Surrounded by countries with significant hydrocarbon stores, Armenia's own fossil fuel reserves are limited to a small number of lignite or brown coal mines. Some oil reserves exist, but they are too deep to be economically viable. As a result, electricity generation depends on imported nuclear fuel (44%) for the country's Metsamor nuclear plant, due for decommissioning between 2017 and 2021, and natural gas (29%). Hydropower contributes around one third of the total power generation, with large hydro adding 24% and small hydro making up 3%.

Almost half of the electricity generation capacity and all small hydropower plants (100 MW are installed, making up 9% of current operational capacity) are privately owned.

The country's dependence on imported fuel for energy production makes it vulnerable to volatile prices and fuel supply interruptions. While there are compelling energy security arguments for increasing the amount of renewable energy in Armenia's energy mix, significant barriers inhibit private sector-driven growth.

The current cost of electricity generation is relatively low due to the utilisation of fully depreciated infrastructure, and the near-collapse of nation's industrial base following the end of the USSR. However, the entire electric power generation and distribution system needs modernisation, upgrade or replacement. Similarly, upgrading the power distribution systems in terms of the power lines, controls and management is needed.

The main body for all energy policy matters and issues in Armenia is the Ministry of Energy and Natural Resources. The main quasi-governmental organisation heavily involved in renewable energy research and financing is the Renewable Resources and Energy Efficiency Fund (R2E2). This organisation is mainly funded by the World Bank and Global Environmental Facility (GEF).

There are also a handful of institutes, laboratories and centres in Armenia that are involved in the field of renewable energy research and development. These organisations are either part of a government ministry, the Armenian National Academy of Sciences, or a major university. Several private companies are also involved in the field of hydro, solar, and wind power generation. The majority are engineering and consulting firms that mainly provide engineering design and feasibility studies for small hydropower plants.

There are a few small companies that assemble stand-alone solar water heaters or hybrid units that work in conjunction with of apartment buildings' central heating units or social and educational institutions. One mobile phone provider has also started installing new cell tower units at remote locations, powered by a solar photovoltaic (PV) system.

The Path to Renewables

Armenia could benefit from utilising the different sources of renewable energy available in the country, including large and small hydropower plants, abundant sunshine, and a number of mountain passes with high average wind speeds. However, development of renewable energy sources and of industries associated with them is slow. Most of the time, on a cost basis, they cannot compete with traditional energy sources, with the exception of small hydropower plants.

Indeed, the findings of a comprehensive review of renewable energy potential in Armenia have ranked small hydro plants and solar hot water heaters as the most advanced renewable energy and the most economical for Armenia in the short to medium term, followed by grid-connected wind farms and heat pumps.

PV, geothermal power and bio-fuels, especially bioethanol from cellulosic feedstocks, are ranked as more costly in today's prices and are not expected to be commercially viable in the short to medium term, but may eventually play a more important role. Biomass for both heat and electricity production for the short term can be considered under several conditions, including replanting of harvested trees and biofuels using fractionation process. In addition, hydrogen could be a possible fuel for transportation in the longer term. Finally, although not strictly a renewable resource, municipal solid waste in landfills is a practical source for generating methane for power production.

Financing Armenian Renewables

Funding sources are readily available for the construction of new run-of-the river small hydro power generation systems or renovation of existing systems. The main limitation is availability of promising sites within reasonable proximity to good roads and transmission line access where more small hydro power generation systems can be constructed. Costs associated with installing electric power lines for renewable energy facilities at remote locations can be prohibitive from the perspective of overall commercial reliability. It is estimated that in 2020 small hydro's installed capacity will grow to about 215 MW from 2010's 100 MW.

According to a US Department of Energy study, theoretically Armenia has 5 GW in wind energy capacity. However, most of the areas with high wind are not easily accessible for the heavy machinery needed to install wind turbines. And it would be difficult to transport large turbines (1.5 MW-3 MW) and composite blades (up to 52 metres in length) from a port of entry to the selected site in this landlocked, mountainous country.

As a result, utility-scale wind farms are still not commercially viable under the existing electricity tariff structure from the perspective of attracting private capital investment without either additional fiscal incentives or subsidies. The attractiveness of these investments will most likely grow as lighter-weight turbines exhibit increased efficiencies and turbine costs decrease over time. Nonetheless, not more than 300 MW of wind-generated capacity is realistically expected in 2020, using turbines that do not exceed 1.5 MW per unit. As of early 2011, only 2.6 MW of wind power was operating in the Lori region.

The economic viability of using PV panels for power production is more complicated, though there are a few small pilot-type installations. The most cost-effective approach is currently to import solar cells and to assemble them into modules in Armenia. The second alternative is the development of an industrial base for manufacturing silicon-based solar cells, using the nation's abundant quartzite deposits. This alternative is expected to require an investment of approximately $300 million.

Even though Armenia has sufficient sunny days, residential and small scale solar electricity generation is still not economically viable due to cost. However, using solar energy for water and space heating can be a viable option.

Bioethanol production is essential for Armenia in order to move toward greater energy security and to offset potential future increases in the cost of imported petrol and natural gas. However, the cost of production of bioethanol using indigenous non-food feedstocks, such as Jerusalem artichoke or animal corn feed, is presently above the wholesale cost of gasoline, which means that blending of bioethanol and gasoline is not feasible unless mandated by the government.

USAID has financed the construction of approximately 40 small biogas units in villages throughout Armenia, but most units are not operational because villagers prefer to use traditional dried manure for heating and cooking. The Lusakert Biogas plant in Northern Armenia is the first and only industrial scale, state-of-the-art biogas facility in Armenia, based on organic waste from poultry.

Recent explorations and test drilling conducted in Armenia have identified a maximum geothermal resource potential of only 75 MW. The economic viability for geothermal power seems marginal, both from the perspective of cost (mostly for drilling and field development) and of the total potential power output.

Hydropower from the Sevan-Hrazdan and Vorotan Hydropower Plant cascades plus more than 150 small hydro power plants are Armenia's only indigenous renewable ene>rgy generating sources currently operating on a commercial basis. But use of the Sevan-Hrazdan system has been curtailed substantially to save Lake Sevan by raising its water level. There is a substantial effort to use mini hydro plants on small rivers and streams.

Policy Framework

The two major laws related to renewable energy are the Energy Law of 1997 and the Law on Energy Saving and Renewable Energy of 2004. There are also several other laws, decrees and government resolutions that further clarify and provide guidance. However, a potential approach could be based on the results of an analysis which indicates that a 1% increase in use of renewable energy is equivalent to 3.65 days of independent supply in the event of total energy blackout. For energy-poor Armenia this could be significant.

Tamara Babyan is director of the Renewable Resources and Energy Efficiency Fund (R2E2) in Yerevan, Armenia.