Energy Sector Overview

Ministry of Energy of Georgia

Power Sector - Major Stakeholders

MENR

ESCO

GNEWRC

Distribution Co.s

Generation

GSE/ET/SakrusEne

rgo

Ministry of Energy -Sets policies and is responsible for facilitating investment projects

Independent regulator – GNWERC* - tariff calculation, licensing

-relations between customers and companies

Technical operator/Transmission Services - HV lines, HV substations and dispatching

-GSE and ET (100% state owned) -SakRusEnergo (50% state owned)

Electricity System Commercial operator – ESCO

-balancing market, emergency import/export -Reserve capacity trader

Generation -59 Hydropower plants -3 Thermal plants

Distribution Companies -All 3 Distribution Co.s under the private ownership Telasi, Energo-pro Georgia, Kakheti Distribution

• Georgian National Energy and Water Supply Regulatory Commission

Georgian Energy and Water Supply Regulatory Commission-GNERC

Georgian Energy and Water Supply Regulatory Commission is an entity not established on the basis of the State property but on the basis of Georgian law on

“Independent National Regulatory Authorities"

The role and functions of the regulatory commission

Establishes the licensing rules and standards of production, transmission, dispatch, distribution, import and export

Establishes and regulates wholesale and retail tariffs of production, transmission, dispatch, distribution – pass through, import and consumption

Discusses and resolves disputes between the entities of regulated sectors Controls and monitors the activities of entities of regulated sectors and the quality

of service and security of supply in the electricity sector.

4

Methodological Base

• Methodology allows utilities to cover reasonable costs incurred • Supports financial growth of the company • Protects consumers from monopolistic prices especially in those areas where

competitive market does not exist • Reflects differential cost of service for various consumer categories • Commission is authorized to set fixed tariffs as well as marginal tariff (upper limit

for the price) • Electricity Sector-Commission sets and regulates tariffs for generation,

transmission, dispatch, distribution, import and consumption as well as tariffs for ESCO and Capacity System Reserve. Small HPPs (up to 13 MG), exporters and newly constructed PPs (since 2008) are free from tariff regulation

Structure of the electricity consumption tariff (220/380 V)

5

0%

20%

40%

60%

80%

100%

ganawi l eba

gadacema

di spet Cer i zaci a

war moeba

Distribution

Transmission

Dispatch

Generation

Technical operator and Transmission Services

JSC Georgian State Electrosystem (GSE)-100% state-owned joint stock company providing transmission and exclusive dispatch services Transmission lines - 220/110/35 KV 91 Substations with capacity of 8,400 MW - 500 KV, 220KV, 110 KV, 35 KV The National Control (Dispatch) Centre-NCC- controls Georgian power system and ensures overall system reliability and proper operation of transmission facilities under the normal operational mode, as well as in emergencies. JSC Sakrusenergo- 50% owned by Inter RAO and 50% by the Georgian State, which owns the 500 kV line running across the country from West to East.

Georgian power grid is connected to the grids of all of neighboring countries Construction of new high voltage 500/400 KV line to Turkey with B2B converter

station is completed MOU for construction of additional interconnection 154 kV transmission line,

Batumi-Muratli with Turkey has been signed Construction of new high voltage 500KV line to Azerbaijan is completed Further expansion of interconnection capacity with Armenia and Russia planned

Infrastructure with Neighboring Countries

Electricity System Commercial Operator ESCO

ESCO is 100% state owned joint stock company arranging discipline of relationships among the energy sector units and creating guarantees for non-stop

delivery of electric power to the nation

The Electricity System Commercial Operator functions

Sale and Purchase of balancing electricity (capacity) (inter alia through forming medium and long-term contracts on import and export) Trade with Guaranteed Capacity in accordance to the Law of Georgia on “Electric Energy and Natural Gas” and the Electricity (Capacity) Market Rules Set up and operate unified database on the wholesale trade including unified metering register Submission of relevant information to the Dispatch licensee in order to plan electricity and capacity supply-demand for the whole electric energy system of Georgia Inspection of meters used in the wholesale metering Support construction of the new hydro power plants Execution of other functions defined by the Law.

Energy Balance 2007-2012

Deficit of Electricity in Winter Time

www.esco.ge

Reliable transit country and regional energy hub Attractive cross border trading opportunities with well developed infrastructure and

new developing interconnections under implementation Huge untapped hydro resources HPP Greenfield potential of 40 TWh Only 18% of the country’s hydro potential has been utilized

Regional Energy Hub

Percentage Structure in Generation of Electricity

Existing Power Plants Generating electricity in Georgia 59 Hydropower plants with installed Capacity of more than 2700 MW-75%-85% 3 thermal plants with installed capacity of 700 MW, including import- 15%-25%

Current Projected

25%

75% 100%

Hydropower Plants Thermal Power Plants

Planned Power Projects

Major companies operating in Georgia Anadolu (Turkey) Peri (Georgia) Ağaoğlu (Turkey) Trans Electrica Ltd.(India) Energo Pro (Czech) Clean Energy Group (Norway) KGM (Turkey) Rusmetal (Georgia); and etc Tata Group ( India)

Ongoing Projects Total installed capacity up to 2,200 MW with total generation up to 8.2 TW/h

Under Licensing and Construction Under Feasibility Study Under Negotiation

Government Regulations Renewable projects based on Build-Own-Operate (BOO)

All new HP plants are totally deregulated - No tariff set for the newly built HPPs - investor is free to choose the market and negotiate the price

There is no fee for the connection to the transmission grid

Free third-party access to the grid

No license required to export and no tariff set

Government approved new rule of expression of interest for construction technical and economic feasibility study, construction, ownership and operation of hydropower plants in Georgia

Government offers power off-take agreement for 20% of total generation for domestic supplies

Developer benefits from carbon credits (CER) trading

New HPPs have priority access to the capacity on the new interconnection to Turkey (Long term contract with TSO)

Generation and Export activities exempted from VAT

FDI by Major Economic Sectors in Q2 2013

www.geostat.ge

Percentage Structure of the Same Indicator in Total FDI Inflow by Q2 2013

www.geostat.ge

Strategy of the Government of Georgia

• To ensure energy security of the country through diversification of energy

sources and transit routs

• To develop east-west and north-south energy transportation infrastructure in order to increase transit capacity of the country

• To improve energy security through construction of new hydro and wind

power plants and development of other renewable sources

• To rehabilitate existing and construct new infrastructure for electricity transmission.

• To attract foreign investments in the power generation sector

• To strengthen co-operation with the international organizations in order to accelerate integration of the country into European and Euro-Atlantic organizations

Thank You