The World Bank''s Board of Executive Directors approved $40 million in support of the Enabling the Energy Transition project for Armenia, which will assist the implementation of the Energy Sector Development Strategy to 2040 of the Republic of Armenia. The investments will focus on the rehabilitation of power transmission substations, the adoption of reforms to allow the transmission company to access private financing, and the promotion of energy sector modernization as well as regional energy cooperation among emerging and developing economies in the Europe and Central Asia region.
Armenia''s power sector is heavily dependent on imported fuels, especially natural gas, which creates significant energy security risks, compounded by the global energy crisis. Attracting private investment is essential to fund the large-scale projects needed in the sector. In 2021, 62 percent of Armenia''s total energy supply came from natural gas, followed by oil (16 percent), nuclear (14 percent), and hydro (5 percent), whereas the share of nontraditional renewable energy sources (wind and solar) was only about 1 percent.
"To ensure affordable, reliable, and clean electricity supply for consumers, Armenia needs continued investments in modernizing the power transmission network and improving the commercial viability of the High-voltage Electric Networks of Armenia JSC, the transmission company. Moreover, we expect this project to help reduce greenhouse gas emissions – crucial for mitigating climate change," said Carolin Geginat, World Bank Country Manager for Armenia.
The project aims to facilitate the integration of an estimated 1.1 GW of renewable energy generation capacity into the transmission grid by 2032, which is enough to power over 690,000 households. This will reduce the annual emissions of net greenhouse gas (GHG) by 540,000 tons. Additionally, it seeks to attract private investment totaling $550 million, upgrade all transmission substations with automated control and digital protection systems, and increase the total capacity of transmission substations from 2,711 megavolt-amperes (MVA) to 3,109 MVA. These efforts are part of a comprehensive strategy to enhance renewable energy adoption, minimize environmental impact, and modernize the grid for increased efficiency and reliability.
The project is part of the Europe and Central Asia Renewable Energy Scale-Up Multiphase Programmatic Approach (ECARES MPA) Program, with an overall financing envelope of $2 billion equivalent, which was approved by the World Bank''s Board of Executive Directors on March 28, 2024. The ECARES MPA is designed to increase renewable energy capacity in participating countries of the Europe and Central Asia region, support the acceleration of their renewable energy transition, and achieve scale and impact through private investment, while also fostering regional knowledge sharing.
Over the past three decades, Armenia has made great strides in providing electricity to its almost 3 million inhabitants.
Over the past three decades, Armenia has made great strides in providing electricity to its almost 3 million inhabitants. The landlocked, Caucasus country is now 100% electrified, a huge feat considering how unstable its energy sector was in the 1990s.
However, most of its Soviet-era power infrastructure is in poor condition, leading to blackouts and technical and financial losses for its energy sector. The country also remains heavily reliant on imports of oil and gas to meet its energy demands.
The Asian Development Bank (ADB) has been playing a key role in strengthening Armenia''s power sector — from generation to transmission anddistribution — since the country joined the bank in 2005. In line with their current country partnership strategy, ADB has been helping foster diversified growth and inclusiveness in the country through both sovereign and private sector financing.
"ADB is proud to be part of Armenia''s journey to sustainable energy," says Paolo Spantigati, ADB Country Director for Armenia. "Under ADB''s country partnership strategy (CPS) for Armenia, 2019–2023, our sovereign and nonsovereign operations focus on investments in priority energy projects that will diversify the country''s energy mix and improve energy security."
Through a $25 million private sector loan, ADB helped to rehabilitate and modernize four hydropower plants of the Sevan–Hrazdan Cascade Hydropower System – one of Armenia''s most important energy sources. This improved the safety and reliability of the systemwhich was built in the 1930s-1960s. It helped restore 45 megawatts of generation capacity, increasing the share of renewable energy in Armenia''s energy mix.
"ADB provided long-term financing that was a must for the successful implementation and was unavailable in the local market at that time," says Sergey Mokroussov, Senior Investment Specialist with ADB''s Private Sector Operations Department. "ADB''s involvement in the project fostered confidence among potential investors and lenders as Armenia''s hydropower sector attracted additional investments in the subsequent years."
While it''s important to develop low-carbon energy sources, it is also critical to modernize the transmission and distribution network that route electricity to households and businesses across the country.
Through an $80 million loan to Electric Networks of Armenia (ENA) Closed Joint-Stock Company (CJSC), the country''s sole electricity distribution company, ADB financing helped to rehabilitate almost 900 kilometers (km) of distribution lines, 1300 transformers and substations, and install more than 380,000 automatic metering devices. This reduced electricity losses by 2% from 2016 to 2021.
"The new automated smart metering system provided by Electric Networks of Armenia is very efficient as it gives us visibility to understand how much electricity we are consuming in real time and plan the usage throughout a day, as well as what it''s costing us," says Diana, a beneficiary of the automatic metering device. "These new devices eliminate the manual component and interaction with the electricity metering technicians. In other words, with a smart meter, you exclude the estimated billing, which is also of great importance."
The project enabled ENA to improve the services it provides to customers through improved infrastructure and management aligned with international standards.
When the COVID-19 pandemic hit Armenia, temporary restrictions in movement meant that many people were not able to pay their electricity bills as they couldn''t go to their bank branches or other points of payment.
These delayed payments generated enormous and unforeseen financial stress for ENA, which faced an unprecedented backlog in late payments.
ADB was the first partner to support ENA by providing critical working capital through an emergency loan, ensuring that electricity services were uninterrupted throughout the pandemic. This also improved local financial institutions'' confidence in the company during the crisis.
"We faced the greatest challenge of our time. The COVID-19 pandemic has been much more than a health crisis, it has been also a devastating social and economic problem," says Karen Harutyunyan, CEO of ENA. "We are so grateful to ADB for their commitment and great assistance in the difficult period not only from a financial standpoint, but also in sense of advising on many issues connected with the work and wellbeing of our staff."
Reforms in Armenia''s energy sector are continuing. Last year, the government put in place a new long-term energy development plan that includes boosting energy security and improving energy efficiency through 2040. Under the strategy, the government aims to maximize the utilization of domestic energy resources, replace aged, obsolete power infrastructure, and diversify the country''s energy sources.
As Asia and the Pacific''s climate bank, ADB will continue working closely with Armenia to help develop its renewable energy capabilities and help Armenia expand access to reliable, affordable, and sustainable energy.
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Entrepreneurs like Marcos Gharibyan are fueling the growth in renewable energy in Armenia by investing in small hydro-power plants. Gharibyan took a risk and got a loan to invest in two small hydro power stations. "We have a small gardening firm. We thought that since we were bringing in irrigation water, we could just as well build a hydropower station on that water flow," Gharibyan explains.
After he built the station, Gharibyan took another leap of faith and built a 10 kilometer long high voltage power line to connect his stations so they can feed into the national power grid and he can recoup some of his investment. Built on a stream of the Azat River, the stations operate for only 4 months a year. However, regulations and incentives help to insure a profit.
The market for small hydropower stations is well developed in Armenia and the government has created incentives for investment. Energy law mandates that the power distribution grid buy electricity generated by small hydro power stations for 15 years after they become operational. The Public Services Regulatory Commission has established feed-in tariffs for the electricity they produce.
"The feed-in tariffs enable developers to assess, based on technical parameters, whether it makes business sense to invest without having to rely on any state official, and the guarantee of 15 years of purchase meant that the developers could confidently invest in this area," says Robert Nazaryan, Chairman of the Public Services Regulatory Commission.
The end of the energy crisis in the 90''s was the beginning of a new era for Armenia. One of the lessons learned was to use local resources efficiently to ensure the country''s energy independence and security. And as its energy resources are limited, renewable energy is of great importance.
"The development of renewable energy in Armenia is of triple importance. First, it uses local energy sources, second it uses renewable energy sources and third, it uses clean sources of energy," says Arayik Marjanyan, Renewable Energy Program Coordinator, Renewable Resources and Energy Efficiency Fund.
The World Bank provided a $5 million dollar credit to ensure investments in the sector. Co-financer, the European Bank for Reconstruction and Development, invested $7 million dollars; the Cascade Universal Credit Organization owned by the Cafesjian family foundation invested $3 million dollars. Many commercial banks are now providing loans for the construction of small hydropower stations. Thus, a favorable legal framework is coupled with the opportunity to get financing.
Ninety four small hydropower stations are operational in Armenia, providing about 3 percent of Armenia''s domestic demand for electricity. Of those, 27 were built under the World Bank''s Renewable Energy Project. An additional 65 hydropower stations are under construction. Once they start operating, small hydro power stations will meet 6 percent of the internal demand for electricity.
Besides providing electricity, small hydropower stations provide jobs.
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