The tender for new electricity generation capacity
Developing a renewable energy project in Georgia often begins with the capacity procurement procedure. Under Article 35 of the Georgian Law on Electricity and Gas Supply, the Government of Georgia is authorized, in accordance with Georgian legislation, to conduct a tender — or to apply another selection procedure provided by legislation — for the construction of new electricity generation capacity, including for the increase of existing capacity. The Government approves the rules and conditions of the tender, and they must be executed transparently and in a non-discriminatory manner. This means that the competition for new generation proceeds under procedural guarantees protected by law for potential investors.
Promotion mechanisms for electricity generation
Article 37 defines the general regime of promotion: generation promotion is regulated transparently and non-discriminatorily, taking into account the criteria of economic expediency, minimal costs for the final customer, and impact on the electricity balance and the operation of the Georgian power system. Generation of electricity from renewable sources and high-efficiency cogeneration may be promoted through incentive and support mechanisms established by rules and conditions defined by legislative acts or by normative acts of the Government of Georgia — in order to reach the level established for Georgia by the respective legislation of the Energy Community.
The promotion rules and conditions must include the respective incentive and support mechanisms, the rights and obligations of electricity enterprises, the conditions of promoted generation, and the related regulatory requirements. Moreover, the assessment of promotion — including every incentive and/or support measure — must, where necessary, be substantiated in accordance with Georgian legislation regulating competition and/or state aid. In practical terms this means that a support scheme must withstand not only energy regulation but also competition and state-aid control.
Favourable conditions for new interconnectors
Article 99 regulates a special opportunity for investors in energy infrastructure. At the request of an electricity enterprise, the full capacity of a new direct current interconnector, or part of it, may be temporarily exempted from the obligations established by the law. The exemption is allowed only where all of the following conditions are met: the investment related to the construction of the interconnector promotes competition in the supply activity; the implementation of the investment is impossible, given the attendant risks, without the exemptions established by the article; the owner of the interconnector is separated, at least in legal form, from both the transmission system operator and the operator of the system to which the interconnector is connected; the users of the interconnector bear the obligation to pay the charge; no component of the charge established for the use of the interconnected transmission or distribution system has been used to cover the capital or operating costs of the interconnector or part of them; and the establishment of favourable conditions does not harm competition or the internal and regional electricity markets, or the efficient functioning of the regulated system to which the interconnector is connected.
As an exception, these favourable conditions also apply to alternating current interconnectors where the costs and risks associated with the investment significantly exceed those ordinarily arising from connecting two neighbouring transmission systems, and they equally apply where the capacity of an existing interconnector is significantly increased. The decision is taken, in each individual case, by the Commission together with the competent regulatory authority of the neighbouring country — within a period of 6 months from the submission of the respective request; failing that, the matter may be decided by the Energy Community Regulatory Board. The Board, in turn, may demand an amendment or annulment of the decision within 2 months of the provision of information, a period that may be extended by a further 2 months, and the demand must be satisfied within 1 month of its receipt. The time limits matter as well: the consent related to the establishment of favourable conditions loses force 2 years after its granting if the construction of the interconnector has not begun within that period, or 5 years after its granting if the interconnector has not been accepted into operation.
Supply security measures and renewable energy
Article 134 defines the measures for the security of electricity supply, taken by the Ministry in cooperation with the Commission and other competent state bodies. Among these measures several directly concern renewables: the promotion of electricity obtained from renewable energy sources and from the combined production of electricity and heat; the encouragement of the introduction of energy efficiency and new technologies — including demand management, renewable energy and smart metering technologies, and distributed generation — to manage demand for electricity in real time; the promotion of energy-saving measures; and the elimination of administrative barriers that hinder investment in energy infrastructure for the admission of new generation capacity, together with the reduction of administrative procedures to a minimum.
Every such measure must be non-discriminatory and must not restrict competition and price-related signals more than is necessary; it must not impose an unjustified burden on electricity market participants — including new entrants and enterprises with a small market share — and must be substantiated in view of its economic and social impact on the final customer and its possible effect on the price of electricity. Where guaranteed capacity is needed for the stability, security and reliability of the power system, including for ensuring the balance between supply and demand, the Government is authorized, upon a proposal of the Ministry, to impose on one or more producers the obligation to maintain guaranteed generation capacity; this imposition follows the criteria established by Article 9 of the law for public service obligations, while the charge for guaranteed capacity and/or the tariff for its source is set by the Commission according to its approved methodology.
What this means for a development project
The three blocks described — the tender, promotion, and infrastructure exemptions — together form the legal framework for capacity development. An investor must assess, first, whether its project requires participation in a Government tender; second, whether the facility falls within the conditions of the support mechanisms and their related regulatory requirements; and third, if the project is export-oriented, whether the favourable conditions for interconnectors can be invoked. The answer to each of these questions is determined precisely by these articles, and miscalculating them substantially changes the economics of the project.