Electricity production in Armenia has fully recovered from the major problems it was facing in the early 1990’s and is now a reliable industry. Armenia’s energy issues began after the 1989 earthquake, when the government of Soviet Armenia was forced to close the Metzamor nuclear power plant under mounting pressure from a public that, fearing a Chernobyl-type catastrophe, was concerned about safety.
In 1987, people in Armenia started demonstrating against Soviet rule. After the devastating earthquake of 1989, some activists started demanding the closure of the Metzamor nuclear plant as well as the Nairit chemical and rubber producing complex. Shutting down the nuclear plant was the worst mistake in recent Armenian history. Had the nuclear plant not been closed, Armenia would not have plummeted into the dark ages and, as a result, would have not lost one-third of its population to forced economic out-migration. After more than 20 years, Armenia still has not recovered from the devastation caused by these closures.
Even though Armenia had excess electricity production in 1989 and was exporting electricity to other Soviet republics, shutting down one-third of its electricity production capacity was bound to have some negative impact on industry and economic wellbeing. However, the main electricity production problems began only after the Soviet Union’s collapse, after Armenia’s independence, and the Karabagh War.
Armenia had been relying on gas and oil imports from Russia to operate its thermal power plants. Gas was being delivered via pipeline, and oil via train, both traversing Azerbaijan. When, as a result of the war, Azerbaijan imposed a blockade, Armenia was cut off from its gas and oil supplies. Due to the lack of required fuel, thermal power plants were shut down and Armenia had to rely only on its hydropower production from the Sevan-Hrazdan and Vorotan Cascades. These two hydropower cascades were not operating at full capacity because required parts could not be delivered from Russia via Azerbaijan. Industrial production ceased due to the lack of electricity and fuel, resulting in the economy’s collapse.
Armenia’s energy sector has seen tremendous change in the last two decades. Restarting the second unit of the nuclear power plant in 1995 helped bring an end to the energy crisis. The availability of electricity service has increased from just a few hours a day 2 decades ago to 24 hours a day. Electrical production companies have emerged from a heavy dependence on state funding to commercial viability. However, the same issues that caused the collapse of the system in the mid-1990’s still exist. Armenia still relies on imported gas and oil for its energy production. A majority of the gas is imported from Russia via a pipeline through Georgia and a small amount of gas is being imported from Iran via a pipeline. Gasoline and heavy fuel oil are delivered from Russia via tanker trucks. Uranium for operating the nuclear power plant is also imported from Russia.
Armenia’s electricity system has 3,914 Mega Watts (MW) of installed capacity, of which only 73 percent or 2,845 MW is currently operational. Electricity is produced by three-generation sources: nuclear (34 percent), thermal (32 percent), and hydropower (34 percent). The share of thermal and hydropower plants in the capacity and production mix has increased in recent years as new plants have been built and weather conditions have been favorable for hydropower production.
The Metzamor nuclear power plant provides base load capacity. The Vorotan and Sevan-Hrazdan Cascade hydropower plants provide daily load regulation, while thermal power plants operate to meet winter’s peak demand and to serve as the base load a few weeks in the fall when the nuclear power plant goes offline for maintenance. (See Figure 1 for the composition of available capacity and production in Armenia.)
Thermal power plants
The main thermal power plant complexes are in Hrazdan and Yerevan. The original equipment at these two gas-fired plants has worked beyond the 200,000 work-hour design life and does not meet international technical, economic, and environmental performance standards. These plants have not undergone necessary capital improvements in recent years, and operations and maintenance have been consistently under-funded. The plants run on outdated Soviet technology, and obtaining spare parts for maintenance is difficult and costly as the equipment is no longer manufactured.
The construction of the Hrazdan thermal power plant was started in 1963 with a total capacity of 1,110 MW. The first unit became operational in 1966. Its fuel efficiency is 35 percent compared to 57 percent for a new, efficient thermal power plant. In 2004, Armenia transferred the Hrazdan thermal power plant complexes to the Russian Federation as a means of satisfying certain state debts. ArmRusGasprom, the Russian owner of the Hrazdan complexes, has recently completed construction of a new 440 MW Hrazdan 5 thermal power plant, which is an efficient plant meeting today’s operational standards. (See Figure 2 for a view of the Hrazdan thermal power plant complex.)
In 1963, the first of seven turbines of the Yerevan thermal power plant began operation, with a capacity of 50 MW. The total installed capacity of the plant complex is 550 MW, but only one of the older generating units remains operational today, with a capacity of approximately 50 MW. This complex has operated for more than 40 years, although the lifespan of thermal power plants throughout the world is 30 years. A new 240 MW combined cycle gas turbine at the Yerevan thermal power plant complex came online in 2010, and was constructed with a $247 million loan from the Japanese Bank for International Cooperation. The loan was given in 2007 with an interest rate of 0.75%, a 40-year term, and a 10-year grace period. This gas-powered turbine is able to generate approximately one-quarter of Armenia’s current electricity output. The unit is also twice as efficient as the plant’s decommissioned units.
The new plant was constructed with an aim to reduce the generation cost of 1 KW/hour of electricity from the current 400 drams to 160-170 drams. Construction of the second and third power plants on the same site is being considered by the government of Armenia.
There are also two other small plants in Armenia. The Yerevan Thermoelectric Plant has only one turbine with a capacity of 50 MW, and produces electricity, steam, and heat mainly for the Nairit Chemical Plant. The Vanadzor Thermoelectric Plant, with a capacity of 50 MW, is currently not operating; this will change only if the Vanadzor chemical complex becomes operational.
Nuclear power plants
The Metzamor nuclear power plant was built during the 1970’s about 19 miles west of Yerevan. The total capacity of the two units at Metzamor is close to 800 MW, but only one of the units is operational. The plant is one of just a few remaining nuclear power reactors in the world that was built without primary containment structures. It has been operated by a Russian company, Inter RAO UES, since 2003, as part of an agreement to help pay off Armenia’s debts to Russia. The 400 MW operational unit is beyond its 30-year design life and is scheduled for decommissioning in 2021. Armenia will face a major supply-demand gap once the nuclear power plant is retired; that is why the government of Armenia is trying to secure financing to build a new nuclear power plant, which is estimated to cost $4 billion.
Hydro power plants
Historically, hydropower has constituted a large part of Armenia’s electrical energy production resources. There are two large hydropower cascades, Sevan-Hrazdan and Vorotan, which have a combined installed capacity of approximately 960 MW. As of 2012, there were more than 110 commercial size small hydropower power plants (SHPP) operating in Armenia. About 60 of these were developed and constructed in the past 10 years. There are also numerous small (micro) units that are operated by individuals to satisfy their own electrical needs. The forecast is that SHPP generation will grow from its current 5 percent penetration level of total electricity generation to 10 percent over the next 10 years.
The Sevan-Hrazdan Cascade hydropower system is one of the most important hydropower generation assets in Armenia. It was built between 1936 and 1961. The system consists of seven run-of-the-river hydropower stations, canals, and reservoirs between Lake Sevan and Yerevan. With a total installed capacity of 565 MW, it currently supplies about 10 percent of the country’s electricity, and plays a significant role in supporting the balance of the electric grid and providing affordable energy. This system is majority owned by the Russian RusHydro Company, one of the largest hydropower companies in the world.
The Vorotan Complex is the second largest hydroelectric power plant in Armenia. It has three stations with a total installed capacity of 404 MW. The first unit came online in 1970, and the last one in 1989. (See Figure 3 for Unit 2 of the Vorotan Complex.) The Armenian government is planning to sell the Vorotan Cascade to ContourGlobal, L.P., which is a New York-based independent power producer. It develops, acquires, and operates electric-power and district-heating resources primarily in underserved and overlooked markets worldwide.
Reliable and affordable energy supply is critical for economic growth. The Armenian government has set a target of up to seven percent GDP growth, which is expected to result in increased demand for energy resources. Key areas of economic growth include the industrial, commercial, and retail services sectors. These sectors accounted for 45 percent of GDP in 2011 and have been the largest contributors to GDP growth over the past 2 years. They sectors are energy-intensive, accounting for 81 percent of non-residential electricity consumption and 51 percent of total domestic consumption.
An old transmission and distribution infrastructure contributes to energy security problems. Transmission infrastructures in Armenia are, on average, more than 45 years old and require rehabilitation. Roughly 33 percent, or 520 km. of power lines, are in poor condition and require urgent rehabilitation at a cost of $80-$100 million. The old infrastructure exacerbates Armenia’s energy security problems. The available capacity of domestic hydropower resources is lower than their installed capacities, and old thermal power plants make inefficient use of valuable imported fuels.
The country’s heavy reliance on imported natural gas to generate much of its power makes the sector susceptible to fuel supply interruptions. Inefficient generation, transmission, and distribution infrastructure means that the power sector must use more imported fuel to provide the same level of electricity service than it would if this infrastructure were more efficient.
Currently there are four energy-generating companies in Armenia that produce more than 80 percent of electricity in the country. These are the Armenian Nuclear Power Plant, with a total gross output capacity of 407.5 MW; the RazTES, with a gross output capacity of 1,110 MW and a functioning output capacity of 760 MW; the Sevan-Hrazdan Cascade hydroelectric power plant, with a gross output capacity of 550 MW; and the Vorotan Cascade hydroelectric plant, with a gross output capacity 400 MW.
Renewable energy resources
Armenia is planning to diversify its electricity generation and fuel supply sources by exploiting domestic renewable resources. Significant renewable energy potential exists, but the government has struggled to attract private investors for non-hydro renewable projects. It is estimated that Armenia has more than 1,000 MW of technically viable capacity from solar photovoltaic (PV), 300-500 MW from wind, 250-350 MW from unexploited small HPPs, and 25 MW from geothermal. There is also potential for producing roughly 100,000 tons per year of biofuel from local plants to be used as gasoline additive.
Electricity trade with neighboring countries
The Armenian government has negotiated electricity trade agreements with Iran and Georgia to improve energy security and affordability. It negotiated a gas-electricity swap arrangement with Iran under which it exports 3 kWh of electricity in exchange for 1 m3 of gas from Iran. Trade with Georgia is limited because of an asynchronous connection between the two systems. In the short-term, increased trade with Georgia would allow Armenia to export its excess hydropower generation during the spring and summer to Turkey via Georgia. In the long-term, if Armenia builds a new nuclear plant, additional transmission capacity will be needed to export electricity from the plant, as the planned nuclear plant will be significantly larger than what is needed for domestic demand. If Armenia does not build a new nuclear plant, additional transmission interconnection capacity could help Armenia meet its supply gap with relatively cheap hydropower imports from Georgia.