The energy systems of Georgia, Armenia, and Azerbaijan have struggled since the collapse of the Soviet Union. Their centralized, interconnected infrastructure was damaged and inefficient. Each country now works to stabilize their utilities independently, though they face shared challenges like outdated infrastructure, energy inefficiency, and environmental issues. Their strategies differ based on available resources - Georgia focuses on hydropower, Armenia on nuclear and renewables, and Azerbaijan on oil and gas. All three aim to improve security, access, and sustainability in their transitioning energy sectors.

1. Energy and Public Utilities in the Southern Caucasus
The energy systems of the former Soviet Republics have been heavily burdened by their
Soviet legacy. The overly extensive, inefficient and resource wasting industry and Soviet-era
patterns of household consumption, amongst other challenges, have translated into ineffective
and environmentally unfriendly energy resource management and use. The tightly
interconnected and centralized infrastructure has been heavily damaged and is difficult to
maintain.
During the Soviet Union the energy networks of Georgia, Armenia and Azerbaijan
functioned as a constituent part of the integrated Trans-Caucasus system, sharing a joint
dispatch directorate in Tbilisi. The Trans-Caucasus system, in turn, was incorporated into the
united energy system of the Soviet Union’s European area with a dispatch center located in
Moscow. The disruption of the system following the collapse of the Soviet Union severely
affected the interconnected systems of the three countries.
The shortage in communal services and the absence of reliable and secure public utility
services mirrored the countries' troubled transitions, socio-economic hardships and low living
standards.
The three South Caucasus states then struggled through a period of industrial, infrastructural
and economic collapse which was further complicated by civil-military crises in the 1990s.
The energy systems and public utility supplies, including electricity and gas as well as water,
were on the verge of collapse in all three states.
For instance, Georgia was unable to surmount its severe energy crisis for many years. The
number of blackouts on an average day mounted from 3 to 15 in the period up to 2003.1 The
capacities of the country's energy system shifted dramatically from one day to the next.
From 2008-2009, even after a period of tremendous reforms, Georgia generated domestically
only 64 percent and consumed 50 percent of energy compared to its 1989 levels.
Production bln kWh Consumption bln kWh
19892 15.8 18
20003 7.4 6.9
The energy systems in Armenia and Azerbaijan have also suffered hardships along with other
former Soviet republics. In the wake of the collapse of the Soviet Union, these countries
began to cope with the implications of independence and attempted to sustain fragmented
utility systems that were not designed to operate as a single grid. Even in Azerbaijan, a
country rich in energy resources, electricity production had decreased by more than 25
percent by 1995 and by 2008 had only reached 93 percent of its 1990 production levels
1
Margvelashvili, Murman, The Problems of Georgian Power Sector (WEG), Energy Regulation Newsletter
No.1(6) 2005
2
World Bank Factbook, 1993
3
The resolution of the Parliament of Georgia on State Policy in the Energy Sector of Georgia, June, 2006
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2. (23,152 million kWh).4 In the early 1990s Armenia's population suffered several brutal
winters with only two hours of electricity supply per day.5 The situation in Armenia was even
more severe because of the economic blockade imposed by its neighbors (Azerbaijan and
Turkey) due to the Karabakh conflict.
Despite this difficult starting point, gradual development and economic growth in all three
countries have allowed them to stabilize and reform the sectors over the past several years.
The study below gives a detailed account of how the utility systems in these three countries
have evolved and how these sectors look today.
While the trends and tendencies seen in Georgia, Azerbaijan and Armenia are quite similar,
as are the major challenges faced by the countries, the timing, concrete policies and resources
are specific to each state. Azerbaijan is the only country in the region with substantial oil and
gas reserves; it ranks 19th in the world in this respect. Georgia is particularly rich in water
resources, with per capita availability almost four times higher than in neighboring Armenia
and Azerbaijan. Armenia, meanwhile, largely depends on nuclear energy and puts emphasis
on renewable sources, such as wind power generation.
Georgia, which covers a territory of 69,700 sq km with a population of 4.6 million, is rich in
hydro resources - there are 26 060 rivers on its territory. The total annual electricity generation
potential of these rivers is equivalent to 15000 MW, while the average annual production of
electricity by local hydropower plants (HPPs) amounts to 50 billion kWh.6
While Georgia is rich in water resources, the country is completely dependent on imports for
its oil and gas supply. This situation further increases the strategic importance of the country's
ample water resources. Given the significant potential of hydro energy, the government's
strategic vision involves utilizing these assets, increasing capacity and transmitting the
electricity produced to the immediate region and beyond.7
The diversification of oil and gas import schemes and their transit carry implications for the
country's security and development strategies at large. The construction of the Baku-Tbilisi-
Ceyhan oil pipeline, and the Baku-Tbilisi-Erzerum gas pipeline, as well as the Kars-
Akhalkalaki Railroad make the country an important regional hub for the transit of gas, oil
and other goods.
Armenia is the smallest country in the region in terms of area and population, with a territory
of 29,743 sq km and 3.21 million inhabitants.8. The country has no domestic oil or gas
production, and its water resources are also modest. Nevertheless, Armenia has significant
domestic electricity generation resources, which come primarily from thermal and nuclear
power generation. In 2006 Armenia's power plants on average generated 678.2 MW of
power, while the country's electricity consumption rate on average was 635.5 MW. In 2006,
non-thermal domestic electricity generation accounted for 76 percent of total generation, of
4
AzStat Information. Available at: http://www.azstat.org/statinfo/balance_fuel/az/010_1.shtml#sl
5
From Crisis to Stability in the Armenian Power Sector: Lessons Learned from Armenia’s Energy Reform
Experience, World Bank Working Document No. 74, p. xi.
6
Information from the Ministry of Energy of Georgia. Available in the section of statistics at:
http://www.minenergy.gov.ge/
7
Interview with Georgia's Energy Minister, Reuters, 4 April, 2008. Available at:
http://www.minenergy.gov.ge/index.php?m=373
8
July, 2009 est. CIA factbook
2

3. which 43 percent was nuclear. This is the only country in the region that has a nuclear power
plant.
Armenia also “places a strong emphasis on energy efficiency and renewable energy”,9 which
distinguishes it from other countries in the region. It boasts a wind power plant in Lori with
four wind stations and an overall capacity of 2.6 MW, and it is currently building a large
wind farm together with Iran.10
Azerbaijan is the largest state in the region, with a territory of 82,629 sq km and a
population of 8,3 million.11 It is also the only country in the region with large energy
resources, although its water resources are limited. Its proved oil reserves are 7 billion bbl,
ranking it 19th in the world, and its gas reserves total 849.5 billion m3.12
The “Oil Boom” in Azerbaijan resulted in a 30 percent growth in GDP in 2006. Since then,
the country has been temporarily affected by the global economic slowdown that began in
2008. Currently, the oil sector accounts for about 54 percent of GDP and three quarters of
industry.13
In general, all three Southern Caucasus states and their energy systems suffer from low
energy efficiency. For example, Georgia consumes six times less energy per capita compared
to Finland or Norway and 2,5 times less compared to Greece. Yet, at the same time, it
consumes 4,5 times more energy on GDP production than these countries. In Azerbaijan the
obsolete water supply system causes water losses reaching 25-50 percent. Despite
considerable improvements in water supply management in Armenia, Water Suply System
(WSS) losses in the country's capital still stand at up to 80 percent.14 These figures indicate
how ineffectively resources are used as compared to real consumption volume.
All three countries are also facing environmental challenges. These states are signatories of a
number of international agreements and several other important documents, (The Energy
Charter Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA),
Framework Convetion on Climate Change (FCCC) and its Kyoto Protocol, European
Neighborhood Policy (ENP) and Individual Action Plans, Energy Community Treaty, etc.).
On the one hand, these documents serve as guides for the participating states on how to
increase energy efficiency and environmental considerations while on the other hand, the
states are bound to meet the requirements laid out in the agreements. For example, the Energy
Charter urges its participants to stipulate a vision, strategy and action plan and set the relevant
regulations and issue-based programs aimed at increasing energy efficiency and decreasing
environmental damage.
The varying domestic capacities, resources and economic potential of these countries create
different political and strategic policy implications for them. Georgia’s hydro riches,
Azerbaijan’s fossil fuel reserves and Armenia's energy networks/policy experience push the
9
USAID Environment: Climate Change Program - Armenia. Country and Regional Information.
10
National Statistical Service of the Republic of Armenia. Available at:
http://www.armstat.am/en/?nid=126&id=02004&year=2010&submit=Search
11
July 2009 est., CIA factbook
12
CIA factbook assessment
13
Country Profile. Azerbaijan. European Stability Initiative. Available at:
http://www.esiweb.org/index.php?lang=en&id=262
14
Interview of V.Avoyan, Contract Director of Yerevan Jur CJSC, July 2010 (Media information).
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4. countries to capitalize on different strategic tasks in the energy sector, which translates into
country-specific situations in the public utility sectors.
The baseline study below analyzes the public utility sectors (electricity, gas, water) in the
three countries of the Southern Caucasus and outlines infrastructural, structural, political,
legislative, economic and security aspects of those in each state. The paper sheds light on the
functioning of each sector, the main actors, the major challenges facing the systems, the
major problems facing consumers, the dynamics of development over the past several years,
and more. The involvement and role of civil society actors is given particular focus.
The studies on each country were carried out by Georgian, Armenian and Azerbaijani
researchers based in Tbilisi, Yerevan and Baku, respectively, in coordination with the EI
LAT’s team. The conclusions of the study provide a solid basis for further, more concrete
needs-based assessment and engagement strategies.
4