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Electricity is a capital-intensive sector with reasonable profits. Georgia’s investor-friendly regulations, upgraded transmission networks and export opportunities have attracted substantial investment in recent years. The energy sector was the second-largest FDI recipient in 2007-17. The sector’s EBITDA margin averaged 19% in 2012-17, above the business sector’s level of 13%

Georgia’s transmission capacity is set to improve significantly over the next decade. Total investment is estimated at EUR 809mn, according to the 10-year network development plan set out by GSE, and will accommodate an additional 4,000MW of installed capacity. Hydro development remains strong: 27 HPPs with an estimated investment value of US$ 3.2bn are currently at the licensing or construction stages. Domestic consumption growth has decelerated on the back of a slowdown in industrial consumption.

Domestic electricity consumption was up 1.0% y/y in March 2016 and 1.8% y/y in 1Q16. Weaker growth was partly due to the high base in March 2015 and warmer weather compared to March of last year. DNO consumption was up 2.7% y/y in March 2016, as opposed to 8.2% y/y growth in March 2015. Consumption in the greater Tbilisi area (Telasi) grew 5.8% y/y as compared to 12.9% y/y growth in 2015. The growth rate in the regions was even weaker – 1.2% y/y as opposed to 5.1% y/y in March 2015.

Domestic electricity consumption was up 3.6% y/y in February 2016. The growth was concentrated in the greater Tbilisi area, with a 14.3% y/y increase in Telasi consumption (38.8% of total DNO consumption), while consumption in the regions (Energo-Pro, 56.8% of total DNO consumption) was up only 0.6% y/y. Consumption by eligible consumers is still decreasing (-13.8% y/y in February 2016), but at a significantly lower rate than in the previous months. Its share in total consumption is down from 12.3% in February 2015 to 10.2% in February 2016.

Domestic electricity consumption was up 0.7% y/y in January 2016. Consumption by Telasi (the DNO servicing the greater Tbilisi area residential, commercial and industrial consumers) increased 8.3% y/y (37.1% of total DNO consumption), while consumption in the regions (Energo-Pro) was up a negligible 0.5% y/y (58.6% of total DNO consumption). Consumption by eligible consumers was down 25.4% y/y, with Georgian Manganese (GM) electricity consumption down 28.3% y/y in January 2016.

On January 14th, Turkey became the first observer member of the European Network of Transmission System Operators for Electricity (ENTSO-E), a status that Georgia is aspiring to currently. ENTSO-E is currently assessing the relevance of granting observer member status to other non-EU TSOs. Observer member status allows the TSO to attend ENTSO-E task force meetings and adds credibility to the country’s grid operations. Turkey started the process of synchronization in 2000 and joined in January 2016.

GNERC sets new tariffs for generation, transmission, dispatch and distribution for the regulation period January – December, 2016. Selected generation facilities (some HPPs/all TPPs), the transmission and dispatch licensee (GSE), and all distribution network operators (DNOs) fall under the status of a regulated entity. 9 regulated HPPs, currently owned and operated by Energo-Pro Georgia – one of the three DNOs in the country - got their tariffs revised (See Table 1).

Electricity consumption was down 3.9% y/y in October 2015, mainly due to a 42.2% y/y drop in consumption by direct consumers (users with consumption of over 7gWh/year). The major contributor to the drop was Georgian Manganese; its electricity consumption declined 52.6% y/y in October 2015 and its share in total consumption fell from 11.3% in October 2014 to 6.2% in October 2015.

Georgia moved up 8 spots to #62 (out of 189) in the Getting Electricity ranking of the 2016 Doing Business report. Ease of electricity access is essential for the country’s investment potential. Georgia ranks ahead of most of its peers (Belarus, Armenia, Bulgaria, Azerbaijan, Romania), being second only to Turkey (36/189), and beats the regional average of 94 by 32 spots. According to the report, progress was achieved by simplifying electricity network access for new customers, reducing connection fees, and adopting a grid code.

Electricity consumption was flat y/y in August 2015. This was mainly due to a significant drop in consumption by direct customers (users with consumption over 7gWh/year). Even though direct consumers accounted for only 9% of total consumption, the 42% y/y drop could not be offset by the 7% y/y increase in retail and commercial consumption via distribution license holders. 8M15 figures are on the rise, with a 7% y/y increase in total consumption.