ARMENIA RENEWABLE RESOURCES
AND ENERGY EFFICIENCY FUND
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Potential by technology / Hydro

The most advanced use of renewable energy technology application in Armenia today is hydropower, both in the use of large-scale power (e.g.- waters of Lake Sevan) and the more recent installation of small, run-of–the-river hydropower plants (SHPPs) throughout the country. In particular, SHPPs have been a major renewable energy deployment success story in Armenia over the last decade. At present, the SHPP industry supplies about 5% of the annual electrical energy generation in Armenia and promises to produce an even greater percentage over the next decade. However, there are a number of emerging problems and barriers that have become apparent recently, which could slow future growth for this promising RET.

A comprehensive analysis of the SHPP technology that includes both the existing situation and the future potential are presented in a July 2010 report to USAID prepared by “TetraTech” (formerly PA Consulting Services Inc).

Industry

To take further advantage of the potential of SHPPs, a number of barriers should be taken into consideration and addressed in the near term. These include inconsistencies and omissions in the legal/regulatory framework, technical shortfalls, and continuing business/commercial barriers. The main technical problem with SHPPs in Armenia has been the lack of automation and utilization of modern control technologies. Armenia has the technology base to solve this issue, as well as the technical knowhow to design and implement adequate automated control systems needed for future SHPP units.

Other factors include poor performance and low reliability of equipment that has been imported from China and Iran, metallurgical and materials problems resulting from the re-use of salvaged piping from irrigation systems and hydro facilities that are no longer operational, as well as substandard engineering design and poor quality control during construction. Addressing each of these problems in turn will ensure that Armenia continues to add small hydro generation capacity over the next decade at the same rate as has occurred over the past ten years, despite the fact that many of the best hydrological resource sites have already been utilized.

Potential

The total potential output of large and small hydropower existing in the country, as of January 2011, is 1,256 MW, or 3,746 million kWh. Over the past five years, those SHPPs that have been approved for licensing and actually been constructed all faced and overcame a number of issues that had to be addressed and dealt with first such as competing land use claims, environmental impacts and stream flow limitations, differences between actual construction costs and study cost estimates, new hydrology information that differed from historical data measured by the various hydrological research institutes from the Soviet era, and conflicts with other water uses to name but a few. Resolution of these issues is essential for considering the future potential of SHPP additions to installed capacity.

Table 1 summarizes the potential for additional SHPP development in Armenia over the next 10 years and is based upon data presented by the staff of R2E2.

Table 1 – Potential Remaining SHPP Capacity in Armenia over the Mid to Longer Term

Mid and Long Range

Capacity (MW)

Output (GWh)

Needed Investment (Mil $)

Resource: Possible Max

305,3

1118

366,3

Possible Min

252,3

774

302,7

2010 Actual

102,5

315,2

Base Case 2015 (forecast)

179

517,3

214-225

Base Case 2020 (forecast)

216,5

625,6

259-270

 

Based upon the data assembled by R2E2 and is presented in Table 2.1, potential of the additionally installed capacity that can be reasonably expected from SHPPs by 2020 would be 216.5 MW which means it would be 114,5 MW additional capacity with approximately 264 million GWh per annum from this promising RET. It should be noted that this is an average annual energy output number with the maximum peak occurring during spring runoff and the minimum occurring during winter months when stream flows are at their lowest.

The average tariff level in 2011 for the existing 80 SHPPs currently operating in Armenia is which would not be sufficient to attract additional investments in SHPPs given that more efficient and reliable turbines, automated control systems, utilization of new piping for penstocks, use of better construction materials and techniques, and development of remaining sites with lower capacity factors will all result in higher breakeven tariff requirements.

Financial

The origin of technical problems mentioned in the section above may be traced to the fact that tariffs for SHPPs in Armenia today are still fairly low by world and regional standards such that the only way to ensure a return on investment is to utilize inferior turbines from China and Iran, salvaged piping for penstocks, poor quality construction materials, and elimination of automated control systems. However, continued adherence by the government to low feed-in tariffs will discourage future investments in this promising RET given that the less optimal hydrological sites remaining to be developed will require more efficient and reliable turbines and automated control systems to achieve commercially viable capacity factors and enhanced annual energy outputs—all of which will entail increased investment levels over previous capital requirements in this renewable energy area.

To date, the international financial community has been extremely supportive of the development of SHPPs in Armenia. The active financing participation of both R2E2 (through World Bank and GEF support) and KfW has enabled the rapid development of SHPP over the past decade. The installation costs of these earlier SHPPs have been ranging between $700/kW and $1000/kW, with energy costs remaining below $0.07/kWh. However, as noted above, future SHPPs will necessarily require greater capital investments which are estimated to average between $1200 and $1500/kW. Accordingly, feed-in tariffs will also necessarily have to increase to attract investors over the mid to longer term.

It should also be noted that the German Armenian Fund (GAF) of Renewable Energy has pledged sufficient funding support to finance 13 SHPP projects based on a series of eligibility criteria such as a limitation on maximum installed capacity of 10 MW per SHPP. Funds loaned to date under the GAF have an excellent repayment record with zero defaults. In addition, the International Finance Corporation (IFC) is implementing a new lending program through the Ameria Bank which makes more funding available for new SHPPs as well as other renewable energy projects.

Projected Forecast of SHPP Potential

Finally, Table 2 presents a summary overview of the potential for SHPPs over various time horizons including estimated investment costs per kW.

Table 2 – Overview of the Potential for SHPPs over Various Time Horizons

SHPP

2010

2015

2020

Electricity production [GWh]

315

517

626

Installation in place [MW]

102,5

179

216,5

Investment cost [USD/kW]

500-700

1200

1500

Operation costs [% of investment cost]

2%

2%

2%

Actual costs [USD Cent/kWh]

3,3-4,9

6

7.4