Armenia’s Energy Sector Development Strategy of 2005 includes a series of renewable targets to reach by 2025 that include 595 MW of hydropower, 500 MW of wind energy, and 25 MW of geothermal. The Energy Law of the Republic of Armenia also guarantees the purchase of 100 percent of electricity generated from renewable energy sources including wind from licensed entities for 15 years.An analysis by Ara Marjanyan estimates that the addition of 500 MW of grid-connected wind power to achieve the national goal by 2025 would require an investment of US$870 million to $1 billion.
According to Dr. Vardan Sargsyan of the State University of Economics, the economically viable capacity for wind energy is comparable with nuclear in Armenia. During a 2006 NATO conference in Istanbul on energy, sustainable development, and environmental security, Sargsyan indicated that the government is planning to generate 10 percent of its electricity from wind power by 2025, and that several prospective sites have been identified.
In 2005, the first in wind farm in the South Caucasus was put into operation at Pushkin Pass in northern Armenia. The total installed capacity of the farm is 2.64 MW and the “Lori 1” project comprises four 660 kW Vestas wind turbines. The wind farm was funded by a $3.1 million grant from the government of Iran, which is also working on a natural gas pipeline and hydropower station along the border of the two countries.
Negotiations are underway with international investors to expand the “Lori 1” wind farm at Pushkin Pass. The project was initiated in 2002 with the support of the Ministry of Economy of the Netherlands and the total installed capacity was intended to be 19.5 MW, using 23 turbines with 850 kW of rated power and a total anticipated cost of $37 million.
Dr. Ara Marjanyan, who is the Renewable Energy Project coordinator of the Armenia Renewable Resources and Energy Efficiency Fund, outlined a series of outstanding financial and policy issues that are necessary for Armenia to achieve its renewable energy targets for wind. First, consistent with the tariff procedure for small hydropower, wind tariffs should be fixed so developers can perform project feasibility analyses for a typical project life span of 20-25 years.
Second, the initial costs of wind power projects may be reduced by lowering the burden of the value added tax (VAT) on imported equipment for renewable energy projects, since there is no local manufacturing of modern wind turbines in Armenia. Currently the cost of wind turbines are approximately 60-80 percent of the total initial cost of a wind project, and the VAT in Armenia would subject this to a 20 percent tax.
According to Touryan, there is a high level of international interest in investing in wind power projects in Armenia, and he cites proposals from Germany, England, Sweden, Italy, and Greece who are investigating claims to the top rated sites for wind power potential. “The government is interested, and there are trained engineers that can work on it,” states Touryan, who added that they are discussing incentive programs with the government to finance wind and other renewable energy programs.
Given Armenia’s lack of fossil fuel reserves and its economic and geopolitical circumstances, its national leadership seems to appreciate the importance of the renewable energy sector and has adopted an “Energy Sector Development Strategy in the Context of Economic Development in Armenia.”
The underlying principle is the understanding that as the country develops and the standard of living improves, the economy will become more energy intensive even while pursuing energy efficiency measures.
As studies in solar and wind power demonstrate, there is a high level of scientific expertise in the country that has already been working on renewable energy technologies. Currently organizations such as the Armenia Renewable Resources and Energy Efficiency Fund (R2E2) are developing feasibility studies and offering preferential financing in a revolving loan fund to attract investors in this sector, according to R2E2 director Tamara Babayan.
At the same time, experts are working to improve the regulatory and economic conditions to nurture the development of the renewable energy sector through tax incentives, reviews of tariff structures and methods, and legislation that demonstrates a commitment on the part of the government to incorporate clean technology into the energy system.
Already, Armenia uses renewables to a large extent, primarily with hydropower that meets 30 percent of the country’s electricity needs. While wind is competitive in the U.S. with power from traditional sources of fuel, in Armenia hydropower is competitive because it benefits from existing tax and tariff incentives.
Solar and wind power are at an earlier stage of development than hydropower, and it is likely that similar incentives will be made available to project developers in these sectors. Research and development in solar technology is at an advanced stage and the current goal is to create a manufacturing infrastructure for domestic consumption and an export industry for PV panels.
Wind is at an earlier stage of development since there is not much local experience operating or building large wind farms, although the NREL wind resource assessment indicates the availability of adequate wind resources that could make a project profitable if the government responds to industry recommendations on tax and tariff barriers.
Since Armenia is a landlocked country facing difficult geopolitical circumstances, there are challenges for transportation and market access. However, the Armenian Diaspora has been proactive in its leadership in the high tech field, and industry leaders in the renewable energy field are attempting to introduce their products in Armenia and nurture new industry development.
This has been welcome because it will create jobs in a country where there is still widespread poverty and underemployment.
Ultimately the renewable energy sector can help Armenia achieve its energy independence and sustainable development goals, while at the same time emerging as a global leader in the clean energy sector.