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           Appendix 1 

RA Government Decision N     2021 

Republic of Armenia Energy Sector Development  

Strategic Program to 2040 

YEREVAN 2020 

Content 

I. VISION OF THE RA GOVERNMENT FOR ENERGY SECTOR DEVELOPMENT .............................. 3

II. MAIN PRIORITIES FOR THE ENERGY SECTOR DEVELOPMENT ................................................ 3

III. DEVELOPMENT OF GENERATING CAPACITY .......................................................................... 5

IV. HIGH-VOLTAGE ELECTRICITY TRANSMISSION NETWORK DEVELOPMENT ............................ 8

V. DEVELOPMENT OF THE DISTRIBUTION NETWORK ............................................................... 10

VI. ELECTRICITY MARKET .......................................................................................................... 11

VII. REGIONAL ENERGY COOPERATION .................................................................................... 12

VIII. HEAT SUPPLY ..................................................................................................................... 15

IX. GAS SUPPLY ......................................................................................................................... 16

X. ENERGY EFFICIENCY .............................................................................................................. 16

XI. DIGITAL ENERGY ................................................................................................................. 18

XII. SCIENCE-BASED ENERGY .................................................................................................... 18

XIII. MANAGEMENT OF STATE-OWNED COMPANIES ............................................................... 20

SUMMARY ............................................................................................................................... 20 

Considering the available domestic resources and development tendencies of this technology   throughout the world, the construction of solar power plants, will prevail over the rest of types, given the limitations  of the system reliability and safety indicators.   

1. Possible realization of energy- efficiency potential 

All the sectors of the economy of Armenia have great potential in the energy efficiency including transport, industry, multi-apartment buildings, public sector budgeting, fuel system, etc. The Government of the Republic of Armenia will be consistent in terms of creating a new culture of energy efficiency, therefore will implement institutional reforms by promoting investments in the alternative energy sources, that may result in  energy efficiency, security, environmental regulation and promotion of energy efficiency in all the spheres of economy.     

1. Life extension of the ANPP Unit 2  

The extension of operational lifetime of ANPP Unit 2 after 2026 is on the main priorities of the RoA Government and the construction of a new nuclear power plant upon the expiration of the term is the main objective. The availability of the nuclear power plant in the power system will allow to diversify more the energy resources, not to increase reliance on the imported natural gas as well as the volume of emissions.  

1. North- South Road Corridor construction program 

The full implementation of the North- South Road Corridor construction program, its Armenia-Iran and Armenia-Georgia power transmission lines and infrastructures play a decisive role in terms of having power system of regional significance.  

This program provides an opportunity to Armenia to be a bridge for being engaged into the more global electricity markets as well as for using opportunities of mutually beneficial electricity trade with Iran and Georgia. Meanwhile the full implementation of the Program will increase the reliability and security of the Armenia’s power system.  

1. Gradual liberalization of the electricity market  

The current model of Armenia’s electricity market has been applied since 2004. Electricity markets of a number of developed and developing countries are already liberalized. Armenia has also commenced this process and will transit to a new liberalized model in the coming years which will still be a subject to limited competition but will have precise milestones towards the full liberalization given the creation process of EAEU Common energy market and the EU Comprehensive and Enhanced Partnership Agreement.  

III. DEVELOPMENT OF GENERATING CAPACITY 

In the Republic of Armenia in  2016, 2017, 2018 , 2019, 7.3, 7.8, 7.8 and 7.6 billion kWh of electricity has been generated respectively, of which 1.2, 1.4 , 1.6 and 1.25 billion kWh of electricity respectively has been exported and the own needs and the total consumption in terms of  losses of generating units have made 1.03, 1.02, 0.96 and 0.88 billion kWh respectively. In Armenia, electricity is mainly generated by nuclear, hydro and thermal plants whereof 39% is generated by the nuclear power plant while the remaining 60% is almost generated equally by hydro and thermal plants. The share of all the other plants in the power system is quite low - up to 1%. The Government aims to have 12 billion kWh output by 2030, whereof about 5.0 billion kWh will be export based. In accordance with the statistics of the last 5 years the winter peak in the Armenia’s power system is 1300 MW, and in summer it is 1040 MW. The variation between winter and summer peaks recently has significantly declined.  

The following plants with a total installed capacity of 2878.7 MW as of July 1, 2020 are currently operating in the power system.  

• ANPP - 407.5 MW 
• Hrazdan TPP- 410 MW 
• Hrazdan Unit 5 - 467 MW  
• Yerevan CCGT -1  - 228.6 MW 
• Vorotan Cascade of Hydroelectric Power Plants - 404.2 MW 
• Sevan-Hrazdan Cascade of Hydroelectric Power Plants - 561.4 MW 
• Renewable small power plants (under 30 MW )about 400 MW, whereof about 380 MW are small HPP. 

Due to low efficiency of the above mentioned Hrazdan TPP it is envisaged to take the plant out ofservice after putting Iran-Armenia 400 kV transmission line and the Yerevan CCGT-2 which is being constructed into service. The following generating capacities are currently under construction:  

• Yerevan CCGT-2- 250 MW, by July, 2022 (USD 250 million investment),   
• Masrik-1 Solar Photovoltaic Power Plant- 55 MW, by July, 2022 (USD 60 million investment), 
• Small HPPs. 23 power plants, 50 MW, commissioning by 2023 (USD 60 million investment),
• Small Solar Plants - 48 plants, 197 MW, by 2022. Moreover, it is envisaged that the total installed capacity of such plants will comprise 210 MW in 2022.  
• Wind Power Plant- 4 MW, by 2021.  

In the near future new tenders for construction of seven more solar photovoltaic power plants with total installed capacity of about 520 MW will be conducted, whereof capacity of two plants will comprise 200 MW each.  

As of July 1, 2020, 2669 autonomous solar power plants with capacity up to 500 kW, with the total installed capacity of 49.5 MW are connected to the network.  The current development rates allow to anticipate that the total installed capacity of the above-mentioned plants will reach to 100 MW for the next three years. 

The Republic of Armenia government aims to increase the share of solar power generation at least to 15% or 1.8 billion kWh by 2030. For that purpose, solar power plants with total installed capacity of 1000 MW including autonomous plants will be constructed.   

It is worthwhile to mention that in the coming years the prospective changes in the world market can enable not only solar but also renewable energy power plants with storages to compete with the traditional base plants. As for Public-Private Partnership (PPP) agreements, the RoA Government will conclude such agreements for the utility scale generation units construction by means of attracting investors exclusively on a competitive basis, where their access to the electricity market cannot be granted without additional guarantees from the state.  

The fact that the solar and wind technologies are considered as part of the least cost solution for new generation under all scenarios stresses the importance to Armenia of ensuring a policy and institutional environment that supports development of these technologies to the maximum extent possible, not only to ensure the lowest cost generation but also to minimize reliance on other imported energy sources and to strengthen Armenia’s energy security and competitiveness. 

The Least Cost Energy Development Plan is developed with application of the TIMESArmenia model, which provides a platform for the integrated power system modelling and envisages to guide policy formulation over a wide range of energy, economic and environmental planning as well as climate change issues. The TIMES Armenia platform allows to:  

• encompass the entire power system from resources through to end-use demands; 
• employ least-cost optimization to identify the most effective pattern of resource use and technology deployment over time;  
• evaluate medium and  long-term policies and programs that can impact the evolution of the power system; 
• quantify the expected costs and technology choices that result from imposing those policies and program.  

Within the baseline scenarios modelling, through the TIMES-Armenia platform, the following was considered: the construction costs of different power generating capacities, imported fuel prices, anticipated economic growth rate and the associated changes in demand, as well as potential technological development and other required inputs  that may affect power generating capacities in terms of choosing the least cost development option. The outcomes show that the possible development of the solar and wind technologies ensure the least cost in the power system. Moreover, the sensitivity analyses revealed that the results of model calculations on new generating capacities required to meet the electricity demands don’t essentially differ in all the considered GDP growth scenarios.   

The Government will stay committed to the policy to maintain nuclear power plant in the country’s generation mix. In this context, it is worthwhile to mention that the possibility of the nuclear plant’s life extension will guarantee development of the system on the basis of least cost. The investment program focused on the ANPP Unit 2 design lifetime extension will be completed by 2023, resulting in USD 330 million investment, and the nuclear power plant will be extended to 2026. In the event that a safe operation of the ANPP Unit 2 is justified after 2026 in accordance with the respective studies, the Government intends to operate it at least until 2036 which according to forecasts will require an additional USD 150 million investment. Moreover, the lowest level of greenhouse gas (GHG) emissions can only be reached in the case of availability of the nuclear power plant compared to other scenarios, which is consonant  with the implementation of the Government’s long-term development purposes with the low level of greenhouse gas emission. After the expiration of the existing nuclear power plant’s operational lifetime (including its life extensions), the construction of new nuclear unit with replacing capacity on the existing ANPP site  is considered, which will prevent an increase in the country’s reliance on the imported natural gas. Meantime, regardless of the construction of Meghri, Shnogh and Lori-Berd HPPs has not been considered by the least cost development scenarios, they will remain relevant projects and will be constructed as utility scale plants when the construction of such power plants will be needed in the power system. With regard to the wind plants, the RoA Government will be consistent in development of such technology as well and is planning to construct utility scale wind power plants with total installed capacity of 500 MW, in 2025 – 2040, but the implementation of Public-Private Partnership programs focused on the construction of such plants will be driven exclusively by the fact that the prices of electricity delivered from the wind plants are competitive.  

It is worthwhile to mention that if the price of imported natural gas changes by 2040 the maximum utilization of solar and wind power plants will reduce the power system total costs. In any case, the natural gas will remain one of the main consumed fuel sources, as it is used not only for enterprises but also for the residential heating, household and transportation needs. Meanwhile the gradual market penetration of electric cars can also be implemented solely on the basis of the solar and wind power by reducing the volume of imported natural gas.  

To summarize the above mentioned, it can be stated that in the coming seven years about USD 1.5 billion will be invested in electricity generation.  

Forecasts and assessments presented within the framework of the Least Cost Energy Development Plan, based on global warming, change in water resources as well as other significant circumstances that might impact on the power system, shall be biennially revised.  

IV. HIGH-VOLTAGE ELECTRICITY TRANSMISSION NETWORK DEVELOPMENT  

High voltage electricity transmission networks are state-owned, and their natural development is one of the strategic issues of the energy sector. The development of the high-voltage transmission network includes two sets of actions aimed at modernization of the existing infrastructures and the expansion of the transmission network. The first set of actions are aimed at modernization of substations of the high-voltage transmission network and  overhead transmission lines, while the second set of actions are focused on installation of monitoring system for transmission capacity,automation (SCADA system expansion) as well as electricity system reliability and safety indicators and development of new infrastructures for the regional integration.  

In the high-voltage transmission network 13 substations of 220 kV, two substations of 110 kV and one switching point on the border with Iran as well as 1960 km electrical transmission lines with 5600 towers are currently being operated. Five above mentioned substations (220/110/10 kV “Haghtanak”, 220/35/10 kV “Kamo”, 220/110/10 kV “Gyumri-2’, 220/110/35 kV “Vanadzor-2” and 220/110/35 kV “Alaverdi 2”) have been completely reconstructed.  

Five more substations are currently under reconstruction, in particular: 

• With the support of the International Bank for Reconstruction and Development , which provided  USD 36 million within the scope of the loan  agreement  “Electricity Supply Reliability Project - Additional Financing”, 220kV substation “Haghtanak” was reconstructed in 2019;  the reconstruction of 110kV substations “Charentsavan-3”, “Vanadzor-1” and 220kV substation “Zovuni” is envisaged. 
• With the support of the Asian Development Bank, which provided about 

24.02 million SDR within the scope of the loan agreement «Power 

Transmission Rehabilitation Project», the reconstruction of 220 kV “Agarak2” switching point to the substation, and reconstruction of “Shinahayr” substation are planned to be implemented, along with the second stage of SCADA communication and automation system investment program. 

• With the support of the International Bank for Reconstruction and 

Development, which provided USD 39.86 million within the scope of the Loan Agreement“Power Transmission Network Improvement”, a new 220 kV substation of Yerevan TPP was constructed and commissioned replacing the previous substation of 110 kV. The reconstruction of 220 kV “Ashnak” substation is underway as well as reconstruction of the “Ararat-2” substation is envisaged to be implemented.  

• With the support of the International Bank for Reconstruction and 

Development, which provided about USD 35.5 million within the scope of the loan agreement “Electricity Supply Reliability”, the modernization of the 230 kilometer 220 kV overhead transmission line along Noraduz- Lichq-VardenisVayq-Vorotan-1 between Hrazdan TPP and 220 kV “Shinuhayr” substation is carried out, which has increased the export capacity to Iran by about 50 MW. Within the scope of the savings made as a result of the concluded agreements aimed at reconstruction of the above mentioned overhead transmission line, the reconstruction of about 50 kilometer overhead transmission line “Larvar” and “Noyemberyan” of 110 kV is being conducted. The lines, having been in operation since 1962 under the influence of severe chemical substances, have been corroded and have a negative impact on ensuring ofthe reliable and uninterrupted power supply to consumers.    

The following programs are being implemented for regional integration process.  

• With support of Export Development Bank of Iran and “Sanir FZE”, which provided EUR 107.9 million, 400 kV Iran-Armenia double-circuit overhead transmission line and 400 kV “Noravan” substation are under construction. The construction of the power transmission line and the substation will enable to increase the electricity exchange capacity between both countries’ power systems from 350 MW to 1200 MW  also by improving reliability of the power systems’ parallel operation and energy security of the Republic of Armenia. 
• The construction of the “Caucasus Electricity Transmission Network” 

(transmission line / substations) is aimed at connection of Armenian and Georgian power systems by 500 kV overhead transmission line ensuring the reliability of asynchronous-parallel operation of the two countries’ systems by constructing 500/400 kV HVDC back-to-back station of 350 MW capacity, 500/400 kV overhead line with the length of 8 km from the station to Georgian border in Ayrum at the first stage , new substation of 400/220 kV in Ddmashen equipped with two 440/220 kV autotransformers and 400 kV single-circuit overhead transmission line from  Ddmashen to Ayrum substation with doublecircuit supports. Implementation of the project will ensure power exchange of electricity with 350 MW capacity. Within the scope of this stage of the project, investments will amount to about EUR 188.2 million and the transmission capacity with Georgia will be 350 MW, which is intended to be increased to 1000 MW during the next two stages depending on power flows volume.  

In addition to the above mentioned, another substation (220/110/35 kV “Litchq”) will be reconstructed at the company’s expense, and the financing options and dates of investment projects for the reconstruction of  the remaining three substations (220/110/10 kV “Shahumyan-2”, 220/110/10 kV “Marash” and 220/110/35 kV “Yeghegnadzor”), for will be considered.  

In addition to the above-mentioned, along with the construction of solar plants, it will be necessary to invest additionally about USD 70 million in the transmission network. 

Investments aimed at system automation in the high-voltage electric network are being conducted, in addition to the infrastructure investments. SCADA Automated control system will be installed by 2023 which will ensure a new level of dispatch and technological dispatch. With a view to considering the changing requirements of the power system of Armenia, the system will have scalable modular structure and possibility to select operating characteristics. As a result, accident elimination time in the power system will be significantly reduced and the level of reliability of power supply to consumers will increase.   

It is worthwhile to mention that Electricity System Transmission Network Development plan (2020-2024) was developed in 2019, which, based on the international experience and up-to date models considered the possible developments of the energy sector within that period and the volume of necessary investments for the least cost development of the respective transmission networkincluding the investments which will be aimed at reconstruction of high-voltage power transmission lines and expansion of the Transmission network. This will be continuous work and the development plan will be reviewed in 2022 including the period for the next ten years, and afterwards will be biennially updated

Investments in the Transmission Network will reach about USD 550 million by 2030.  

V. DEVELOPMENT OF THE DISTRIBUTION NETWORK  

The distribution networks were privatized in 2002 as a united company with the purpose of distribution and, for a while, supply of electricity throughout the Republic of Armenia. As a wholly private company, its activity is regulated by the Public Services Regulatory Commission. Currently, the Electricity Networks of Armenia CJSC operates the distribution networks for a seven-year period until 2026 and also fulfils a function of Universal Supplier. The company is currently distributing and supplying electricity to about one million consumers including residents, commercial organizations and industrial enterprises operating the lines of 110 kV and under. 

After privatization, the Electricity Networks of Armenia is implementing its first investment program at the cost of USD 750 billion, which will be completed by 2028. The investment program is designed to reduce the number and duration of the power outages as a result of reconstruction of the distribution networks, reduce technical losses and exclude the risks of commercial losses, reduce the operation and maintenance cost, expand the distribution network for connection of new capacities and meeting additional needs, modernize completely the metering system, creating electronic map for the existing infrastructures, implement environmental international standards, management information system (MIS) and ISO management system standards.  

As a result of the implementation of the investment program the following are expected: 

• The system average interruption duration index (SAIDI) and frequency index (SAIFI) will significantly decrease by 2028 to 55% of the 2021 baseline indicator. At the same time, the customer average interruption duration index (CAIDI) in both urban and rural areas will be reduced by 50%.   
• Long-term voltage deviations beyond the permissible limits for consumers will be excluded.  
• Technical losses in the Distribution Networks will decrease to 7.5% in 2021 and 6.4% in 2028. 
• Material and maintenance costs will decrease by 30% in 2021, by 20 % in 2025, and by 15% in 2028. Other costs will decrease by 10% in 2025 and by another 10% in 2028.  
• The list of employees will be reduced by about 1100 positions in 2021 and by 560 positions in 2028.   
• All consumers shall be connected to the Automated System of the Electrical Energy Metering which will enable the consumers to receive data of commercial metering devices on the basis of remote operation, ensuring availability of the data in real time for consumers and new suppliers in the Retail Electricity Market as well as for the Market Operator, creating a favorable environment for liberalization of the Retail Market.  

It should be noted that the electricity market distribution network code was approved by the Public Services Regulatory Commission decision N 523 on December 25, 2019, which stipulates additional requirements in terms of the TenYear Network Development Plan and its further regular update. The Development Plan will be designed with the use of up-to-date models considering the possible developments in the energy sector within that period and the volume of investments required for the distribution network development on the basis of least cost. The program will complete the development programs of power generation and the transmission network accomplishing the Least Cost Energy Development Plan.  

VI. ELECTRICITY MARKET 

The current model of the Armenian electricity market was introduced in 2004. The market is fully regulated both in the wholesale and retail sectors. The electricity market is solely based on the forecasted annual amount of electricity generation and consumption and it doesn’t impose responsibility on the Market Participants in the event of deviations from that amount. Hence, the risks resulted from differences between the forecasted and actual amounts of electricity generation are balanced by tariffs of electricity delivered to consumers including the cost of such risks balancing of the electricity distribution licensee. In many developed and developing countries, the electricity markets are already liberalized and operate under perfect competition.  

The liberalization of the electricity market requires the transition to a new model which will improve efficiency of the wholesale and retail electricity markets, while the promotion of the interstate commerce will enable to have new elements of competition in the domestic market. This process has already commenced, and activities aimed at development of bylaws are currently underway.  

The transition to the new market model will be carried out in the coming years with a long-term target of a full market liberalization. The market’s new model already at this stage will be based on the current electricity trading rules, will operate on the basis of balancing demand and supply as well as will define the responsibility mechanisms of the Market Participants during trade. The first stage of reforms will be followed by the development of a new RoA Law on Electricity, which will consider the EU directives requirements, that will be a start of the second stage of reforms. At that stage of reforms, opportunities for perfectly competitive market design will be taken into account.  

At the first stage of the market reforms, issues related to improving the efficiency of the tariff policy, in particular the feasibility of future use of night-time and day-time tariffs and its alternatives, implementation of new tariff adjustment mechanisms for reactive energy, necessity to fix monthly service fee, etc. will be considered. In this context, the improvement of protection mechanisms of vulnerable consumers will constantly remain in the focus of the Government’s attention.  

Meanwhile, it is envisaged to initiate changes  in the laws on “Energy” and  “Energy Saving and Renewable Energy”, as a result of which the renewable energy power plants will be entitled to sell electricity in new electricity market exclusively under competitive terms without providing a power purchase guarantee and signing Public Private Partnership аagreement, as well as to generate and consume at different metering points of the power system. Moreover, the current mechanisms for implementation of autonomous generators technical power flows will be improved, enabling the latter to generate and consume electricity at different metering points of the power system and to form groups involving residents and organizations.  

VII. REGIONAL ENERGY COOPERATION 

The Armenian Power System is currently connected to the power systems of Iran and Georgia. Through these countries the natural gas is being imported to Armenia. In this respect, the current energy relationships with Iran and Georgia are of strategic importance.  

As a member of EAEU, Armenia is involved in a process of establishing EAEU common energy market. Meanwhile, Armenia has signed Comprehensive and Enhanced Partnership Agreement (CEPA) with EU which envisages gradual implementation of the EU energy related directives. In this context, scientific and technical cooperation is envisaged, including exchange of experience regarding development and improvement of technologies in electricity generation, transmission, supply and utilization, with a particular focus on energy efficiency and environmentally friendly technologies. 

It is highly important to assess regional development trends in the energy sector so that Armenia’s competitive advantages are effectively realized for mutually beneficial cooperation with other countries of the region.  

1) EAEU common electricity market  

Armenia is actively involved in the process of establishing the Eurasian common electricity market, which is planned to be launched in 2025 in accordance with the Action plan approved by the decree N 31 of Supreme Eurasian Economic Council dated December 20, 2019.  The plan also stipulates the adoption of the following five key regulatory documents: 

• Access rules for cross border transmission 

service of electricity (capacity) within the framework of the EAEU common electricity market.  

• Mutual electricity trade rules.  
• Rules for determination and distribution of cross border power lines transmission capacity. 
• Rules for exchange of information.  
• Regulation of cross-border networks development. 

Currently the drafts of the above-mentioned documents are developed and under discussion. 

2) EAEU common natural gas market

The common gas market of the Eurasian Economic Union is to be launched in 2025. In this regard, the concept of the common gas market formation and its implementation plan have been adopted pursuant to the decree N 7 of Supreme Eurasian Economic Council dated May 31, 2016. The member-states have to sign an international agreement on forming the common gas market. The following regulatory documents related to the common gas market’s full launch will be adopted: 

• The procedure for the conduct of exchange trading sessions.
• Common rules for access to gas transportation system in the member-states. 
• Protocol on the completion of complex measures which are preconditions for ensuring access to gas transportation system in the member-states. 
• Trading rules for the common gas market.  
• Definition of communication documents in the information exchange system.  

3) EAEU technical regulation  

The Section X of the Treaty of Eurasian Economic Union stipulates the procedures of the technical regulations and standards of the Union, general principles of technical regulations, circulation of products and accreditation. In accordance with the Decision N 526 of the Customs Union Commission of January 28, 2011, the unified list of products was approved for which mandatory requirements are to be established. In accordance with the Decision N 79 of Eurasian Economic Council of October 1, 2014, the Action plan of adoption and modification of the technical regulations according to which the procedures of development, adoption and modification of the EAEU technical regulations are continuing. The 

Drafts of Technical Regulation of the Eurasian 

Economic Union "On the Safety of High Voltage Equipment" and "On Requirements to Pipelines for Transportation of Liquid and Gaseous Hydrocarbons" are under discussion.  

Within the scope of the Comprehensive and Enhanced Partnership Agreement signed on November 24, 2017 between the Republic of Armenia and the European Union and the European Atomic Energy Community and their member-states, the Republic of Armenia has undertaken a commitment to implement large-scale reforms in the energy sector to bring the RoA legal framework into compliance with the European one. With the purpose of fulfilment of the agreement’s provisions, according to the RoA Prime Minister decision N 666-L dated June 1, 2019, a road map was adopted, which clearly stipulates the completion period and the responsible authorities.  

Within the scope of the CEPA, the cooperation shall cover the following areas: energy policy, energy security, diversity of energy sources, diversification of transmission path, competitive electricity markets, use of renewable energy sources, promotion of energy efficiency and energy saving, regional energy cooperation, technological and scientific-technical cooperation etc.  

Bringing EU directives and regulations into compliance will result in harmonization of the RoA energy sector regulations with the European standards which will make  the investment environment of the energy sector more attractive, promote trade in the energy sector with the neighboring countries and increase the level of energy security and diversification. New incentives will be introduced for the use of renewable energy sources, which will bring new players to the market. The level of nuclear safety will also increase in terms of radwaste and spent fuel management and control. New criteria for energy efficiency including energy labelling and eco design shall be determined.  

The power system of Armenia operates in conjunction with the power system of Islamic Republic of Iran which significantly increases the reliability of the Armenian power system. Besides, the gas pipeline connecting the two countries is an alternative way for natural gas supply. In this regard, in the energy sector Armenia-Iran relationship is strategic and that will be ongoing in the long-term outlook. 

Possible extension of terms of Armenia-Iran gaselectricity exchange program and increase in exchange volume under the mutually beneficial conditions is the key for further development of this relationship. For this reason, a new Armenia-Iran 400 kV voltage transmission line and the Caucasus transmission line projects are being implemented. Within the framework of the gaselectricity exchange program, the exploitation of new infrastructures will raise the electricity export at least 

up to 5.0billion kWh. The export of electricity will reach the maximum level by the end of 2025. 

The Armenian power system is also connected to the Georgian power system, which is strategically important for Armenia. Nevertheless, that is subject to various technical constraints considering synchronous-parallel operation between Armenia and Iran and between 

Georgia with Russia. The Caucasus 

Transmission Network Project (Armenia-Georgia power transmission line/substations) is being implemented for removing the current constraints as well as  increasing transmission capacity, which will enable to stimulate the energy cooperation between the two countries. 

In parallel to the above-mentioned investment program, the Agreement on the principles of Armenia-Georgia electricity trade is envisaged to be developed, which will lead to creation of prerequisites for regular electricity trade between the two countries that will rely, to the greatest extent possible, on the requirements of the EU directives. 

The relations with Georgia are also of great importance as a natural gas transit country, currently transiting gas from Russia in terms of supply of natural gas from Russia to Armenia.  

VIII. HEAT SUPPLY 

The centralized heat supply system in Armenia ceased to exist back in the early 2000’s for a variety of reasons. Recently the construction of smaller systems has begun to meet the heating and hot water demands of individuals or group of new multiapartment buildings, which, however, are not significant in the overall demand pattern.  

Currently the production of heating and hot water is mainly carried out by means of individual natural gas heating boilers which is the result of the large-scale gasification in Armenia. The effectiveness of this approach as an orienting point for the future development needs to be reassessed. First, it should be taken into account that the population should regularly make investments in the replacement of the individual heating boilers and pay more for the consumed natural gas due to the maintenance of additional infrastructure to supply gas to the household, than it would have paid in the presence of centralized gas supply system. Moreover, the availability of natural gas in apartments will always be a challenge in terms of ensuring safety of people’s lives and property.  

In terms of heat supply and hot water production, other individual systems using renewable energy sources for the production of solar water heaters and their own energy needs are the alternative to the individual heating boilers. A number of projects are already being implemented to install such systems, in particular, with the involvement of the Armenia Renewable Resources and Energy Efficiency Fund, “Energy efficient” loan project is being carried out in the non-gasified communities of Armenia. Within the framework of the project, as of July 1, 2020, 3042 water heaters have already been installed in different communities. 

The RoA Government shall gradually expand the implementation of such projects that will enable use of individual heating and hot water generation systems based on the renewable resources. To formulate a new vision of this sector, the Government will initiate development of new law on Heat Supply by the end of 2022.    

IX. GAS SUPPLY 

Natural gas is the main fuel consumed in the country, about 60% of primary energy, about 85% of fossil fuel consumption and more than 83% of CO2 emissions from fossil fuels combustion are natural gas. The level of gasification of the RoA communities is 96%, natural gas is also widely used in the road transport.  

The natural gas transportation and distribution systems are available in Armenia, which are managed by “Gazprom Armenia” CJSC. The latter is the only natural gas supplier. The natural gas transportation system is connected to the gas transportation systems of Georgia and Iran. Moreover, there is a gas storage facility in Armenia, which is available, significantly increases the reliability of the gas supply to consumers while being connected to the two neighboring countries.  

The price of the natural gas currently imported to Armenia is determined based on the agreement between the RoA Government and Russian Federation Government signed on December 2, 2013 in Yerevan regarding purchase and sale of shares of “ArmRosGazprom” CJSC and the further operational conditions as well as the agreement between RoA Government and RF Government on pricing procedure for the natural gas supply. Meanwhile the common gas market of the Eurasian Economic Union is to be launched in 2025. In view of this, the concept of the common gas market formation and its implementation program have already been adopted. An international agreement will be singed between the member-states for a full launch of the common market.  

The gas sector regulations in Armenia were developed back in the early 2000’s and need to be updated. In view of this the Government of Armenia will commence the process of developing a new law based on a separate and current principles on “Gas supply” by 2022 and by the end of 2024 bylaws including the regulatory framework will be thoroughly reviewed. Meanwhile, for the purpose of gas transportation and gas distribution systems development prospects and clarification of investment priorities, in case of both energy sector and gas supply system, a ten-year least cost development plans for gas transportation and gas distribution networks will be implemented which shall be periodically updated.  

X. ENERGY EFFICIENCY 

The energy efficiency is a legal, organizational, scientific, productive, technical and economic targeted activity aimed at reducing the specific cost of energy sources. In the last decades of the last century, the world leading energy efficiency experience showed that the energy efficiency potential for current technologies amounts to 30% - 40% of electricity materials and fuel saving is 2-3 times cheaper than extraction and supply of equivalent amount of fuel to consumers. Thus, energy efficiency as a new energy source is more cost-effective than other sources to meet the increasing demand. In accordance with the data of the International Energy Agency each AMD spent on energy efficiency measures provides more “clean” energy than the needed amount spent on other energy sources for generating the same energy. It should be emphasized that the significant amount of the conserved energy is generated in the consumption sector and that energy is ecologically clean as its generation is free of emissions.  

The RoA Government prioritizes the energy efficiency as a measure for the country’s energy security, increasing economic competitiveness and reducing a negative impact on the environment as well as global climate warming. The RoA Government’s policy is to promote the energy efficiency in all the sectors of economy which is stipulated in the Law on “Energy Saving and Renewable Energy” and in National Program on Energy Saving and Renewable Energy.  

According to the official energy balance in 2018, the largest domestic energy consumer is the household which accounts for 33.21% of total final energy consumption. It is followed by the transport sector with a share of about 33.81%. 

15.2% of energy has been consumed in the industry which is significantly less than the share of the Soviet-era industry. Commercial and public services consumed about 17.2% and agriculture - about 1.5%.  The share of the housing sector varies depending on the weather.  

The studies show that the additional capital investments aimed at energy efficiency in public and residential buildings can reach 15% and energy saving up to 40%. The overwhelming majority of about 19,000 multi-apartment buildings in Armenia were built during the Soviet period 35-60 years ago without energy efficiency measures.  Energy consumption in that buildings per square meter is about 2 or 3 times higher than in the developed countries and varies from 200 to 320 kWh/m²annually. In accordance with the preliminary studies, energy consumption for heating can be reduced at least by 40% by means of effective thermal insulation of residential and public buildings. The average cost per unit of energy conserved in buildings is 1 to 4 US cents per kWh meanwhile the average cost of energy generated by the Armenian power system is about 5 US cents. Heating and cooling systems in buildings as well as the use of different appliances are the biggest consumers in buildings. Along with the improving the energy efficiency of the appliances, the consumer effective behavior in this sector will have greater saving potential -about 60% .   

Within the framework of the international integration procedures, Armenia, by joining the Treaty on “Eurasia economic union” and as part of EAEU, accepted technical regulation on “energy efficiency requirements for energy consuming equipment”. Based on Comprehensive and Extended Partnership Agreement signed between the European Union and the Republic of Armenia, Armenia is obliged to adapt 65 regulations, instructions and guidelines (buildings and facilities, energy consuming equipment and means of transport) to the RoA legislation in the nearest period which are aimed at promotion of energy efficiency thereby enhancing the state policy in terms of energy conservation and energy efficiency development.  

The process of development of National Program on Energy Saving and Renewable Energy 2021-2030 has already commenced  taking into consideration increasing economic and energy security, power system reliability, strengthening economic and energy independence, promoting energy efficiency and renewable energy development based on new production and services organization, as well as reducing man-made impact on environment and human health. 

X1. DIGITAL ENERGY 

Information technology and new related opportunities are continuously  transforming markets by offering completely new business models and lifestyles based on data management and the energy is a part of that transformation throughout the world.  Sustainable and  smart energy is one of the most important conditions for dynamic development of the economy aimed at improving human lives and their living standards.  

The Information Technology sector of Armenia, which is competitive in the global market, shall be widely used in order to solve different energy sector-related issues. In this regard, the organization of trade in the wholesale electricity market will be primary and this will be completely carried out through the electronic platform in the next few years.  

Along with the wholesale market electronic trading platform, it is planned to develop the unified information system for remotely transmitting and managing the information on the consumption and other necessary indicators from the electricity metering system of the consumers connected to the Distribution Network, which will promote the liberalization process of the Retail Electricity Market. Meanwhile the SCADA management system will be installed in the power system  which will enable the System Operator not only to collect the necessary data but also to carry out automatic remote control of the network equipment.  

In this context, new cyber-security challenges will emerge and to ensure the digital transformation of the energy sector, it’s important to consider the implementation of the information security management international standards, whereof the implementation of ISO/IEC 27000" Security Management Systems (ISMS) standards" and NIST SP 800-53 “Security and Privacy Controls for Information Systems and Organizations” standards is high-priority, which  include the description of organizational and technical requirements for ensuring information security and developing a comprehensive management system.  

The Government of Armenia will pursue continuous implementation of such tools, so that the procedures in the energy sector related to generation and consumption can be fully digitally manageable in the shortest possible time through the concept of the smart consumption systems.  

XII. SCIENCE-BASED ENERGY 

Research and innovations are of fundamental significance in terms of the energy sector development. The RoA Government will implement continuous programs aimed at science-based energy, supporting new educational programs, new researches and innovations.   

In this regard, the Institute of Energy, Electrical Engineering, which is part of the National Polytechnic University of Armenia Foundation is the main higher education institution for training young specialists in the energy sector. This university ensures the demand for labor in the energy sector and the development of its relationship with the energy sector companies will be essential for supply of more skilled workers.  

The Scientific Research Institute of Energy (SRIE) should be a major asset to the further retraining of personnel in the energy sector. Over 70-years of its activity, the SRIE has supported for the implementation of numerous reform programs in the power system of Armenia aimed at enhancing the country’s energy independence and security, implementing the development plans and strategy, conducting research on renewable energy sources as well as providing scientific and technical guidance on different issues. The SRIE has the necessary experience to design development programs on power generation and the transmission network on the basis of least cost and equipped with the software tools of international importance to perform such activities. In this context, the further development of the SRIE as a scientific center of the world’s best practice in the Armenian energy sector is essential, and it will render services not only in Armenia but also outside the country. 

Armenian Scientific Research Institute for Nuclear Plant Operation CJSC 

(“Armatom” CJSC) is science-based in the nuclear energy sector. “Armatom” CJSC, which was founded in 1973 in the process of ANPP construction. The latter is the only organization in Armenia that provides scientific and technical support to nuclear power plant, which conducts activities towards development and implementation of measures aimed at enhancing security and reliability of ANPP, personnel training,  technical documentation development as well as  design, development and implementation of necessary devices, equipment and systems. “Armatom” CJSC also has  the wide range of the international world-known partners and a recognition. 

The research organization in the field of nuclear safety regulation is "Nuclear and Radiation Safety Technical Scientific Center" CJSC (NRSC). The NRSC is a licensed organization providing scientific and technical assistance to the RA Nuclear Safety Regulation Committee (ANRA). It specializes in nuclear and radiation safety analysis, nuclear facility safety assessment, independent expertise, risk assessment of the nuclear and radiation safety, legislation development for the nuclear and radiation safety including laws, regulations and guidelines, emergency response procedures, emergency simulation scenarios development, development of the programs/tools related to radiation safety assessment, radiology and dose measurements, software tools used in the field of nuclear safety, as well as capacity building to prepare  nuclear energy specialists.   

The RoA Government will continue supporting the further development of these scientific institutions, also considering the possibility of consolidating some of them into a single structure, for the purpose of strengthening direct connection with companies operating in the sector and, expanding the international cooperation and availability of energy sector enriched with modern scientific solutions. In this context, it is envisaged to establish unified institution for implementation of climate change, energy and energy efficiency projects with a purpose to increase efficiency and reduce management cost for implementation of such projects.         

XIII. MANAGEMENT OF STATE-OWNED COMPANIES 

The Government of the Republic of Armenia will significantly improve the management of the state-owned energy companies by implementing new tools in compliance with the international standards. Currently, five entirely state-owned companies are operating in the energy sector, as follows: 

• “Armenian Nuclear Power Plant” CJSC, electricity generation. 
• “Yerevan TPP” CJSC, electricity generation.  
• “High Voltage Electric Networks” CJSC, provision of electricity transmission service. 
• “Electricity System Operator” CJSC, provision of dispatch services to the power system. 
• “Settlement Center” CJSC, provision of the Market Operator services to the power system. 

With a view to improve the management efficiency of the above-mentioned five state-owned companies, the activity of the companies for the next four years will comply with the international standards requirements. Meanwhile, in order to increase the efficiency of companies, it is required to change the tools of their tariff regulation, switching from annual tariff regulation to multiyear cycle by introducing also incentive regulatory measures.  

Such an approach is already used in case of the private companies operating in the energy sector and enables the companies to improve both the quality of services provided and the level of profitability as a result of increasing their efficiency. Moreover, profit rate defined by the Public Services Regulatory Commission for the state-owned companies need to be reviewed for the purpose of tariff regulation, since, at their current level, among other restrictions, the attraction of private investments is impossible and the RoA Government shall raise funds necessary for the realization of these investments by providing a state guarantee. In the context of the above-mentioned during 2020-2024, the following activities shall be carried out:  

• Revision of the rules currently applied to profit rate for calculation of electricity tariff of companies with state participation, to involve commercial capital without state guarantee; 
• Fixing operation and maintenance costs of companies with state participation and establishment of approaches for its annual revision for the next ten years; 
• Implementation of the international standards such as ISO 9001: 2015 Quality Management, ISO 37001: Anti-Bribery Management Systems, ISO 50001: 2018 Energy Management Systems, and ISO14001: 2015 Environmental Management Systems and ISO 31000: Risk Management. 

  SUMMARY 

Information technologies and new related opportunities are constantly transforming markets by offering completely new business models and lifestyles based on the data management and the energy is a part of that transportation throughout the world.  

Sustainable and smart energy is one of the most important conditions for dynamic development of the economy aimed at improving human lives and their living standards.  

Hence, until 2040 the RoA power system will have the following description: 

• Self-sufficient and export-oriented high reliability and equipped with stateof-the-art technology, modern infrastructures generating annually around 12 billion kWh.  
• The large regional power center linking the neighboring power systems and the Common Electricity Market of the Eurasian Economic Union. 
• Liberalized electricity market based on the best international models.  
• Cost-effective and rational use of renewable energy sources in compliance with all environmental standards. Ensuring the highest possible increase of the renewable energy share in the country’s energy balance at least by 15% of solar energy in 2030.  
• Extensive conducting of energy efficiency measures, implementation of energy efficient technologies in the transition to a green and science-based economy.   
• Peaceful development of nuclear energy, in particular the construction of new nuclear power generating unit in Armenia. 
• Balanced and predictable tariffs for reliable, uninterrupted, high-quality supply of electricity to consumers and reliable operation of the power system.  
• Diversification of the primary energy resources, in particular natural gas supply routes to Armenia and types, by guarantying availability of at least two pipelines entry to the country. 

Taking into account the activities envisaged by the Action Plan, the given strategy will be developed and the revised version for 2025-2050 will be presented by July 1, 2024. This will also include the regulatory, social and environmental impact assessments of the strategy as well as will introduce new target indicators in terms of energy efficiency and renewable energy.  Meanwhile, the effectiveness and impact of the strategy will be evaluated once every three years.