat since 2014, but consumption data were previously estimated by the IEA Secretariat. ArmStat also shares energy data with the Eurasian Economic Commission and the Interstate Statistical Committee of the Commonwealth of Independent States, and it participates in the Joint Organisations Data Initiative (JODI) oil database.

The priority in energy data collection is to continue producing and publishing energy balances despite staff constraints, and to further consolidate raw data.