Alternative Energy & Power 2020

Last Updated July 22, 2020

Armenia

Law and Practice

Authors



AMERIA Legal and Tax Advisors is the oldest fully fledged business advisory team in Armenia. Located in Yerevan, and with a seasoned team of 15 individuals, Ameria provides comprehensive legal counselling on a diverse range of issues to both local and international entities and organisations, including major legal due diligence and M&A transactions in the mining sector. During the last decade, Ameria has been engaged in a number of major projects as a provider of legal support. The firm's lawyers have been instrumental in large-scale financing and M&A transactions in the mining sector, including those related to the GPM Group, Centerra Gold Inc., Royal Gold Inc., ZCMC, Lydian Armenia, Chaarat, Polymetal and many others. Ameria's unique experience and knowledge has always added value to the successful completion of projects.

The Armenian energy market is a mix of private and state-owned enterprises bound into a strictly regulated system managed by the Public Services Regulatory Commission (the PRSC). While the generation sector is mainly privately owned (although certain state-owned business enterprises are still present) and the distribution network is operated by a single private entity, transmission networks, market and system operation and processes are conducted by state-owned enterprises. The system is unbundled but tightly regulated.

The main law governing the industry is the Law of the Republic of Armenia on the Energy Industry (the Energy Act) dated 07 March 2001, as amended: https://www.arlis.am/DocumentView.aspx?DocID=123080 and http://parliament.am/legislation.php?sel=show&ID=1291&lang=eng

General ownership issues are governed under the Civil Code of the Republic of Armenia, dated 1998: http://www.translation-centre.am/pdf/Translat/HH_Codes/CIVIL_CODE_en.pdf.

The Energy Act provides the basic principles of the state policies for the energy sector, as follows:

  • the enhancement of competition and efficient operation in the energy sector, and the creation of essential conditions for the development of a competitive environment;
  • regulation of energy sector operations;
  • separation of economic activity, government management, and regulation functions;
  • protection of the rights of consumers and the economic entities in the energy sector, and the balancing of their interests;
  • efficient use of domestic energy resources and alternative sources of energy, and implementation of economic and legal mechanisms for that purpose;
  • encouragement of investments in the energy sector;
  • ensuring the transparency of licensed operations in the energy sector;
  • ensuring safety in the energy sector;
  • increasing the energy independence of the Republic, including ensuring the maximum utilisation of generating capacities and the differentiation of domestic and imported energy resources;
  • ensuring the protection of the environment;
  • encouraging scientific-technical progress and the integration of new energy-efficient and energy-saving technologies, as well as encouragement of personnel training and retraining;
  • encouraging the formation and development of energy markets;
  • separation of the generation, transmission, distribution and System Operator functions and the functions of service provision to the power market;
  • ensuring access to energy for socially vulnerable groups; and
  • ensuring non-discriminatory access to the network.

The Energy Act provides that regulation of the energy sector is part of the state policies, aimed at balancing the interests of customers and licensees by defining and supervising the market rules for electricity, thermal energy and natural gas, the regulated tariffs and the licence conditions, as well as the creation of equitable conditions for licensees, and to promote the formation and development of a competitive market.

The basic principles of regulation are as follows:

  • regulation by an independent body, within the framework of the authorities specified by law;
  • transparent regulations for the public;
  • the elimination of discrimination against customers or any licensee;
  • balancing interests between consumers and the entities engaged in operations in the energy sector;
  • collegial decision making of the regulating body; and
  • restriction on the scope of regulation consistent with the development of a competitive market.

The methods of regulation are as follows:

  • licensing, the establishment of licence conditions and their supervision;
  • reporting to the regulatory body, the implementation of accounts and subaccounts for energy sector licensees in conformity with National Chart of Accounts, and laws and legal acts related to accounting;
  • setting regulated tariffs;
  • the development of model contracts or mandatory terms for energy and/or natural gas supply (service provision) between licensees, as well as energy and/or natural gas supply (sale/purchase) to consumers, and the registration of contracts executed between licensees;
  • defining the market rules and regulations;
  • the development of legal acts and control over their implementation, by the regulatory body, within the framework of its authorities;
  • the development of service quality requirements; and
  • study of the investment programmes presented by the licensees with the purpose of their full (or partial) inclusion in the tariff, or rejection.

The principal players of the Armenian electric energy market are as follows:

  • Armenian Nuclear Power Plant CJSC, owned by the Republic of Armenia;
  • Hrazdan TPP OJSC (1st-4th power blocks), owned by Tashir Group, which is owned by Samvel Karapetian (private);
  • Gazprom Armenia CJSC (5th power block of Hrazdan TPP), owned by Gazprom Group (foreign state owned);
  • Yerevan TPP CJSC, owned by the Republic of Armenia (state owned);
  • Contour Global Hydro Cascade (Vorotan HPP Cascade), owned by US group ContourGlobal (private);
  • International Energy Corporation CJSC (Sevan-Hrazdan HPP Cascade), owned by Tashir Group, which is owned by Samvel Karapetian (private);
  • Small and medium HPPs, which are mainly privately owned;
  • Artsakhenergo CJSC, owned by United Energy Company (private);
  • 2 MW solar station near Shorzha (to be completed in 2020), owned by Das Enteria Solarkraftwerk (private);
  • 55 MW Masrik-1 solar station (to be completed in 2020), owned by FRV Group (private); and
  • 200 MW Ayg-1 solar station (projected) – bid by Masdar Armenia (private).

The following companies conduct centralised functions in the market (natural monopolies):

  • guaranteed retail supply and distribution: Electric Networks of Armenia CJSC (privately owned);
  • high voltage transmission and transit: High Voltage Networks CJSC (state owned);
  • system operation and co-ordination: Electric Energy System Operator CJSC (state owned); and
  • market operator – Settlement Center CJSC (state owned).

The general investment climate in Armenia is quite conducive to foreign investment, with no restrictions imposed on FDI in the energy sector, and foreign investors treated the same as domestic investors. Foreign companies are allowed to hold a majority stake in energy projects. Foreign investors and foreign employees are also entitled to freely transfer their property, profits, revenues and other means legally gained as a result of investments or as payment for labour or as compensation. In principle, the employment of foreign personnel is limited to the duration of their visa or work permit. However, an exemption from these requirements has recently been established for representatives of foreign investors and executives of companies with a foreign investment based in Armenia. Therefore, the legislative framework remains rather favourable to foreign investment. One of the main priorities of the Government Programme, adopted in February 2019, is to attract foreign direct investments.

The Energy Act (2001) enacted by the National Assembly of the Republic of Armenia is the primary source of regulation in the area. It provides that the transfer of a 25% share (stake) in an entity licensed to operate in the energy sector requires prior consent from the PSRC, as does the transfer of any share in such entity irrespective of the percentage, if such share allows the entity holding it to determine the decision making of a licensed entity, or the granting of another interest (including leasehold, pledge, trust) in such share. The transfer or granting of another interest (including leasehold, pledge, trust) in property (both real estate and equipment/machinery) that is necessary for licensed activity in the sector (property ensuring industrial capacity) also requires prior consent from the PSRC.

Supply co-ordination and operating functions are carried out by the licensed System Operator, which is Electric Energy System Operator CJSC, a state-owned company managed and administered by the Ministry. Though the System Operator is a business organisation, it acts independently, strictly based on the law and PSRC regulations. The functions and powers of the System Operator include electricity supply adequacy, generation planning and development, and/or transmission system planning and development, system technological process operational and economical control, system operation (generation, import, export and transit), calculation of the settings for the control and protection devices of the power system that are integral to the system, and ensuring the interconnected operation of the system with other regional power systems.

Material changes in law or regulations regarding the power industry are as follows:

  • PSRC Resolution No 552 N dated 25 December 2019 on Approving the Rules of the Wholesale Energy Market is intended to replace Resolution No 161-N dated 17 May 2017 (https://www.arlis.am/documentview.aspx?docid=113654) on Network Rules for Electric Energy System in the Republic of Armenia, Approval of Temporary Indicators for Electrical Energy System’s Reliability and Safety (The Grid Code). The resolution is expected to become effective in 2021 and is to streamline and strengthen the reliability and safety of the country’s power network, and to improve long-term planning, liberalise the energy market and allow for the market quotation-based trade of energy in excess of the basic needs of the country;
  • Resolution No 456-N dated 12 December 2018 (https://www.arlis.am/DocumentView.aspx?docid=131499) on setting Mandatory Template Contract Form on connecting the power plant (under construction or renovation) to the distribution network, delivering electricity during testing and commissioning works and on the purchase and sale of electricity (distributor – electric power generator plant with up to 30 MW installed capacity which has guaranteed purchase by law) has improved and streamlined the process of connecting production capacities to the grid;
  • PSRC Resolution No 396-N dated 29 October 2018 (https://www.arlis.am/documentview.aspx?docid=93905) approving the procedure for determining the electricity tariff produced by the power plants using the renewable energy sources made the process of determining feed-in tariffs produced from solar panel and windmill type renewables more transparent;
  • Government Resolution No 426-N dated 12 April 2018 on Technical Regulations on energy saving and energy efficiency in newly constructed residential buildings, as well as in state-financed (reconstructed, renovated) buildings, will have a considerable impact on the energy efficiency of residential buildings, and will force construction companies/developers to invest in the relevant field. The reduction of customer fees for imported parts of solar panels has been introduced;
  • Resolution No 429-N dated 21 November 2018 (http://www.irtek.am/views/act.aspx?aid=97547) on Amendments in PSRC’s Resolution No 374-N dated 1 November 2013 and Invalidation of Resolution No 339-N includes a provision on approving new Procedures of Licensing of in the Energy Sector. According to paragraph 34, a licence for producing electricity will be provided for solar panels with a total capacity of up to 5 MW installed between 2 November 2018 and 31 December 2019; the licences are not provided and feed-in tariffs are not secure for those panels installed within said period that have a total production capacity exceeding 50 MW. According to this resolution, the production licences for all wind power stations and solar power stations with total capacity exceeding 30 MW and 5 MW, respectively, will be provided based on the public-private partnership principle; and
  • Resolution No 517-N dated 25 December 2019 (https://www.arlis.am/DocumentView.aspx?docid=138007) on Approval of Trade Rules for the Retail Market of Electricity of the Republic of Armenia and replacing Resolution No 358 dated 27 December 2006 is expected to come into force in 2021. This Resolution provides new rules for the distribution of energy to consumers and retail suppliers, and also introduces new rules for acquiring energy from autonomous energy producers.

Armenia has a set of specific goals and objectives for the development of its energy sector, including enhancing energy security, further developing renewable energy, liberalising the power market, and improving energy efficiency. Other key Government objectives are maximising the use of domestic energy resources, replacing obsolete technologies, strengthening the regional integration of the energy sector, and further developing the nuclear power subsector. There are two documents that set out the interim energy goals of the Republic of Armenia: the Concept Note on Ensuring the Energy Security of the Republic of Armenia, and the Republic of Armenia Development Strategy 2025. Additionally, the Long-Term (up to 2036) Development Pathways for the Republic of Armenia Energy Sector set out the ultimate outcomes the Government intends to achieve. The Government also has long-term investment strategy documents in place that offer clear guidance to investors regarding which energy subsectors need more investment and are to be targeted for investment promotion.

The electric power system in Armenia is characterised by the existence of various players in the market in terms of sizes and business and ownership types. There are very few restrictions on foreign ownership, but a highly regulated framework for the conduct of business, which effectively renders any private arrangements between players nearly impossible (all agreements are to be entered into under standard terms approved by the PSRC; entering into such an agreement must be approved by PSRC; tariffs are to be approved by PSRC; supply and demand is co-ordinated by the System Operator; and payments are ensured by the market operator). However, recent developments and new regulations proposed to become effective in 2021 provide for a certain liberalisation of the market, where certain supply/demand-based non-regulated tariff trading will be allowed to occur if the basic needs of consumers and system reliability supplies are met for a given period.

Armenia has been heavily impacted by COVID-19 but there is nothing to indicate that the energy system has been materially affected by the pandemic so far.

Certain arrangements were enacted to compensate for consumers' inability to pay during the lock-down period, but such arrangements did not have a significant impact on the system.

Tariff setting (price regulation) in the Armenian market is strictly regulated, with the PSRC approving tariffs based on the law and its own regulations. The market is not competitive. Distributors are obliged to buy energy wholly from small hydro and renewables, and are then bound to buy the rest of the available energy (capacity) according to price escalation (from cheap to expensive).

PSRC Resolution No 552 N dated 25 December 2019 on Approving the Rules of the Wholesale Energy Market in 2021 is intended to liberalise the market to a certain extent, so that as a result trading based on competitive offers among generators will be available after the minimal energy required to cover the basic needs of the country is sold under regulated tariffs.

For power plants with installed capacity exceeding 30 MW, tariffs are set for both capacity and energy supplied, so that a two-factor tariff system is in place. At the same time, solar power plants with installed capacity above 50 MW and wind power plants with capacity above 30 MW have their tariffs approved through negotiations based on private public partnership agreements, so their tariff structure may differ.

Tariffs are approved in accordance with PSRC Resolution No 359 dated 23 October 013 on Setting and Revising Tariffs for the Energy Market (Tariff Regulation).

In order to set or review tariffs, the applicant shall submit to the PSRC, in accordance with the relevant calculations and justifications, two copies (or one copy for stations using small hydropower plants and other renewable energy sources) of the documents specified in Annex 1 of the Tariff Regulation. The company shall submit the application to the PSRC no later than 30 days after the publication of the announcement, in accordance with the procedure defined in Annex 3 of the Tariff Resolution. The company also places a public announcement regarding the submission of the application on the official website of the Public Notices of the Republic of Armenia (http://www.azdarar.am/).

After the application is submitted to the PSRC, the relevant subdivision of the PSRC checks the completeness of the application and the accuracy of the wording of the documents included in it.

The PSRC shall notify the applicant in writing of the results of the application verification no later than ten working days after the date of submission of the application to the PSRC.

The application will not be admitted for review if:

  • one of the documents defined in Annex 1 to the tariff rules is missing;
  • the documents included in the application do not comply with the requirements defined by this Law, or by other legal acts of the Republic of Armenia;
  • there are inaccuracies and inconsistencies in the submitted documents and information; or
  • the bidder has not completed the construction works.

In such case, the applicant may submit a new application to the PSRC, after eliminating the identified deficiencies. In this case, the applicant has the right to refer to the documents submitted in the previous application, if the data presented in them has not been changed at the time of submitting the new application.

If the examination of the application results in a positive outcome, the PSRC shall accept the application for review.

During the review of the application, the applicant may apply to the PSRC to withdraw the application. In this case, the applicant may re-apply to the PSRC with a new application, referring to the documents submitted by the previous application if necessary, if they have not been changed at the time of submission of the new application.

The PSRC will reject the proposal to set a tariff if the bidder has not completed the power plant construction works.

The PSRC shall set the tariff, review (reaffirm or amend) it and make a relevant decision within 80 working days of the submission of the application to the PSRC (or within 25 working days for small hydropower plants and other stations operating under renewable energy sources).

The PSRC may review the current tariff on its own initiative and set a new tariff, taking into account the results of the applicant’s business activity, investment programmes and fulfilment of the requirements for the quality of services provided to consumers.

If the PSRC undertakes a process of reviewing tariffs on its own initiative, it shall notify the entity in writing in advance, and may request the necessary information related to the licensed activity from the company.

The PSRC revises the tariff on its own initiative within the following timeframes:

  • within 80 working days after the day of notifying the entity in writing; or
  • within 25 working days after the date of notification in writing to the small hydroelectric power plants and other stations using renewable energy sources.

The export of electric energy is currently limited to export to Iran in exchange for natural gas. Exports previously occurred to Georgia but such exports were terminated due to an absence of demand from the Georgian side. Interconnection points are the Georgian and Iranian borders. Import and export are currently not considered as separate licensed activities but come under the transmission licence.

The Armenian electricity market is made up of the following various sources (approximate percentages):

  • nuclear – 35%;
  • large hydro – 30%;
  • thermal (natural gas powered) – 25%;
  • small hydro – 7-8%; and
  • solar, wind, thermal biogas powered – 2-3%.

While small hydro is reaching its limits due to ecological reasons, among others, the solar energy share is expected to show a stable increase in the upcoming years. Wind power stations proved not to be economically feasible for large-scale development due to climate conditions, though the overall total installed capacity for wind power plants is estimated to be around 450 MW (which, in principle, constitutes around 5-10% of current demands on the market).

Concentration limits are not regulated specifically for the energy market. Under the Economic Competition Protection Act (2001 – http://www.competition.am/uploads/resources/RA_Law_On_the_Protection_of_Economic_Competition_n.pdf), the Commission for Protection of Economic Concentration (the SCPEC) has general power to refuse transactions that would result in a concentration of market shares in any relevant market if such concentration could result in the prevention of competition in the market. Through the refusal of ownership transfer-based national security considerations provision in the Energy Act, the PSRC may also indirectly control concentration. Otherwise, as the market is regulated and not competitive, there is not much room for the organic growth of market shares.

The SCPEC is the authority responsible for protecting competition in the market under the Competition Protection Act, which regulates issues common to the protection of economic competition, such as cartels, vertical agreements restricting competition, abuse of dominant position, merger/concentration control, anti-competitive behaviour, and IP-related issues. Note, however, that due to heavy regulation by the PSRC, such issues are barely possible in the energy market.

Although it is a party to numerous climate change international treaties, Armenia has no specific regulation for climate change issues specific to the energy sector.

Carbon emissions are mainly regulated through emission permissions and ecological taxes (which multiply several times compared to the base rate if quotas are exceeded).

There are no such regulations in place.

The Renewable Energy and Energy Saving Act enacted by the National Assembly of Armenia is a framework law setting out the foundations of the state policy for the growth of alternative energy resources.

General policy papers in the energy sector include the Concept Note on Ensuring the Energy Security of the Republic of Armenia, and the Republic of Armenia Development Strategy 2025. The Long-Term (up to 2036) Development Pathways for the Republic of Armenia Energy Sector also set out alternative energy targets in mid- and long-term perspectives.

Recent regulation on public private partnerships in building solar power plants further enables and facilitates investment in alternative energy facilities.

PSRC Regulation No 396-N dated 24 October 2018 (https://www.arlis.am/DocumentView.aspx?docid=126190) on approving the procedure for determining the electricity tariff produced by the power plants using renewable energy sources makes the process of determining feed-in tariffs produced from solar panel and windmill-type renewables more transparent and efficient, in order to encourage investment in the sector.

Regulation is also in place that promotes the installation and use of autonomous solar power plants by requiring the distributor to buy the excess energy of such autonomous stations, albeit at a 50% reduced tariff rate.

The Energy Act is the main source of regulation for the construction and operation of generation facilities.

Based on this Act, PSRC regulations set forth further details for putting constructed facilities into operation and connecting them to the grid.

The most important regulations are as follows:

  • the Rules of Licensing in the Energy Sector adopted under PSRC Resolution No 374 dated 01 November 2013 (https://www.arlis.am/DocumentView.aspx?docid=91151) (Licensing regulation);
  • various technical regulations that provide for minimal standards for various types of equipment used for generating power, and that production capacities shall comply with such technical regulations;
  • legislation relating to construction permits and various construction technical regulations whose principal source is the Building Construction Act (adopted by the Parliament in 1998 – https://www.irtek.am/views/act.aspx?aid=150111) and the Construction Permit Regulation (Resolution of the Cabinet of Ministers/Government/of the Republic of Armenia N dated 19 March 2015 – https://www.irtek.am/views/act.aspx?aid=80808); and
  • the Technical Safety Act (adopted by the Parliament in 2005 – https://www.irtek.am/views/act.aspx?aid=32415)and regulations enacted by the Ministry, which provide for mandatory technical clearance of potentially dangerous facilities, including power generation facilities, before such facilities can be operated.

No initial environmental survey is necessary in order to start construction works, according to Armenian law. However, the project design documents required for obtaining construction permission shall indicate the environmental requirements and limitations regarding the subject matter object and the location of the construction. This means that such requirements and limitations shall be reviewed before drafting the project design documents, because failure to take them into account will result in refusal of approval to operate the constructed facilities.

The Law of the Republic of Armenia “On Environmental Impact Assessment and Expert Examination” requires environmental impact assessment application documents to be drafted and presented for sign-off by the Ministry of Nature Protection. In the energy sector, the law requires an environmental impact assessment to be conducted in the following cases:

  • Category A:
    1. nuclear power plants or other structures using nuclear reactors;
    2. installations for storage and the encapsulation of processed nuclear fuel;
    3. the production of nuclear fuel enrichment;
    4. thermal power plants;
    5. pipelines for oil or gas or other chemicals with lengths of 5 km or more;
    6. stations for the generation of hot water or steam with a capacity of 50 MW and above; and
    7. hydropower plants with a capacity of 10 MW and more.
  • Category B:
    1. hot water or steam producing plants, with 30 MW to 50 MW capacity; and
    2. hydropower plants with 10 MW to 30 MW capacity.
  • Category C: the following types of activities or production units in the energy sector, or all of their structures or infrastructure:
    1. the production of biogas or biogas energy with at least 1 MW capacity;
    2. hydropower plants with at least 1 MW to 10 MW capacity; and
    3. wind power plants.

Category C applications for clearance undergo only the initial stage of assessment – ie, based on the submitted project design and project operation documents, the Ministry of Nature Protection shall issue a conclusion (whether positive or negative) on whether the relevant activity complies with environmental requirements and is therefore permitted (while Category A and Category B are forwarded for professional expert opinions, based on which the Ministry signs off on the project or issues a refusal thereof). The resolution on whether to sign off or not shall be issued within 30 days of the submission for clearance.

A person intending to construct and/or operate an energy producing facility must acquire a licence from the PSRC for the construction and operation of such facility. In the case of renewables with capacity exceeding 50 MGW (solar) and 30 MGW, a licence will be issued in accordance with the public private partnership (PPP) agreement entered into with the state.

Under the licensing regulation, the PSRC must consider an application for granting a licence and adopt the relevant decision (decree) within 80 days of the moment of submission by the applicant of all required documents in the case of renewables (or within 25 days in the case of small hydro as well as renewables). The Law restricts the possibility of holding multiple licences in order to avoid monopolistic or oligopolistic practices.

For licensing purposes, the following shall be submitted alongside the licence application:

  • a business plan in a form provided under the PSRC Regulation;
  • a copy of the state registration certificate evidencing the applicant's ownership or lease (use) rights over land and buildings to be used for the licensed activity;
  • an announcement on the official website of the Republic of Armenia (http://www.azdarar.am/) in a form provided under the PSRC Regulation;
  • a guarantee in a form provided under the PSRC Regulation;
  • a water use permit for hydroelectric power plants, and for water use if required for the production of electricity (capacity) in other plants; and
  • an Initial Technical specification issued by the transmission licence holder, including information on the grid connection point.

The following are grounds to reject an application for a licence:

  • the submitted documents are not in compliance with law and regulations;
  • granting the licence may result in an infringement of the rights of third parties;
  • the licensed activity will have an adverse effect on the security and reliability of the system, natural recourses or consumers' interests;
  • the applicant has no right to engage in licensed activity (as a matter of law or court order);
  • Ministry sign off has not been not received (discretion) for 30 MW+ power stations; or
  • some other grounds limited to particular cases/types of licences.

If the licence is for both construction and operation within the terms prescribed in the terms of the licence, then the licence project design documents for the power facility being constructed that have been cleared for safety, technical and environmental issues shall be submitted to the PSRC for approval, and the licensee will be able to complete construction and commissioning within the deadlines prescribed in the licence by submitting the following for PSRC approval:

  • completion and exploitation permission signed by the authorising entity;
  • ownership certificates for the constructed facility;
  • the energy facility exploitation clearance document;
  • details of the energy producing equipment; and
  • an application for tariff setting.

PSRC considers updated application to make necessary amendments to the licence terms and issue final licence. Terms of consideration by PSRC and grounds for rejection of the application are the same as above.

Licence terms are attached to the licence, essentially setting forth the obligations of the licensee and the terms of the licensed activity.

Licence terms usually reiterate rules that apply to the licensee anyway as a matter of law and regulation. However, depending on the particular applicant and its situation, the licence terms may refer to other terms and obligations on the licensee, including by way of incorporation by reference the terms of the PPP agreement and other direct agreements signed with the state, and/or share/asset purchase agreements of the state whereby the assets/shares are sold by the state by way of privatisation/concession or direct sale. When a licence is granted for the construction/reconstruction of a facility, it will usually fix the deadlines and other conditions for construction and grid connection. Licences issued for both construction and operation will always contain some additional terms and deadlines for completion of the project, commissioning and technical test launches. Certain deadlines for construction are fixed in the law: two years for renewable capacities under 5 MW and three years for small hydro. Deadlines for non-renewable and renewable capacities above 30 MW are agreed in the licence terms.

A licence to operate a facility does not automatically carry in itself or imply any surface rights. On the contrary, the prior availability of such surface and natural resource use rights (like water use permits where necessary) is a precondition for granting energy licences. Surface rights are normally obtained by way of purchase, lease (normal lease or construction lease) or easement rights from private persons, the communities and/or the state.

At the same time, the Law of the Republic of Armenia on Mandatory Alienation of Property for Overriding Public Interest Purposes provides that if any project is approved by the Cabinet of Ministers or the government, or as a project of overriding public interest, the property holder may be forced to sell such property to the project implementing entity at market price plus 15%.

In addition, the Energy Act provides that, where state-owned land is concerned, energy sector facility operators have priority to acquire rights over such state-owned lands for constructing and operating such facilities.

The process of voluntarily withdrawing a licence (decommissioning) is regulated exclusively by the law "On Licensing". An application of a licensee for voluntary termination of a licence (decommissioning) shall be considered by the licensing authority within 15 days of its receipt. If the application is not considered in substance within 20 days from the date of application, the application is considered satisfied and the licence is terminated. An application of a licensee for termination of the licence may be rejected on the grounds provided for by the laws and procedures of licensing (we have not found any). At the same time, the licensing authority may establish a longer deadline for the termination of the licence with respect to the term indicated in the application, if it directly affects the state and public security, public order, health and morality, or the rights and freedoms, dignity and reputation of other persons.

If the termination of the licence directly affects state and public security, public order, public health and morality, rights and freedoms of other persons, or honour and reputation, the court order or decision of the licensing body should determine the guarantees of protection of the interests of third parties or the procedure of compensating the damage caused by them or eliminating consequences as a result of the termination of the licensed activity.

Consequently, in order to terminate the licensed activity, an application for voluntary renunciation of the licence must be submitted. The form and content of such an application are not regulated; therefore, the application should be submitted in a free form, preferably with a brief justification of the reasons for the decommissioning.

If facilities are to be demolished, relevant demolition permits and cultivation requirements will be triggered.

The transmission grid is a natural monopoly covering the whole geographical area of the Republic of Armenia. State-owned company High Voltage Networks CJSC is operated and managed by the Ministry, which is the owner and operator of the whole transmission grid. Unless new grid facilities are constructed and another company is licensed to operate them, or unless existing assets owned by High Voltage are transferred, it is not possible for a new entity to be licensed for the transmission of energy. So, in fact, High Voltage is a natural monopoly that holds a licence to construct and operate transmission facilities as a state enterprise. No special rules apply for the construction of transmission facilities (the general norms applicable to the construction process apply). Technical and safety regulations setting forth the standards for equipment and facilities and their installation are also applicable.

See 5.1.1 Principal Laws Governing the Construction and Operation of Transmission Facilities.

The general licensing procedure outlined in 4.2 Regulatory Process for Obtaining All Approvals to Construct and Operate Generation Facilities is applicable.

Please see 5.1.1 Principal Laws Governing the Construction and Operation of Transmission Facilities.

Please see 4.4 Proponent's Eminent Domain, Condemnation or Expropriation Rights.

Please see 5.1.1 Principal Laws Governing the Construction and Operation of Transmission Facilities.

The Energy Act, the Licensing Regulation, and PSRC Resolution No 552 dated 17 May 2017 on Interim Rules for Safety and Reliability Electric Energy Systems (Grid Rules) are the principal laws that govern the provision of transmission service and the regulation of transmission charges and terms of service. Individual licence terms contain additional requirements, which are also important sources of regulation that apply to the licensed entity individually.

The Energy Act provides the general framework where the energy transmitter operates, including the requirements for licensing, the general scope of licensed activity, the basis for tariff formation, the basics of the market structure, the powers of the PSRC to regulate and oversee, certain conduct rules, and the principles of tariff setting.

The Licensing Regulation provides for the licensing procedure, and details of the licence and licence conditions.

The Distribution Regulation (Grid Rules) provides technical details and rules for the planning and operation of energy transmission facilities that apply to the transmitter and persons connected to the grid.

The Licence Rules may contain individual requirements specific to that type of licence or specific to the particular licensee. The Licence of High Voltage, for example, contains the following specific obligations for the transmitter:

  • to provide system safety and reliable services for the whole market;
  • to ensure service for the transit of energy to third countries;
  • to participate in recovery and repair operations of systemic importance;
  • to ensure the right of entitled parties to connect to the grid as provided in the Grid Rules; and
  • to ensure permanent availability of equipment of systemic importance.

Transmission charges are fixed as transmission tariffs by the PSRC based on the rule of the Energy Act requiring substantiated costs, the depreciation/amortisation of assets and reasonable profit to be taken into account. Transmission charges are approved by the PSRC and may be periodically revised, either at the request of a licensed entity or on the initiative of the PSRC. The principles for setting non-discriminative rates are listed in the law among the general principles of sector regulation. The capital structure of a transmission entity and the rate of return on equity and the depreciation rate are determined pursuant to financial reporting principles (IFRS).

The tariff set by PSRC resolutions is subject to claims for revision by the PSRC but can also be challenged in court on the basis that the PSRC failed to take the principles into account, or failed to observe the rules of tariff setting as set forth in the Energy Act.

The Grid Rules provide that Systemic Importance producers (ie, producers of installed capacity in excess of 10 MW), entities licensed to distribute energy (currently only one) and Qualified Consumers (consuming more than 1 million KW/hour) are entitled to connect to the high voltage grid operated by the transmitter.

The applicant shall ensure that its connected capacity to the transmission grid complies with the requirements of the Grid Rules and technical regulations.

To obtain technical specifications for connected capacity, the applicant shall submit a request to the transmitter.

To provide the Technical Specifications, the transmitter shall charge the applicant a service fee of AMD500,000 (including value added tax of around EUR1,000), of which AMD250,000 (including VAT) shall be transferred to the System Operator (ie, the licensed entity responsible for co-ordination of the energy system constituents) within ten business days of receipt. The fee is not refundable.

Within 15 business days of receiving the application, the transmitter shall:

  • verify the compliance of the information received with the requirements of the Grid Rules and, where necessary, make adjustments with the applicant;
  • develop a draft of the technical specification based on the requirements of the technical regulations;
  • provide the System Operator with the verified information specified in the Grid Rules and the Draft Technical Specifications; and
  • submit to the System Operator a document certifying payment to the System Operator of the connection charges.

Within 15 business days of receiving the information required under these rules, the System Operator shall evaluate the impact of the connected power plant on the reliability and security of the power system and, together with the transmitter, study the elaborated technical specifications required for the connected power plant and transmission network, and submit the specifications of the agreed version to the transmitter.

Within ten business days of receiving the technical specifications agreed upon by the System Operator, the transmitter shall submit to the applicant the proposed technical specifications (by indicating the location of the connection point) and the initial amount of the connection charge calculated based on the costs incurred for the implementation of similar projects.

The connection charge shall amount to the cost of connecting the new capacity to the grid, the acquisition and installation of new capacities in the grid, the reconstruction of existing capacities, the metering device, and the equipment and software required for connection to the electrical grid system, and these rules and regulations apply to the sum of all services provided for connection, including design costs.

If the transmitter does not receive consent from the Applicant to the proposed technical specifications within six months of submitting the proposed technical specifications and connection charges, the application shall be considered to have failed.

Grid Connection Agreement

Within 15 days of receiving the consent of the applicant to the technical specifications and charges of the connection proposed by the transmitter under the Grid Rules, the transmitter shall enter into a grid accession agreement with the applicant. The Technical Conditions given by the transmitter are attached to the grid accession agreement and are an integral part thereof.

In the event of a change in the technical specifications, appropriate modifications shall be made to the agreement, and shall be settled in the event of disagreement by the applicant on the condition of reimbursement of the actual costs. Whenever necessary, any document agreed upon by the parties to the accession contract shall be amended in accordance with the procedure and timeframes specified in the accession agreement (unless otherwise specified by the accession contract).

Connection Permit

Thereafter, a connection permit shall be obtained by the applicant. In order to obtain a connection permit, the applicant shall apply to the transmitter at least 75 business days prior to the deadline stated in the Connection Agreement, by submitting a set of documents envisaged under the Grid rules.

Within 15 business days of receiving the request, the transmitter verify the compliance of the information submitted by the applicant and submit the Connection Action Plan to the System Operator for approval.

The System Operator shall agree to the Connection Action Plan within 15 working days of receiving the necessary information from the transmitter.

Upon receipt of the System Operator's consent, the transmitter shall provide the applicant with a connection permit within 15 business days, or report any discovered defects.

The applicant shall not be granted a connection permit unless the defects are corrected, and the Connection Agreement deadline specified in the Connection Agreement shall be deemed to have been extended by the time of delay for such correction.

Within 15 business days of receiving the connection permit, the applicant shall submit a written request to the transmitter and the System Operator indicating its preferred date of actual connection to the grid.

The Energy Act, the Licensing Regulation, and PSRC Resolution N 358 dated 27 December 2006 on Approving Rules for Supply and Use of Electric Energy Systems (Distribution Rules) are the principal laws that govern the construction and operation of electric distribution facilities. The Licensing Regulation provides for the licensing procedure and the details of the licensed activity. In order to become an electric energy distributor, an entity must obtain a licence from the PSRC. The PSRC is both the regulator and the supervisor of distribution activities. Distribution tariffs are set by the PSRC, based on the Energy Act.

No special rules apply to the construction of transmission facilities (the general norms applicable to the construction process apply). Technical and safety regulations setting forth the standards for equipment and facilities, as well as their installation, are applicable. The distributor cannot simultaneously own a power-producing licence and perform other roles in the energy market (except the role of guaranteed supply provider). The Distribution Grid Rules provide the technical procedure for connecting new facilities to the grid.

The distributor licence automatically provides the right to construct and operate electric distribution facilities. Please see 4.1 Principal Laws Governing the Construction and Operation of Generation Facilities and 4.2 Regulatory Process for Obtaining All Approvals to Construct and Operate Generation Facilities regarding the licence and facility construction procedure, bearing in mind that the distributor is, in fact, a natural monopoly (its licence term is indefinite), which means that under the current legal regime it is only theoretically possible that a second distributor will be licensed.

Licence terms impose certain obligations on Electric Networks of Armenia CJSC (ENA – the current exclusive distributor) as a condition of its service, with the most important terms being within the exclusive area (which is currently the whole of the Republic of Armenia). The rights and obligations of ENA (the current exclusive distributor) are as follows:

  • to distribute energy to all participants of the wholesale and retail energy markets (exclusive right);
  • to regulate the distribution grid (exclusive right);
  • to construct, extend and renovate, use, manage and maintain the distribution grid so that uninterrupted and continued supply is ensured;
  • to ensure access to the grid for any person pursuant to the market rules, and to connect new consumers to the grid on a non-discriminatory basis (exclusive right); and
  • to account for and measure the energy.

Please see 5.1.4 Proponent's Eminent Domain, Condemnation or Expropriation Rights.

The distribution grid operator (the current licensed entity) is a natural monopoly covering the whole geographical area of the Republic of Armenia. ENA is the owner and operator of the whole distribution grid. Although the Licensing Regulation does not rule out a scenario where various distributors can cover certain areas of the distribution network, unless new grid facilities are constructed or existing assets owned by ENA are transferred to a new applicant seeking a distribution licence it is not possible for a new entity to be licensed for the distribution of energy. ENA’s consent would need to be obtained, as its current distribution licence provides that it covers the whole territory of the Republic of Armenia. So in fact ENA is currently a natural monopoly and holds an exclusive licence to construct and operate distribution facilities.

The Energy Act, the Licensing Regulation, and PSRC Resolution N 358 dated 27 December 2006 on Approving Rules for Supply and Use of Electric Energy Systems are the principal laws that govern the provision of electric distribution services and the regulation of electric distribution system charges and terms of service, as well as PSRC resolution N 523 dated 25 December 2020 on Approval of Rules of Distribution in the Electric Energy Market (Distribution Grid Rules).

Individual licence terms contain additional requirements, which are also important sources of regulation applicable to the licensed entity individually.

The Energy Act provides a general framework under which the energy distributor operates, including the requirement for licensing, the general scope of the licensed activity, the basis for tariff formation, the basics of the market structure, the powers of the PSRC to regulate and oversee, and certain conduct rules.

The Distribution Grid Rules provide for technical details and rules for the operation and maintenance of energy distribution facilities, rules for connecting to the distribution grid, rules for metering, payment and settlement, dispute resolution, etc. Charges and tariffs of distribution services are set by the PSRC based on the principle and rules set out in the Energy Act and the licence.

Tariffs are set by the PSRC, based on the principles set out in the law and detailed in the licence terms. Based on those documents, the distributor's tariff formula shall reflect the following:

  • the cost of buying energy and transmission services;
  • operation and maintenance costs;
  • depreciation and amortisation;
  • non-performing indebtedness;
  • the rate of return on assets and the allowed profitability margin;
  • approved investment; and
  • other constituents and deductibles.

The tariff setting may be appealed as a matter of request for revision by the PSRC or judicially, but in the latter case only if there has been a failure to comply with the principles set out in the Energy Act or formula fixed in the licence (which is also subject to PSRC approval).

Major terms of services are fixed in the Energy Act, the Licensing Act, and the licence terms. Detailed terms are fixed in the distribution rules, and include the following:

  • rules on contracting consumers;
  • rules on connections and disconnections;
  • rules on the connection of new facilities and consumers;
  • rules on metering;
  • rules on payment calculation;
  • rules on the settlement of accounts and the payment of bills;
  • rules on failure to pay;
  • fines and penalties; and
  • rules for buying energy from autonomous producers.

The terms of service cannot be challenged unless such terms are imposed in contravention of the Energy Act.

The Distribution Grid Rules provide for the terms of connection of producers of non-systemic importance to the grid (producers of systemic importance connect to the transmission grid according to the Transmission Grid Rules).

A producer initiates its connection in accordance with the project (connection scheme), on the basis of the technical conditions provided by the distributor.

The technical conditions are set by the distributor on the principle of carrying out the work of connection (reconstruction) of a station (ie, construction of a new network and reconstruction, strengthening, expansion of the distribution grid) for the parties with minimal expenses. If the distributor plans to expand its infrastructure, due to the need for further long-term development of the network, then the technical conditions are provided, taking into account the availability of new infrastructure. The planned works for the creation of such infrastructure are included in the distributor's Distribution Investment Programme, and the work is not included in the calculation of the connection fee. The technical conditions shall take into account the period of construction of the power plant specified in the producer's licence, and shall be extended in case of the extension of such term. In order to connect the plant to the distribution grid, a producer shall pay the distributor a connection fee equal to the sum of the costs required for such works for the construction of new capacity in the distribution grid and the reconstruction (including redesign) of existing facilities. The producer ensures that his plant (capacity) connected to the distribution grid complies with the requirements of these rules and technical regulations.

Reconstructed and newly constructed capacities in the distribution grid are the property of the distributor, and the installed metering equipment and the equipment necessary for connection to the automatic accounting system of the distribution grid are the property of the producer.

In accordance with the technical conditions, the producer applies to the distributor at least 70 working days prior to the expiry of the technical conditions to obtain an actual connection permission (Connection Permit) for connection to the distribution network (including design-construction), presenting:

  • the application for a connection permit, which is an integral part of the Agreement;
  • in cases provided by the legislation, a copy of the conclusion on the operation of the electrical installation issued by the state authorised body carrying out technical control; and
  • the connection action plan.

Within ten business days of receiving the application, the distributor shall verify the compliance of the documents submitted by the producer with the requirements of the Distribution Grid Rules and the technical conditions. In the case of a station with installed capacity of more than 10 MW, the distributor shall seek the consent of the System Operator. The System Operator shall notify the distributor of its consent or any defects found within five working days of receiving the documents from the distributor. Within ten business days of receiving the application (and within five business days of receiving the position of the System Operator for 10 MGW+ producers), the distributor shall issue a Connection Permit to the producer (in case of a positive conclusion) or notify the identified deficiencies (in case of a negative conclusion).

Within five working days of receiving the Connection permit, the producer shall submit a written application to the distributor, and also to the System Operator in the case of a 10 MW+ producer, indicating the preferred date of actual connection (voltage) of the station to the distribution grid.

If the producer's preferred day of actual connection (voltage) to the distribution grid is not acceptable by the System Operator in terms of power system reliability and safety, the System Operator shall negotiate with the producer within three working days to postpone the connection (voltage) day, which may not exceed ten working days from the producer's preferred date.

Changes in the technical conditions of the plant and technical dimensions may be made only by mutual agreement of the parties, except when such changes are necessary for compliance with the requirements of the laws or normative legal acts.

AMERIA Legal and Tax Advisors

2 Vazgen Sargsyan Street
0010
Yerevan
Armenia

+37410 56 11 11

+37410 51 31 33

legal@ameria.am www.amerialegal.am
Author Business Card

Trends and Developments


Authors



AMERIA Legal and Tax Advisors is the oldest fully fledged business advisory team in Armenia. Located in Yerevan, and with a seasoned team of 15 individuals, Ameria provides comprehensive legal counselling on a diverse range of issues to both local and international entities and organisations, including major legal due diligence and M&A transactions in the mining sector. During the last decade, Ameria has been engaged in a number of major projects as a provider of legal support. The firm's lawyers have been instrumental in large-scale financing and M&A transactions in the mining sector, including those related to the GPM Group, Centerra Gold Inc., Royal Gold Inc., ZCMC, Lydian Armenia, Chaarat, Polymetal and many others. Ameria's unique experience and knowledge has always added value to the successful completion of projects.

Development of the Armenian Energy Sector

Armenia recently has set of specific goals and objectives for the development of its energy sector. These goals include enhancing energy security, developing renewable and alternative energy resources, liberalising the power market and improving energy efficiency. Other key objectives of the Government are maximising the use of domestic energy resources, replacing obsolete technologies, strengthening regional integration of the energy sector, and further developing the nuclear power subsector.

Two documents that set out the interim energy goals of the Republic of Armenia are the Concept Note on Ensuring the Energy Security of the Republic of Armenia, and the Republic of Armenia Development Strategy 2025. Additionally, the Long-Term Development Pathways (up to 2036) for the Republic of Armenia Energy Sector set out the ultimate outcomes the government intends to achieve. The Government also has in place long-term investment strategy documents that offer clear guidance to investors regarding which energy subsectors need more investment and are to be targeted for investment promotion.

Armenia has recently implemented tool for monitoring and reviewing the effective implementation of its energy goals. Moreover, to increase confidence, investors are invited (along with other relevant stakeholders) to comment on proposed laws/regulations/policies prior to their implementation. The agendas along with drafts of all government and parliamentary sessions are posted via the e-government initiative, voting and comments are available.

There are clear trends for rapid development of solar thermal energy in Armenia in recent. While Masrik'sproject for construction of 55MGW capacity photovoltaic project is currently being implemented on 26 December 2019, the Government of Armenia approved the investment program “Masdar Armenia” and identified pre-conditions for an investment project assuming installation of PV panels with the total capacity of 400 MW.

Among smaller scale projects 27 power plants (with a total capacity of about 63 MW) where licensed and have already been commissioned.

New Provisions

At the suggestion of the Ministry of Energy Infrastructure and Natural Resources of the Republic of Armenia, the Armenian energy sector regulator, Public Services Regulatory Commission (PSRC) enacted new provisions aimed at further development of the sector.

Recent legislative developments of Armenian Alternative Energy Market can be summarised as follows.

Decision 426-N

Government adopted a Decision 426-N dated 12 April 2018 on Technical Regulations on energy saving and energy efficiency in newly constructed residential buildings, as well as in state-financed (reconstructed, renovated) buildings. These regulations, which entered into force on 24 October 2019, will have a considerable impact on the sector of energy efficiency in residential buildings and will force construction companies/developers to invest in the relevant field. The reduction of customs fees for imported assembling parts of solar panels has been introduced.

Decision N 429-N

Decision N 429-N dated, 21 November 2018, on Amendments in Commission’s Resolution No 374-N dated 1 November 2013 and Invalidation of Decision N 339-N On Approving the Rules and Procedure of Licensing in Energy Sector (Licensing rules). The Decision includes the provision on approving new procedures of licensing of in the Energy Sector. According to Clause 34-36, the licence for producing electricity will be provided for solar panels with the capacity of up to 5 MW installed between 2 November 2018 and 31 December 2020; licences are not provided, and feed-in tariffs not secured, for panels installed within the mentioned period and which total production aggregate capacity will be exceeding 50 MW.

The same rule applies for wind station in case single applicant capacity exceeds 30 MW and total aggregate capacity is not limited. According to the above-mentioned rules, the production licences for all the wind power stations and solar power stations with with capacity exceeding 30 MW (wind) and 5 MW (solar), respectively, will be provided based on the public-private partnership (PPP) principle, ie, licences will not be provided based on feed-in tariff standard methodology, but will be decided ad hoc based on agreement with the state.

Further, the rules does not extend to other sources of renewable energy and to autonomous producers (producing energy for own needs) and the aim of the regulation is provide balance between the need to encourage alternative energy on the one hand, incentivise systemic producers not to decrease strategic capacities (which are currently important for maintaining system safety and reliability) on the other and at the same time provide room for encouraging large scale renewables projects based on flexibility provided under PPP ad hoc arrangements (which shall anyway comply with the principle of non-discrimination).

Resolution N 516-N

Resolution N 516-N dated 25 December 2019 on Approval of Trade Rules for the wholesale Market of Electricity of the Republic of Armenia and. The New Market Rules (expected become effective starting from February 2021) together with new high voltage grid connection and operation rules approved under Resolution of PSRC N 522 dated 25 December 2019, (collectively referred to as the "New Market Rules") are providing considerable innovation and reform into energy market.

Market Rules

While currently the trading of energy occurs pursuant to strictly regulated rules of purchase of energy (mandatory full purchase from small hydro and all other renewables, price escalation based purchase from systemic producers) the New Wholesale Market rules are aimed to gradually liberalise the market. New Wholesale Market Rules provide for more transparent and straightforward rules for high voltage grid interconnections and operation. They introduce the rules of wholesale trade between producers, guaranteed suppliers, conventional suppliers, wholesale traders, autonomous producers, qualified consumers, system operator, market operator, distributor and transmitter regulating categories and segments of the market and when and on what conditions trades are to occur.

According to the New Market Rules the purposes of creating wholesale market for energy (the WEM) are:

  • ensuring the gradual liberalisation of the wholesale electricity market by defining flexible electricity trade mechanisms;
  • promoting the competitiveness of the electricity system of the Republic of Armenia and to improve the investment environment,
  • creating transparent and competitive conditions for WEM activities, promoting the entry of new participants into the wholesale market; and
  • promoting interstate trade.

The WEM is to be based on, and operated according to, the principles of ensuring:

  • segmentation of WEM for trade purposes;
  • fully competitive trading in the non-regulated segments of the WEM;
  • liability and responsibility of WEM participants for breach of obligations under the New Market rules and for imbalances in energy system;
  • establishment of transparent and non-discriminatory conditions for import, export, transit and exchange of electricity with regional electricity systems;
  • meeting of the demand for domestic consumption before export of electricity can take place;
  • accurateness and availability of the information provided to the System Operator Market Operator by the System Operator;
  • encouragement of the production of electricity from alternative energy resources under 30 MW and autonomous producers; and
  • the right of non-discriminatory access to transmission and distribution grids.

Participants of and Roles in the WEM

Тhe market participants are classified as follows:

  • PPP-based renewable producers;
  • under 30 MW renewable producers;
  • other fixed tariff producers;
  • free market producers;
  • power balance ensuring producers;
  • guaranteed supplier;
  • supplier;
  • wholesale trader;
  • qualified consumer (consuming more than 1 mln kwt/hour yearly) ;
  • autonomous producers; and
  • transmitter, distributor, system operator and market operators providing services to the market.

Accordingly, the new market rules provide that guaranteed suppliers shall buy energy in WEB, sell it to guaranteed consumers and can sell the excess to the market., wholesale trades of energy (ie, excess energy) are allowed on the non-regulated segment of the market, and a qualified consumer may buy energy in the market and sell the excess of its needs on the market.

Furthermore,  a power balance ensuring producers are bound to sell in the market at segment regulated quantities and prices based on direct PPAs and may sell the excess energy in other segments of the market. Energy operators plan the balance of power in the system, provide system operation services, determine energy balance reserve volume and instruct other participants regarding restoration of balance in the system.

Market operators administer the market, and market operation software registers transactions and bids, traded volumes, conducts clearing of trades and consolidated metering of energy traded, and the services of the system operator, market operator, transmitters and distributors are paid.

Transmitters and distributors buy energy in the market for their own use as well as to compensate for any loses during transmission. Further, they both conduct metering and reporting within their domains for system sustaining purposes.

System Planning and the WEM

Important part of Armenian wholesale market functioning is ensuring the balance of power in the system under the New market rules. For that purpose, the system operator conducts system balance planning, aiming to:

  • assess the possibility of meeting the domestic market demand when operating under standard conditions for all stabilised modes of the power system;
  • meet the demand of the internal market at the lowest cost, ensuring the reliability and security of the system;
  • predict the hourly consumption of the whole product in the domestic market, as well as the conditional and complete load schedules;
  • compile production schedules in the regulated and long-term sectors of the Direct PPP market segment;
  • assess the availability of the necessary balances; and
  • evaluate the feasibility of inter-system (including transit) flows.

System operators conducts planning on the basis of the forecasts developed by the Republic of Armenia for the supply and demand of the electricity system, assessments, available information on the use of inter-system lines, as well as the data received from the WEM participants and the authorised bodies of neighboring countries.

The system operator shall determine the required backup capacity, taking into account the applicable methodology for determining the backup capacity.

Trading Segments of WEM

WEM will consists of the followings segments:

  • direct PPA-based segment;
  • day before the market segment; and
  • balancing market segment.

Direct PPA based segment consists of the following components:

  • component of long-term PPA component;
  • regulated component; and
  • unregulated component.

Long-term PPA components

Trading in long-term PPA components of “direct PPA” segments occurs between renewable producers under 30 MW and PPP-based renewable producers (sellers) and a guaranteed supplier (buyer) based on the contract between them. Such sellers are not entitled to trade in other segments and components. Tariffs (energy prices) are set by the PSRC either based on approved feed in tariff methodology or PPP arrangement.

Sellers in this segment are entitled to complete takeoff of the energy produced. Capacity produced by PPP-based renewables is also traded under the same contracts based on the capacity demand orders of the System operator.

Regulated PPA components

Trading in regulated components of “direct PPA” segments occurs on a monthly basis between fixed tariff producers (other than those trading in long-term PPA component) and power balance-ensuring producers (as sellers) and guaranteed supplier, suppliers, qualified consumers, transmitter and distributor (as buyers). The prices and maximum quantities to be sold are based on monthly quotas determined by PSRC. Fixed tariff producers (other than those trading in long term PPA component) energy is traded first followed by power balance ensuring producers.

Excessive supply is allocated in accordance with price escalation (cheap energy followed by expensive one) and shortage of supply is allocated pro rata to demand bid volumes of the buyers. The unallocated energy can then be offered on a "day before the market" segment and the energy unsold there can be exported.

Unregulated PPA components

Trading on unregulated component of “direct PPA” segment occurs between renewable producers under 30 MW, other fixed tariff producers, free market producers, power balance ensuring producers, guaranteed suppliers, supplier, wholesale traders, qualified consumers, autonomous producers, transmitters and distributors. Trading occurs on market terms and ad hoc transactions are entered into between trading parties.

Volumes traded shall be reported to the system operator and the market operator through market software and confirmation from the other side of the transaction shall be entered likewise failing which the transaction does not occur. Trades occur no sooner than a day before supply.

The "day before the market" segment

Trades in the “day before the market” segment are to take place between renewable producers under 30 MW, other fixed tariff producers, free market producers, guaranteed supplier, supplier, wholesale traders, qualified consumer (consuming more than 1 mln kwt/hour yearly), autonomous producers for the whole volume unsold on direct PPA segment and volumes imported by wholesale trader.

All trades occur one day before the settlement based on the bids entered into software. Bids prices cannot be higher the caps fixed by PSRC or be negative. Bids can be ordinary or scale based for buying (bids) or selling (asks).

Following this, all bid and asks are aggregated, cleared and cleared price of the day is determined based on crossing point figure of aggregated bid and ask curves which then serves as benchmark price to determine allocation of volumes in accordance with allocation rules for ordinary and scaled bids. In case of surplus of demand (shortage of supply) of energy on that trading date, available volumes of energy are allocated pro rata to the demand bids and at highest quoted price. In case of surplus of demand (shortage of supply) at the cleared price, bids submitted after the last bid capable of full matching are matched partially and pro rata among similar bids (bids for the same price).

In the day before in the market segment the trade is carried out on an hourly basis, and the quantities and prices of the purchased and sold electric energy are determined by the by the trading software based on bids submitted the day before trades occur. The trades in the segment cover the energy not sold under the regulated component of direct PPA market.

The "power balance" segment

Trades on “power balance” segment are regulated and occur between power balance ensuring producers and power balance responsible market participants at price published by power balance ensuring producers (caps determined by PSRC) on the day before transaction is to occur taking into account energy demand and supply coordination orders provided by the system operator to the power balance ensuring producers to ensure the balance in the system. Power balance ensuring producers are required to buy the positive imbalance from and sell the negative imbalance to the market participants responsible for such imbalances to the extent such imbalance could not be prevented by system operators.

In the balance trade market segment, trades are carried out on an hourly basis and the quantity and value of the electricity purchased and sold are determined by the soft base of the bids entered by market participants.

AMERIA Legal and Tax Advisors

2 Vazgen Sargsyan street
0010
Yerevan
Armenia

+37410 56 11 11

+37410 51 31 33

legal@ameria.am www.amerialegal.am
Author Business Card

Law and Practice

Authors



AMERIA Legal and Tax Advisors is the oldest fully fledged business advisory team in Armenia. Located in Yerevan, and with a seasoned team of 15 individuals, Ameria provides comprehensive legal counselling on a diverse range of issues to both local and international entities and organisations, including major legal due diligence and M&A transactions in the mining sector. During the last decade, Ameria has been engaged in a number of major projects as a provider of legal support. The firm's lawyers have been instrumental in large-scale financing and M&A transactions in the mining sector, including those related to the GPM Group, Centerra Gold Inc., Royal Gold Inc., ZCMC, Lydian Armenia, Chaarat, Polymetal and many others. Ameria's unique experience and knowledge has always added value to the successful completion of projects.

Trends and Development

Authors



AMERIA Legal and Tax Advisors is the oldest fully fledged business advisory team in Armenia. Located in Yerevan, and with a seasoned team of 15 individuals, Ameria provides comprehensive legal counselling on a diverse range of issues to both local and international entities and organisations, including major legal due diligence and M&A transactions in the mining sector. During the last decade, Ameria has been engaged in a number of major projects as a provider of legal support. The firm's lawyers have been instrumental in large-scale financing and M&A transactions in the mining sector, including those related to the GPM Group, Centerra Gold Inc., Royal Gold Inc., ZCMC, Lydian Armenia, Chaarat, Polymetal and many others. Ameria's unique experience and knowledge has always added value to the successful completion of projects.

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