Overview
Armenia’s energy sector has moved from a state of severe crisis in the early 1990s to relative stability today. A combination of policy, legal, regulatory, and institutional reforms have had good results. Improvements in operating efficiency through a decrease in technical and nontechnical line losses, as well as a nearly 100 percent collection rate, have helped create commercially viable service providers. However, issues related to energy supply, electricity market liberalization, and administration remain.
Armenia has limited energy resources and can meet only a fraction of the total demand for energy from domestic resources. Armenia does not have oil or natural gas reserves and is thus highly dependent on imported energy resources. It imports oil and petroleum products from Russia, Georgia, Iran, and Europe. Natural gas is imported primarily from Russia through Georgia, with a limited volume of natural gas imported from Iran in an electricity-for-gas swap arrangement. Nuclear fuel is imported from Russia. Armenia’s energy consumption efficiency is low compared to developed countries. The government has adopted several laws focused on developing domestic, especially renewable, energy resources and implementing energy efficiency measures.
The Law on Energy regulates relations between legal entities involved in the energy sector and provides the legal basis for producing and delivering electricity, heating, and natural gas to consumers. The Law on Energy Efficiency and Renewable Energy seeks to identify mechanisms to improve energy efficiency and develop additional sources of renewable energy. The law facilitates the development of renewable energy resources and specifies that all renewable energy produced is to be purchased by the electricity distribution company. The regulator for the energy sector, the Public Service Regulatory Committee (PSRC), has set attractive tariffs for newly constructed small hydro, wind, and solar power plants. It has also stipulated that electricity off-take tariff rates apply for at least 15 years from the date of issue of an operating license for a new plant.
The government amended the Law on Energy in 2017 to drive greater liberalization of the market and has implemented all reforms it envisioned. Energy supplies are now guaranteed based on existing power purchase agreements. Generators selling on the market are obligated to pay the electric networks only for distribution. New amendments in the law also provide for the introduction of competition among electricity suppliers, breaking up control exercised by one firm, Electric Networks of Armenia (ENA), over distribution throughout Armenia. With the changes in the law, consumers are now able to purchase electricity from other suppliers. Large wholesale consumers may to enter the market and purchase and consume electricity generated from outside Armenia. The reforms went into effect starting February 1, 2022.
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 policymaking; the Ministry of Environment; the PSRC; and the Committee on Nuclear Safety Regulation (ANRA). The Statistics Committee (ArmStat) is the main provider of energy-related data and statistics.
In January 2021, Armenia adopted the 20-year Energy Sector Development Program, which is intended to build a transparent, diversified, and energy efficient system for sustainable development. The Program will identify new power generation facilities, electricity transmission systems, and institutional issues related to market liberalization and associated legislative gaps.
On May 2, 2022, the United States and Armenia signed a Memorandum of Understanding Concerning Civil Nuclear Cooperation (NCMOU). The MOU improves U.S.-Armenia cooperation on energy security and strengthens economic relationship between the countries.
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 EAEU, which aims to establish common EAEU gas and electricity markets by 2025.
Armenia has sufficient electricity-generating capacity to meet current domestic needs, but electricity demand is projected to grow by up to three percent annually. Electricity in Armenia is generated primarily by the Armenian Nuclear Power Plant (ANPP), hydroelectric plants, and thermal plants. Solar energy provides less than two percent of current power generation.
Operating at 220-volts alternating current (AC) with a frequency of 50 Hz, the country’s grid is currently synchronous with Iran’s while maintaining small, seasonal “island” connections with Georgia. Planned increased interconnections with Georgia via a set of back-to-back high-voltage direct current stations and with Iran will help form an envisioned “North-South Corridor”, facilitating trade with Russia and possibly other countries. The ANPP, with an operating capacity of 385 megawatts (MW), meets about 40 percent of Armenia’s demand for electricity. Armenia is under international pressure to decommission this plant for safety reasons. On September 14, 2023 the Armenian government approved an action plan to extend the operation lifespan of the Armenian Nuclear Power Plant” (ANPP) until 2036, from the current deadline of 2026, through ongoing improvements recommended by international nuclear experts. The Armenian government has announced plans to build a new nuclear plant by 2036. In 2023 it set up an interagency working group to analyze various options for building the new facility, including the option of small modular reactors (SMRs), including U.S. technology.
Hydroelectric plants generally provide an additional 20 percent of Armenia’s electricity output, but the levels of generation depend on seasonality and rainfall patterns. Thermal power provides the bulk of the remaining generation.
From 2006 to 2022, Electric Networks of Armenia (ENA) was the sole electric power distributor in the country, and still provides electricity to most users. It is Armenia’s largest employer and serves approximately 985,000 electric utility customers. ENA’s owner, Tashir Group, announced in March 2023 plans to invest $150 million in two new thermal power plants by 2025, following a 2021 pledge to invest up to $600 million in the energy sector over several years.
The High Voltage Electric Networks—a state monopoly operated as a closed joint stock company—manages the assets of Armenia’s transmission network, performs operational and maintenance functions, and implements necessary investment programs. The Electro Power System Operator CJSC is responsible for the strategic functioning of Armenia’s power system. The Public Services Regulatory Commission establishes the procedures for setting and reviewing tariffs. The Settlement Center conducts commercial settlements between generators and the ENA; manages electricity imports and exports; and monitors metering and billing services to wholesale market participants. The PSRC has issued a license to the Settlement Center to serve as Market Operator under the liberalized power market.
The Fund for Renewable Energy and Energy Efficiency of Armenia is a state entity responsible for creating a favorable environment for the development of renewable energy and energy efficiency projects. This organization examines potential opportunities and facilitate investments in solar, wind, and geothermal energy development in Armenia.
Leading Sub-Sectors
Armenia could reap sizable economic benefits from improved energy efficiency. The electric power system of Armenia is considered to have significant potential for sustainable energy because of the presence of hydroelectric, solar, wind, and other renewable energy sources.
The total installed capacity of all hydropower systems is 1,293 MW. Hydropower could support an even greater share of Armenia’s electrical needs if producers could address inefficiencies in small hydropower plants, which lack modern control technologies, depend on unreliable equipment and materials, and suffer from poor engineering, and are not designed to meet modern environmental requirements.
Armenia also has notable solar energy potential. The average annual amount of solar energy flow per square meter of horizontal surface is approximately 1,720 kilowatt-hours (kWh), which is high relative to an average European figure of 1,000 kWh.
The government has recently prioritized the construction of solar power plants over other types of renewables. Newly tendered solar deals comprise 210 MW of capacity. The government expects solar PV capacity to reach 100 MW by 2024 and 1,000 MW by 2030.
According to the MTAI, which oversees the energy sector, wind energy potential in Armenia is approximately 450 MW. Mountain passes estimated to have high wind resources include Karakhach, Pushkin, and Jajur in the Bazum Range, Sevan in the Areguni Range, and Sisian in the Zangezur Range. The government has in recent years entered into memoranda of understanding with developers and issued decisions to provide assistance to companies for wind projects with capacity of up to 150 MW.
The government has taken steps to develop the country’s geothermal resources. Recent studies have estimated that Armenia has approximately 150 MW of geothermal potential. Potential sites for geothermal are concentrated in the southern part of Armenia, including at Karkar, Sisian, and Jermaghbyur. Each of these sites has an estimated capacity of up to 30 MW. However, further studies are necessary to evaluate the feasibility of potential projects.
Biomass is not widely used as a source of power generation. International donors are working to improve Armenia’s landfills in the coming years, which may delay any immediate prospects to utilize landfill gas for electricity generation.
Opportunities
The energy sector offers a number of promising opportunities, particularly for renewable energy projects. The government has indicated potential opportunities for the development of medium-sized hydropower plants, including at Lori-Berd (60 MW) and Shnogh (76 MW) in the northern part of Armenia. Among Armenia’s two large hydropower plants, the Sevan-Hrazdan Cascade, which dates to 1936, is in need of tens of millions of dollars of rehabilitation. There are new opportunities for solar development as the government plans tenders for construction of seven solar photovoltaic power plants with total installed capacity of about 520 MW. There are also opportunities for smaller solar projects and for wind projects. Geothermal and biomass investments appear to be relatively speculative at present.
The government has expressed an interest in utilizing U.S.-licensed, advanced small modular reactor nuclear power technology to replace the ANPP, which would give U.S. firms an opportunity to achieve a significant commercial win and play a transformative role in Armenia’s energy security posture.
, U.S. investors and exporters have opportunities to support the government’s efforts to promote greater energy efficiency. At the beginning of 2020, the government estimated that the market for energy efficiency investments in Armenia stood at $2 billion. Several projects are already underway to increase energy efficiency in residential buildings. As Armenia’s largest energy-consuming sector, buildings account for around 40 percent of electricity demand and more than 25 percent of gas demand. Significant market opportunities for increased efficiency exist, particularly in home heating.
Resources
Ministry of Territorial Administration and InfrastructureMinistry of Economy Public Services Regulatory Commission (PSRC)Renewable Resources and Energy Efficiency Fund (R2E2) Electro Power System Operator CJSC (EPSO)High Voltage Electric Networks (HVEN)Electric Networks of Armenia (ENA)Armenian National Interests Fund (ANIF)Enterprise Armenia Statistical Committee of the Republic of Armenia American Chamber of Commerce in Armenia Spyur Information SystemU.S. Energy Information Administration