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Renewable financing diversifies Armenian energy

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Armenia's rivers have power potential.

Cascade Credit's Executive Director, Garegin Gevorgyan.

Areg Galstyan believes he has the answer. Armenia’s Deputy Minister of Energy.

Armenia currently generates so much electricity that it exports power to neighbouring Georgia. But the country has a plan to shut down, by 2016, aging nuclear facilities on which the country depends for 40 per cent of its power. How will Armenia make up the difference, given that it does not want to import more expensive oil and gas which currently account for 24 per cent of power production?

Areg Galstyan believes he has the answer. Armenia’s Deputy Minister of Energy is optimistic that in this mountainous country of fast-flowing rivers and abundant sunshine, renewable energy -- wind, sun and especially water -- has the potential to meet as much as 70 per cent of its energy needs by 2020. About 36 per cent of the national power supply already comes from a renewable source: hydropower.

Switching over more of the generating system to renewables is a government priority. But there were many stumbling blocks in the way of financing renewable energy projects – until recently.

“Our banking system has been unable to provide money for renewable power projects in the range needed, from half a million dollars up to $4 million,” says Mr Galstyan. “So we have largely depended on foreign sources, such as grants, credits and co-operation with foreign investors or organisations. We also knew that a favourable investment environment was required to encourage and attract private investors. One of the first and most important steps towards this was establishing new legislation on energy saving and renewable energy (on November 9, 2004),” says the Deputy Minister.

“Also, thanks to the Government’s decision to abolish tax on new renewable ventures and to set guaranteed tariffs to buy the energy from renewable generators, power generation projects from alternative sources became feasible,” he says, adding these measures have already yielded concrete  results..

Loans for green energy

Sorting out the investment environment for renewables has cleared the way for finance. Cascade Credit, a lending institution established in Armenia in 1994 by Gerard Cafesjian, has as one of its particular aims the financing of small mini-hydro power generation projects and other competitive renewable energy projects. Cascade Credit is part of the Cafesjian Family Foundation (CFF) set up by Mr. Cafesjian, an American investor of Armenian descent, to foster economic development in the country.

The EBRD, which under its new Energy Policy is committed to investing in renewable power, has joined in partnership with Cascade Credit which shares the Bank’s vision of promoting environmentally-friendly energy sources. “We are delighted to cooperate with the EBRD in bringing more alternative energy supplies to Armenia,” said Garegin Gevorgyan, Executive Director of Cascade Credit.

A $7 million EBRD loan to Cascade Credit will be combined with $5 million from the World Bank and $3 million from the CFF. The $15 million total will be used to provide long-term loans to developers of renewable energy projects – primarily mini-hydro generation, but potentially wind and biomass as well. The project will also benefit from $3 million in grant funding from the Global Environmental Facility to help with project screening and evaluation, documentation, legal due diligence and monitoring operations.

“We also hope that our funding and successful implementation of the project will eventually attract co-financing from other local banks as the banking sector gradually strengthens,” says Anthony Marsh, the head of EBRD’s Power & Energy team.

In its first year of operation, Cascade Credit expects to finance 7-10 mini-hydro projects. In each it will fund 70 per cent of the project cost and expect the private developer to invest 30 per cent of their own money.

Mini-hydro is booming

About 38 small hydro-power stations are under construction in the country, which Mr. Galstyan says will meet ten per cent of the country’s electricity needs. The scheme has become so popular among private investors that it is becoming a challenge to acquire sites for new mini-hydro plants.

Relative to fossil fuel generating plants, “hydroelectric power stations have less impact in terms of atmospheric emissions,” said Mr Galstyan. “They offer the lowest operating costs and longest plant life, compared with other generating options. Once the initial investment has been made in the necessary civil works, the plant life can be extended economically by relatively cheap maintenance and the periodic replacement of electro-mechanical equipment. The ‘fuel’ (water) is renewable, and is not subject to fluctuations in market conditions.

“We are also proud that our country hosts the first-ever wind power plant in the South Caucasus. It started operating in December 2005 and consists of four wind turbines perched on a mountain pass in the northern Lori region,” says Mr. Galstyan.

Power to the village

The combined power of the wind turbines, 2.6 megawatts, is very modest compared to that of Armenia’s leading power plants. “The sole operating reactor of the Metsamor nuclear plant, for example, has a 360-megawatt capacity,” continues Mr. Galstyan. Still, electricity generated by wind should be enough to meet the needs of the nearby town of Stepanavan and surrounding villages. “This is a pilot project and we will not be satisfied with just these four turbines. This project will develop,” said Mr. Galstyan. Other potential locations for wind turbines are in the northern part of Lake Sevan and at the foot of Mount Aragats.

Since renewable energy sources create minimal greenhouse gas emissions blamed for global warming, Cascade Credit will help its clients sell carbon credits under the Clean Development Mechanism (CDM) framework of the Kyoto Protocol. The EBRD’s Multi Donor Fund for Early Transition Countries (ETC Fund) has provided money for technical cooperation to assist Cascade in registering its investment projects under the CDM framework.  “We are encouraged that Cascade will bundle several of the small projects it finances together so they can more easily be monetised, allowing Armenian developers to tap into the international emissions trading market,” says EBRD’s Tony Marsh.

“Another positive aspect of developing mini-hydro plants is that most of them will be located in very remote areas of the country. This will mean greater rural electrification, improvements in quality of life, and potential reductions in poverty while showing respect for the environment. Air quality in Armenia will improve and there will be a reduction in greenhouse gas emissions – two peripheral but significant advantages. Ultimately, the people of Armenia stand to benefit,” explains Mr Marsh.

By Loretta Martikian, Press Office coordinator
Contact: Power and Energy team

6 November 2006