Georgia is rich with untapped hydropower resources, but shows also potential for development of solar, wind and other renewable energy sources. The first attempts to incentivizing renewable energy generation, by establishing regulatory framework for renewable energy projects, dates back to 2008, when the Government of Georgia approved State program “Renewable Energy 2008”.
The main goal of the program was to create a legal framework for initiating the construction of new renewable energy sources for interested local and foreign investors. Although this program was essentially focused on fostering the development of hydro resources, it could also be applied to other renewable energy sources, including wind and solar energy. Renewable Energy 2008 program regulated basic rules without too much detail and initially covered renewable energy projects with installed capacity up to 100 MW, however such upper limited was later cancelled and most of the rules removed. Over the years the program has undergone significant modifications, but it still remains go to regulation for those projects which do not fall within the framework (like solar power projects) of more specialized and detailed rules targeting specific type of renewable energy sources.
In 2013 more comprehensive regulation has been adopted for the expression of interest for construction, technical and economic feasibility study, construction, ownership and operation of power plants in Georgia. This regulation was targeting development of renewable power plants included in a special list of potential power plants, development of which was considered as a priority by the Georgian government. No written criteria have been defined based on which the government could include project in the list, however such list was composed mostly of business sound hydropower projects. In 2014 similar regulation has been adopted for the renewable energy projects which were not included in the abovementioned list, but were initiated by private entities on their own. This time the regulation established separate rules for hydro and wind power projects.
The regulations applicable to the development, implementation, and operation of renewable power plant projects in Georgia, whether such projects are included in the state`s list or not, with different degrees of detail, are oriented to address the matters of expressing the interest for obtaining rights over the development of renewable power plant; defining the list of required documentation; procedures of tendering and rights of interested entities taking part in the process; Guarantees to be provided during the selection process as well as guarantees from the part of the winner after it obtains rights over the project; terms of the agreement(s) securing rights over the project in the form of memorandum of understanding. Even though regulations are quite straightforward, they are still limited and most of the important terms and conditions for the owner of the rights over particular project are embedded in the memorandum of understanding which essentially remains unregulated. The Government of Georgia follows certain standard approach with such memorandums, however depending on the importance of the project the terms of the memorandums of understanding may deviate from the standard one. It was also common to sign power purchase agreements with project developers securing fixed tariff for the important projects deemed so by the Government of Georgia from the perspective of ensuring the security of supply especially during winter months. The target of these regulations was to provide sufficient legal and economic guarantees for attracting as much foreign investments in renewable energy sector as possible.
Apart from the abovementioned framework for negotiating incentives package for particular investor, Georgia had no other scheme for promoting renewable energy generation; however, the need for more renewable energy generation sources was and still is overwhelming. There was also the need for more structured approach to energy regulations and policy pertaining the growth of renewable energy generation sources.
Georgia has embarked on the harmonization path of its energy legislation with European regulations in line with undertakings of Association Agreement entered into by Georgia with the EU, which came into force on July 1st 2016. The Annex XXV of Association Agreement provides list of EU energy regulations and directives with which Georgia needs to approximate its energy legislation.
The harmonization of energy legislation is part of wider policy of Georgia to integrate in the EU. The priority of these reforms, along with the promotion and deregulation of business activities, is to strengthen the legislative and regulatory framework that will foster strong economic growth, and also answer to the dilemma of how to meet investors` expectations and attract more foreign direct investments in energy sector.
In 2017 Georgia became full member of Energy Community, an international organisation which brings together the European Union and its neighbours to create an integrated pan-European energy market. In the accession protocol to the Energy Community Georgia agreed to the timetable for adopting EU specific directives and regulations, most importantly Directive 2009/28/EC of the European Parliament and of the Council of 23 April 2009 on the promotion of the use of energy from renewable sources and amending and subsequently repealing Directives 2001/77/EC and 2003/30/EC.
Following Georgia`s harmonization undertakings the Parliament of Georgia in 2019 adopted Law of Georgia “On Promoting the Generation and Consumption of Energy from Renewable Sources” (the “Renewable Energy Law”). In line with recommendation of Energy Community, the Renewable Energy Law has declaratory nature similar to the Directive 2009/28/EC, however it aims to establish the legal basis for the promotion, encouragement and consumption of energy received from renewable sources, as well as to establish the mandatory national common target indicators of the total share of energy received from renewable sources in the total final consumption of energy and in the consumption of energy by transport.
The main goal of the law is to reduce the dependence on imports by maximizing the use of local resources and to ensure full satisfaction of consumer demand for electricity. As Georgian legislation was incompatible with EU legislation, the Renewable Energy Law also aims to bring it closer to EU political, trade-economic, social and legal standards.
To this end, the Renewable Energy Law provides for the creation of a legal basis for the promotion, encouragement and use of energy from renewable sources. In particular, Article 11(Support Schemes) of the law sets out the obligation to establish a support scheme to be developed by the Ministry of Economy and Sustainability of Georgia and to be submitted to the Government of Georgia for further approval. The law defines a support scheme as any instrument, scheme or mechanism used by Georgia alone or in conjunction with an energy contracting party/group of parties that facilitates the use of renewable energy in Georgia by reducing its cost, increasing its selling price, or committing itself to renewable energy or otherwise increases the volume of such energy acquired. These also include, but are not limited to, investment assistance, tax exemptions or reductions, tax refunds, renewable energy liability support schemes, including those using green certificates, and direct pricing schemes, including special green and premium rates.
For the purposes of the Renewable Energy Law, it was also important to define the rule on "support schemes", which means studying specific support schemes and approving them in accordance with the requirements of the Georgian energy sector. Support schemes provide incentives for the development of specific technologies working on renewable energy sources. At this stage, the following support schemes are being considered: a) Premium tariff; b) special green tariff; c) price difference agreement; d) green certificate; The development of these support schemes involves the study of the feasibility of their implementation, i.e which support scheme for what technology and for what capacity may be appropriate, both in terms of technological development prospects and the impact on the electricity market. Before approving the rule of support schemes, their financial impact on the expenditure part of the budget, as well as on the energy market and market participants will be evaluated and analyzed.
Although the Renewable Energy Law sets promising framework for further incentivizing renewable energy generation in Georgia, its implementation largely depends on adoption of number of bylaws. So far, the Government of Georgia adopted support scheme for the generation and use of energy from renewable sources with respect only to the hydropower plants; To date no schemes for wind or solar power plants have been adopted, besides the net metering rules applicable to solar generation sources with installed capacity up to 500kwh.
No rules for announcing and conducting a competitive auction for the promotion of the generation of energy from renewable sources have been adopted either, even though per timeframe set under the Renewable Energy Law it has to be already adopted and in full force; however according to the official information, draft rules are elaborated and will be adopted in near future.
Elaboration of necessary bylaws are time-consuming and depends on many aspects of social, economic and political life of Georgia. Institutional partners of Georgia, like European Bank of Reconstruction and Development, are taking active part in assisting Georgian government in tailoring workable support schemes in consideration of European experience, and such support is invaluable not only for Georgians, but for foreign actors.
In conclusion to this brief overview of renewable energy incentives in Georgia, it can be observed, that after years of rather scarce and unsystematic approach to incentivizing renewable energy production, Georgian authorities have opted for more structured path by aligning its regulations to European standards and sharing experiences. Once all bylaws are put in place, regulatory environment may have potential to make real contribution to the renewable energy sector, however even today, it is possible for interested investors to seek and receive treatment which can secure their investments in Georgian renewable energy sector.
