Armenia - Power demand and supply options

Report No. 11846-AM Armenia Power Demand and Supply Options Prepared with the International Atomic Energy Agency for the G-7 June 7, 1993 Infrastructure Division Country Department IV Europe and Central Asia Region FOR OFFICIAL USE ONLY MICP-RO9ICHE COPY Pepo'rt No.:11B46-AM Type (SEC) Title: POWER DEMAND AND SUIPPLY OPTIO Author: GILLING, J. Ext. '33230 PooM:G 2034 Dept.:IENEP PREPARED WITH THE INTERNATIONAL AT(MIC Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  ABBREVIATIONS AND ACRONYMS Acronyms ARMENERGO Armtenia Energy Company (electricity district heating) ARMGAZ Natural Gas Distribution Companv ARMGAZPROM Natural Gas Transmission Company ARMOIL Armenia Oil Products Company c. i. f. Cost, Insurance, Freight IAEA International Atomic Energy Agency IEA International Energy Agency MEF Ministry of Energy and Fuel NP? Nuclear Power Plant TPS Thermal Power Statior UNITS OF NIEASURE Mcm million cubic meters Bcm billion cubic meters TOE metric tons oil equivalent KTOE thousand (kilo) TOE i metric tons m3 cubic :neter mm millimeter 000m3 thousand cubic meters kgoe kilogramrs oil equivalent GROSS HEAT VALUES OF FUEL 1 Unit of Fuel X/tons = Y tons tons or thous m3 conventional (coal) oil equivalent fuel (TCF) (TOE) Gcal Fuel X= Y Conventional (coal) fuel 1.000 0.700 7.0 Coal (low quality) 0.814 0.570 5.70 Wood 0.266 0.186 1.86 Natural gas (OOOm3) 1.182 0.827 8.27 Mazut (residual fuel oil) 1.370 0.959 9.59 Light fuel oil 1.290 0.903 9.03 Diesel/stove oil 1.450 1.015 1.02 Gasoline 1.490 1.043 1.04 Jel fuel 1.490 1.043 1.04 Kerosene 1.470 1.029 1.03 Liquified Petroleum Gas (LPG) 1.570 1.099 1.10 Bitumen 1.420 0.994 9.94 Crude oil 1.429 1.000 10.00 I Gcal = 4.187 GJ = 3.968 million BTU - 1163 kWh Hydro and Nucle~ar energy output converted to primary thermal equivalent at 250 gms O0 kWV, h ExchanLye Rate Armenia belongs to the ruble zone. At the time of the mission (May/June 1992), 100 rubh As of December 1992 the rate was rubles 447 = US$1.00 Fiscal Year January I - December 3i  FOR OFnCIAL USE ONLY ARMENIA POWER DEMAND AND SUPILY OPTIONS Table ot Conkats EXECUTIVE SUMMIARY . ............................................ i 1. INTRODUCTION .1....................................... ...... I U. OVERVIEW OF ENERGY DEMAND AND SUPPLY ....2.... .......... 2 A. Primary Energy Demand ...................................... 2 Historical Requirenment ..................................... 2 Energy Intensity of the Economy .................. ........... 2 B. Electricity Supply and Demand ................................... 3 Historical Supply Patter ................................... 3 Existing Generating Facilities ................................. 4 m. ELECTRICITY DEMAND ................................ 7 A. Historical Demand Patterns ...... 7 Load Characteristics ...................................... 8 C. Future Demand Scenarios ..................................... 10 Ministry of Energy and Fuel Capacity Planning Scenario ................ 11 Macro Economic Scenarios .................................. 11 Electricity Intensity ....................................... 12 G-7 Study Electricity Demand Projections ......................... 13 Maximum Demand ....................................... 14 Composition of Demand ............... . 14 IV. ELECTRICrI' GENERATION ...................................... 16 A. Nuclear Power Plant ......................................... 16 IAEA Evaluation of the Nuclear Power Plant ....................... 16 Operational Considerations .................................. 18 B. Nin-Nuclear Plant and Primary Fuel . . .............................. 18 Thermal Plans .......................................... 18 Hydro Plants ........................................... 19 V. TRANSMISSION, INTERCONNECTIONS AND TRADE ...................... 19 Interconnections ......................................... 20 VI. FUEL SUPPLY ....................... ......................... 21 A. Petroleum Products .......................................... 21 Petroleum Products Demand Projections ............. ............. 21 B. Natural Gas Subsector . ........................................ 22 Natural Gas Consumption ........... ........................ 23 Natural Gas Supply and Prospects for Supply Diversification .... ......... 23 Natural Gas Infrastructure . ................................... 24 C. Idigenous Energy Resourcesmd Other Fuels ......................... 24 D. Total Primary Energy Demand Projections ........................... 25 Thi document has a restricted distribution and may be used by recipients only in tha performance of their omcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  VII. MATCH OF ELECTRICrTY SUPPLY AND DEMAND ...... ................ 27 A. Generation Planning Options .................................... 27 Overview ........................... 27 Thermal Units ............................. 27 Hydro Units ............................. 28 B. Supply Scenarios .............................. 29 Non-Nuclear Scenarios ........... .................. 29 Nuclear Power Scenarios ............................ 30 C. Investment and Financing Implications ............................. 31 Low Nuclear/No Nuclear Scenario ............................. 31 Fossil Fuel Requirements ................................... 32 Cost Differences Between Scenarios ............................ 33 Nuclear Scenarios ....................... 33 Annexes 1. IAEA; Summary and Conclusions of May 1992 Armenia Mission Report 2. IAEA; Letter with estimate of cost for recommnissioning Armenia NPP 3. Organization Chart - Ministry of Energy and Fuel 4. Power Sector - Existing Facilities and Options 5. G-7 Study Base Case Scenario - rapacity and Energy Balances 6. G-7 Study Low Demand Growth Scenario - Capacity and Energy Balances Map IBRD 24491 Electric Power Facilities This study was carried out in connection with the Armenia Energy Sector Review (ESR) and reflects the findings and conclusions of that study. The Energy Sector Review is based on the findings of a Joint World Bank/International Atomic Energy Agency (IAEA) mission which visited Armenia in May/June 1992. The World Bank team was composed of Joseph Gilling, Senior Energy Economist Oeader); Peter Law, Gas Specialist; Kurt Schenk and Edwin Moore (cons), Power Engineers; and Arnold Safer (cons), Petroleum Specialist. The IAEA team consisted of Bernard Gachot, Nuclear Safety Specialist and Antonio Godoy, Seismic Specialist of the Safety Assessment Section, Division of Nuclear Safety. The mission worked closely with the Ministry of Energy and Fuels and the Energy Planning team led by Garen Galustian, Deputy Minister.  Powr Demand and Supply Options i EXECUTIVE SUMMARY i. The communique of the 1992 G-7 summit meeting in Munich included a number of proposals related to the safety of nuclear power plants in the countries of the former Soviet Union and Central and Eastern Europe. The G-7 communique suggested that "the scope for replacing less safe [nuclear] plants by the development of alternative energy sources and the more efficient use of energy' should be studied, and, "together with the competent international organizations, in particular the IEA, the World Bank should prepare the required studies including replacement sources of energy and the cost implications." This study has been prepared in response to the request from the G-7. ii. Armenia's only nuclear power plant (NPP) is a 2x408 MW VVER 4401230 station. The first unit was commissioned in 1976 and the second in 1979. It was shut down in early 1989 for safety reasons following the 1988 earthquake, since it is located in a seismic zone. However, because the country .s under a virtual state of siege as a result of the onguing conflict with Azerbaijan and is suffering severe energy shortages, the government is exploring all options to increase the supply of fuels and increase energy security. While the government is seeking alternatives to recommissioning the NPP, at the same time it is assessing the technical requirements for upgrading and recommissioning the plant. The -IEA mission that worked jointly with the World Bank missiorn found that the plant suffers the same deficiencies as others of its class. Furthermore, because of its situation in a seismic area, IAEA has recommended that additional evaluation of existing data and field work be carried out as necessary to confirm that there is no seismic fault on or near the site that would preclude further consideration of recommissioning the plant. iii. The government is well aware of the national and international concerns for nuclear safety but is also confronted by several major issues including: * the increased dependency on Russia, Turkmenistan, Azerbaijan, and Georgia for fossil fuel imports under a no nuclear scenario * Armenia's growing difficulty in meeting the balance of payments impact of increases of fuel costs to world price levels in the near to medium term * the large capital requirements for the power sector needed to ensure reliable electricity supply to help sustain economic recovery and growth regardless of the decision concerning the nuclear power plant. iv. The costs of upgrading and recommissioning the NPP have yet to be fully assessed. Estimates to permit five years' further operation range from a minimum of US$70 million (IAEA) for recommissioning the plant with some upgrading (but not to international standards), to US$330 million (consultants to EBRD, March 1993), or to about US$370 million (based on Framatome's March 1993 report) for more extensive upgrading, and recommissioning (including an initial fuel charge). Further upgrading to international standards to permit operation to about 2010 (i.e. to the end of its normal service life of 30 years allowing for the period of shutdown) together with recommissioning is estimated by consultants to EBRD at US$460 million. In the short term, however, regardless of whether or not it is to be recommissioned, the plant must be maintained in a safe shutdown condition; safety upgrades under current shutdown conditions are also urgently needed to ensure reliable electricity supply and physical security.  ii Armenia v. Armenia currently depends on imported fuels for 95% of its primary erergy requirements. The nuclear plant, if operating, could supply about one-half of 1993 electricity requirements Mund 18% of total primary energy needs. Because of the transportation blockade ar.sing primarily to'om the Nagorno-Karabach conflict but also because of disruptions in and decline of supply of oil, gas and electricity from countries of the former Soviet Union (FSU), Armenia has suffered from energy shortages since 1991. Energy supplies in 1991 and 1992 were limited to 89% and 81% of the 1990 level respectively, the most recent year when demand was generally satisfied. Fuel stocks are now fully depleted and about US$165 million (at world price levels) would be required to fill existing oil and gas storage facilities, of which about US$68 million would be for power generation. vi. Energy shortages have crippled the economy and, in winter, have caused death from hypothermia especially to the elderly and the very young. Severe fuel and electricity rationing has been imposed while minimal quantities of fuel and electricity are being allocated to high value added export industries, essential services, and to the population. The private sector is active in importing petroleum products for which there is a ready market but selling prices are driven up by high transportation costs and market forces stemming from limited supply. vii. The degree to which indigenous resources could satisfy Armenia's requirements in the long run has not been fully determined but it is likely to be less than half. Coal and peat may be economic to develop; prospects for gas and petroleum in commercial quantities are encouraging; small hydro plants and other renewable resources can also be developed. These projects can contribute to energy supplies in the medium to long term but will require capital and time for implementation. Immediate efforts must, therefore, focus on rebuilding the fuel stocks and increasing the average rate of supply to meet minimum human and productive needs. At the same time, improvements in energy efficiency must be achieved in the short term to make more effective use of available fuel supplies. viii. Hydro power is presently the orly significant indigenous source of energy which is currently exploited and provides on average about 15% of total generation but only 5% of total primary energy requirements. Because of the lack of alternative fuels, there has been no choice except to continue to draw down Lake Sevan, the only large storage reservoir, for hydro generation despite the ecological consequences and the loss of water for irrigation. High rates of generation, reaching 500 MW from all hydro sources as required this past winter when no gas and mazut were available, cannot be sustained beyond the next 12 months as level of Lake Sevan will drop to the sill of the intake works. ix. Nominally, the current installed capacity of '699 MW (1746 MW thermal, 953 MW hydro excluding the nuclear plant) would appear to be sufficient to meet projected demand; however, much of this capacity must be derated due to age and condition. Firm capacity of hydro plants during the winter time peak demand period is limited to 400 MW due to hydrological restrictions and the need to store water for irrigation in summer, while firm thermal capacity is about 157j MW. Total firm capacity (1971 MW) is thus limited to 73% of installed capacity. Reserve capacity in 1993 with unconstrained demand would be at most 9% while a minimum of 25% is required. x. Gross generation in 1991 was 9516 GWh, of which 7970 GWh (84%) were from thermal power plants burning heiavy fuel oil/natural gas and 1546 GWh (16%) from hydro while electricity imports amounted to 15'2 GWh or 14% of total supply. Because generation in 1992 was severely restricted due to fuel shortages, about 20% of total electricity demand was unsatisfied.  Powr Demand and Supply Options iii xi. Interconnection totalling 1000 MW in capacity exist with Azerbaijan (450 MW), Georgia (250 MW), and Turkey (300 MW). Imports are presently limited to about 500 GWh per year from Russia via Georgia but do not provide firm power. Normally Armenia would wheel power from Azerbaijan to the Azeri territory of Nach.ichevan through an existing 400 MW capacity lines, however, all transfer has stopped because of the conflict. xii. There has been virtually no growth in power demand over the past decade. Maximum consumption peaked in 1983 at 9572 GWh (2344 MW) and dropped by 10% by 1991 despite a doubling of residential and commercial consumption and a 50% increase in agricultural use. These increases were met by a corresponding decline in industrial consumption. Industrial usage still remained the largest component at 32% of total. Demand has been so severely rationed since 1992 that current figures are not representative of unconstrained consumption patterns. xiii. Under the base case scenario for economic development estimated by the World Bank with Armenian authorities, it is projected that a return to the 1990 GDP level (from its present level of 40% of 1990) could be achieved by 2008 with an average growEh of 5.8% p.a. from mid 1993. Despite the decline in the economy, current electricity needs are estimated to be in the order of 80% of historical levels because of the high use of electricity for heating and the high fixed energy component in the economy. A resumption of economic growth would start the process of reducing the electricity intensity (consumption per unit GDP) in the economy, while furlher reductions would occur as the result of energy conservation programs and economic restructuring. xiv. Electricity demand projections as well as the underlying current level of unconstrained demand are uncertain because of the great uncertainties surrounding economic growth and the possible future reduction of electricity intensity. Unconstrained power demand is estimated presently to be about 1800 MW. Under the base case scenario, demand is projected to decline to about 1730 MW in 1995, then rise to about 1900 MW by 2000, reaching the 1990 level of 2146 MIW by 2003. These estimates are based on assumptions relating to economic growth (para. xiii) and to the various measures which are needed to be adopted including price increases to reflect supply costs, the substitution of district heating and gas for electric heating in households and industries, and energy efficiency improvements on the supply and demand sides. xv. To assess the options to meet the demand projections for the period 1993-2010, an indicative generation planning study was carried out by the Bank. Three basic power supply development scenarios were examined: * the low nuclear scenario in which it was assumed that the NPP would not be recommissioned * the moderate nuclear scenario assuming 5 years of operation of the existing NPP followed by closure * the high nuclear scenario with additional safety upgrades to permit extended operation for up to 15 years but with no replacement or additional nuclear plant.  iv Armenia xvi. Investment and fossil fuel cost estimates for the period 1993 - 2000 are summarized in Tables ESI and ES2 respectively below. All costs must be regarded as indicative because detailed planning studies have not been carried out. Unit costs of new plant capacity and rehabilitation are based on experience in the FSU and Eastern Europe as used in the overall G-7 study. While the absolute magnitude of costs are important, the difference in costs between the scenarios is of particular interest because of the implications for power sector strategy. xvii. Under the low nuclear, that is no nuclear scenario, and following the completion of the Hrazdan 5 thermal plant in 1995, capacity requirements .ould be met through a combination of rehabilitation and life extension of existing hydro and thermal plant where economic, the addition of small hydro ,lants, and installation of new more efficient generating capacity to optimize the plant mix. Work has begun with external assistance to assess the condition of all existing plants and the options for rehabilitation and life extension. 2urtdier studies for integrated resource planning are needed to assess more fully the options and capacity requirements for plant additions as well as the contribution which can be expected from demand side management and supply efficiency improvements. xviii. To meet the base case demand projections under the low nuclear scanario, capacity additions totalling 1900 MW would be required in the period 1993 to 2010, of which 1000 MW would be added in the period 1993-2000. Rehabilitation and life extension of existing plant would occur in the period 1993 to 2000 and 621 MW of plant, which is assumed to be uneconomic to rehabilitate, would be retired. xix. Total costs of the low nuclear/no nuclear scenario for power sector capital investments and fuel (excluding O&M) over the period 1993-2b 20 are estimated to be US$2.9 billion including US$3 million per year to ensure maintenance of the nuclear plant in a safe shut down condition. The capital cost of new plant and rehabilitation of existing plant is estimated at US$162 million in the period 1993-95 and a further US$730 million from 1996 to 2000 based on unit costs that reflect a mix of procurement from western and FSU countries for a total of US$892 million in the period 1993-2000. Fossil fuel costs at world prices would total US$710 million and US$1,255 million in the periods 1993-95 and 1996-2000 respectively. The average fossil fuel cost in the period 1996-2000 would be US$251 million/year at world prices. xx. Under the moderate nuclear scenario, restarting the NPP for five years' operation would substitute for 815 MW of conventional thermal plant capacity which otherwise would require rehabilitation and life extension plus fossil fuel for operation. After five years' operation it is assumed the NPP would be retired and replaced with conventional thermal plant in 2000. The cost of upgrading and recommissioning to permit five years' further operation is assumed to be US$370 million (based on the Framatome estimate) in addition to the US$892 million in the low nuclear scenario. This cost would be offset, however, by the avoided costs of thermal plant rehabilitation estimated at US$204 million yielding a net total investment cost of US$1058 million. Average fossil fuel cost savings of US$95 million/year could be achieved but nuclear fuel costs of about US46 million/year would be incurred. xxi. Under the high nuclear scenario, the NPP would be upgraded to international standards to operate beyond 2000, thereby deferring the commissioning of 815 MW of gas fired combined cycle plants having a total estimated cost of US$628 million. At a 10% discount rate, each year of deferrment would yield a saving of US$62.8 million. Total upgrading and recommissioning costs are estimated at  Powr Dend and Supply Opdons v US$460 million (EBRD consultants) which net of avoided thermal generation rehabilitation cost would lead to total investment of US$1148 million. Fossil fuel savings and nuclear fuel costs would remain the same ss in the moderate nuclear scenario. Table El: Nuclar Scenarica: Total Power Sector Investment Requirements During the Peiod 1993-2000 (US$ billion) Base Case Dfnand Scenaio) High Nuclear Moderate Nuclear Low Nuclear Difference between (Operation to 2010 (5 year operation) (no nuclear) 'High' and "Low' ('High" minus "Low") 1.148 1.058 0.892 0.256 ear end lZ prices. Table ES2: Nuclear Scenarios: Average Annual Fossil Fuel Requirements During the Period 1996-2000 (US$ billion) High Nuclear Moderate Nuclear Low Nuclear Difference between "High" and "Low" ("High" minus "Low") (negative) 0.156 0.156 0.251 (0.095) ear e19 world prices. xxii. On the basis of the estimates so far available and without considering the risks associated with nuclear plant operation, the analyses in this report suggests that the nuclear scenarios could be higher in total capital cost but lower in fuel cost than the low nuclear/no nuclear scenario. While the capital rost of the high nuclear scenario at US$1.1 billion could be US$256 million higher than the no nuclear scenario at US$0.9 billion, this cost could be recovered in 34 years through annual net fuel cost savings through nuclear generation with continuing fuel cost savings for up to 15 years. The moderate nuclear scenario would have a 2-3 year payback but fuel savings would terminate after 5 years of operation. xxiii. As an alternative to the nuclear scenarios, however, it is important to consider the impact of lower demand on the capital and fossil fuel costs. A more rapid reduction in electricity intensity while meeting the same end-use requirements and supporting the same rate of economic growth as in the base case such that electricity intensity would drop to the 1990 level by 1999 and drop further to about 80% by 2010 would defer the return to the 1990 level of total electricty demand until after 2010. The resulting savings in capital and fuel under this scenario could amount of US$205 million and US$513 million respectively or US$718 million in total in the pericd 1993-2000. These savings could be used to finance fiurter economic restructuring and efficiency improvements beyond those assumed in the base demand case and could provide a significant non-nuclear alternative to electricity generation.  vi ArwAn k xxiv. Regau of wbelher the nuclear plant is rwcomrniioned or ulmately domminuond, both the govrnent ad donon at dhe Pro-Consultative Group meadng (Paris, 25 May, 1993) sgre dut it must be mainined in a usf shut-down condition. At preent, however, no bilate donot or multilatal orgniaion hs been idaefied that would be willing to provide the finding requird to upgrade the ph)sical soerity of the plant, the fire fighting equipment, emergency power supply or other entil syste. Technical asisace couWd be available to ausist in nuclear regulatory matr or radiation safety and hoith mDnitoring; however, no hunds appear to be available for capital inve ome or equipment.  Power Demand and Supply Options 1 1. INTRODUCIlON 1. This report was prepared as part of the overall study of non-nuclear power generation alternatives in Central and Eastern Europe (1995-2010) being carried out at the request of the Group of Seven (G-7) (hence, referred to as the G-7 Study) by the World Bank in cooperation with the International Energy Agency (IEA) and the European Bank for Reconstruction and Development (EBRD). This report first discusses the energy sector in general, then goes on to focus on the power sub-sector to analyze the historical supply demand situation, develop projections, and evaluate alternative generation options to meet demarid. The report also shows projected energy requirements for power generation in terms of total primary fuels. Finally, the investment and financing implications of the options are discussed. 2. Armenia is a small, mountainous, landlocked country with a land area of 29,800 square kilometers and an ethnically homogenous population of 3.5 million. Turkey lies to the west, Georgia to the north, Iran to the south, and Azerbaijan to the east with one province to the south-west of Armenia (Map IBRD 24491). With few resources and stony land, Armenians have learned to survive though skill, ingenuity, and trade with those around them. The level of education is high, and the Armenian diaspora has a strong tradition of successful entrepreneurship which should work to the country's advantage in the difficult times ahead. 3. Two problems dominate the imnmediate future. First, Armenia is an economy under siege. Trade routes have been blocked because of internal disruption in Georgia over South Ossetia and Abkhazia and conflict with Azerbaijan over the enclave of Nagorno-Karabakh, with the result that Armenia's trade and, most importantly, its energy imports, have been cut to a trickle. Widespread starvation was only avertod by humanitarian grain shipments. Second, in common with all the countries of the Former Soviet Union (FSU), Armenia is experiencing falling economic output due in part to the disruption of the Soviet monetary, payments, trade and transport systems. Although a small country at the edge of the empire, Armenia was one of the most highly integrated republics in the Soviet system of production and trade and is suffering correspondingly now. 4. The Ministry of Energy and Fuel (MEF) has responsibility for policy formulation, sector planning, and supervision of the operating entities (see organization chart Annex 3) which have been formed into state companies. ARMENERGOPROD is responsible for electricity generation, transmission, and distribution as well as district heating production and distribution. ARMGASFUEL has three subsidiaries ARMPETROL (petroleum products), ARMGASPROM (high pressure gas transmission) and ARMGAZ (gas distribution). The nuclear power plant comes under the direct supervision of MEF.  2 Ameia II. O-VERVIEW OF ENERGY DEMAND AND SUPPLY A. Primary Energy Demand Historical Requirement 5. Armenia's total energy supply requirement peaked in 1988 at about 10.1 mtoe (million tonnes oil equivalent) as shown in Figure 1 and dropped to 8.3 mtoe in 1991. While Armenia imports 100% of fossil fuel requirements, it exported about 2900 GWh or 20% of total electricity generation up to 1989 when the nuclear plant was shut down. By 1991, Armenia became a net importer of electricity (1500 GWh/yr or about 17% of domestic generation) as gas supplies via Azerbaijan were restricted. Until 1988, internal production (hydro and nuclear) accounted for about 15% of Armenia's total energy requirements. 11.000- 1 0.000- 9.000 - 7te .0001I 4.000 LOJ 6.0001 6.000 VI 4 000. z .3.00 0 2.0001 1.0001 0 C .00 O- - E T-------r-- r 1985 1986 19!7 1988 1989 1990 1991 YEAR f ConsLrnptn + exportt + Domestic cosnptnsmp Dornestic production Figure 1. Historical Total Arnenian Primary Energy Demand Energy Intensity of the Economy 6. In 1990, Armenia's GNP per capita was about US$2380 and energy consumption about 2477 kgOE/capita giving an energy intensity of 1040 kgoe/000 $ GNP. Figure 2 shows a comparison of energy intensity with other countries in the range of US$ 1500 - 3500 GNP/capita. Armenia's energy intensity was roughly one-half that of Eastern European countries such as Bulgaria, Poland and Romania and comparable to that of Hungary and the former Federation of Yugoslavia with higher GNP/capita. Despite comparing favorably with formerly centrally planned economies, the energy intensity of Armenia's economy, however, was about double that of market economies with similar levels of GNP/capita including Brazil, Malaysia, Mexico, and Uruguay. While the high income (17,000 - 23,000 $GNP/capita) countries of Western Europe such as Austria, Germany, and Italy have energy consumption  Power Demand and Supply Opdons 3 in the range 2700 - 3500 kgOE/capita or up to 40% greater than that of Armenia, energy intensity of the economy is less than one-fifth that of Armenia. Furthermore, the age of industrial plants and equipment in Armenia is above the average of the rest of the FSU and well above the age of plant in western countries which embodies newer, more energy efficient tochnologies. In general, energy intensity is lower in high income countries because of the low energy requirement of their much more developed service sector. 7. Energy intensity in Armenia has risen since 1990 because of the drop in GNP and the high fixed energy component in the economy. As a result, the data point for Armenia in 1992 is upward and to the left of the 1990 position. 2500 - ~2000- to xSov 0 Ar_"I%(l 92) 10500 , l r# O~~ ~ U I000 15 00 200 23500 4o300 sx GWP/CAPITA (1990 Us$) Figure 2. International Companson of Energy Intensity 1990 B. ede y Supply and Demand uistoncal Supply Patterns 8. In addition to meeting its own electricity needs, Armenia had been exporting electricity until 1989 to neighboring republics of the FSU via the Trans Caucasus system. After 1989 the importation of electricity began as shown in Table 1 which also shows total generation requirements and system maximum demand. As ARMENERGOPROD does not systematically record simultaneous system demand, it has been necessary to estimate maximum demand on the basis of a 60% annual load factor.' 1. The load factor has been suifrattd from an anatysis f dil and seasoxal characteristics of the domstic oad excluding oxports (Section lA).  4 Armenia Table 1: Supply and Demand for Flectricity GigaWatt Hours 1980 1985 1986 1987 1988 1989 1990 1991 Gross Generatio" 13034 14891 14502 15194 15290 12124 10362 9516 Net Iiport - - - - - - 920 1572 Total Supply 13034 14891 14502 15194 15290 12124 11282 11088 Net exports 2234 3384 2747 3328 3334 335 - - Domestic Use 10800 11508 11705 11866 11956 11789 11282 11088 Transmission and 1319 1785 1780 1682 1648 1571 1649 1660 Distribution Losses 10.1% 12.0% 12.3% 11.1% 10.89% 13.0% 14.6% 15.0% Station Use 1033 784 839 810 723 992 612 793 7.9% 5.39% 5.8% 5.3 % 4.7% 8.2% 5.4% 7.2% Losses and 2352 2569 2619 2492 2371 2563 2081 2459 Station lJse 18.0% 17.3% 18.1% 16.4% 15.5% 21.1% 18.4% 22.2% Net Domestic 8448 8939 9086 9374 9585 9226 9021 8635 Consumer demand (Sales) Domestic Maximum Demand 2055 2189 2227 2258 2275 2243 2146 2110 (MW) Source: MEF 1, Station use is on average about 7.3% of unit generation for the electrical side and 33.2 kWh!Gcal for the heat production side of the plant. The figure shown includes both. Existing Generating Facilities 9. The existing generating facilities to meet the projected peak dernand and energy requirements are reviewed below and the generation planning options are discussed below together with an assessment of the capacity and energy balances. JO. Total nominal installed capacity is 2700 MW (excluding the 815 MW NPP), of which 1746 MW (or 65%) is steam thermal and 953 MW (35%) is hydro. Derating due to age and operating constraints plus the non-availability of the Sevan-Hrazdan Cascade during the winter, brings the effective installed capacity to about 1970 MW as shown in Table 2. On the basis of the demand projections (Section 1.C), the additional 300 MW capacity to be provided by Hrazdan 5 is needed immediately to meet peak load and provide a 25% reserve margin.  Power Demand and Supply Options 5 Table 2: Installed Generating Capacity Type of Pluit Number of Units and Nominal Installed Effective, Period of Commissioning Capacity (MW) Demited Capacity _ ~~~~~~~~~~~~~~(MW Thlermal Hrazdan 4 (1971-74) 1100 1070 Yerevan 6 (1963-67) 550 460 Kirovokan 2 (1964-76) 96 40 Sub total 1746 1571) Hydro Sevan-Hrazdan Cascade 6 stns (1936-61) 527 60 Vorotan Cascade 4 stns (1970-84) 402 340 Other Hydro 1 stn (19;2) 24 0 Sub total 953 400 Nuclar (shut down) 2 (1971-76) 815 t) Total 3515' 1970' Note: 1. Rounded 11. Table 3 shows electricity generation by source during the period 1980-92. IJp to I9SP, nuclear units provided about a third of electricity generation with 23% of the installed capacity. TL< share of thermal units in gross generation increased from about 55% in 1980 to 84% in 1991, althoubh the total generation dropped 18% between 1989-1991 because of a steady dropped in electrici-: consumption together with the shutdown of the NPP. Hydro units provided 12% of gross generation in 1980 and increased their share to 16% in 1991. By 1991, electricity imports from Russia via Georba and from Azerbaijan amounted to 1572 GWh or 14% of total electricity supply. 12. A detailed analysis of historical electricity demand is given in Section III below togetho! with demand projections. Electricity supply is discussed in Section IV.  6 Armenia Tabe 3: Smmay of EkeIiciy Gewcradox by Source Year Eleccichy (Export) GOenration by Type of Pkan Share in Total Gneatndon plus Imports () Gneraktion iwport (GWb) (Shme in Total InstUad and Inpotd (Inluding Capacity%) Exports; excluding unport) 1980 13034 (2234) 7146 1558 4330 - 55 12 33 (50) (27) (23) 1985 14892 (3384) 8007 1619 5266 - 54 11 35 (50) (27) (23) 1988 15290 (3334) 8947 1534 4810 - 59 10 31 (50) (27) (23) 1989 12124 (335) 9693 1149 1281 - 80 9 11 (56) (31) (13) 1990 10362 920 8807 1572 0 8 78 14 0 (4) (62) (34) 0 1991 9516 1572 7970 1546 0 14 72 14 0 _ _ _ _ _ _ _ _ _ _ ___ __ _ _ (7) (60) (33) 0 Note: 1. Imported power asumed at 95% annual load fSuor. Source: MEP  Power Demand and Supply Options 7 III. ELECTRICITY DEMAND A. Histoncal Demand Patterns 13. Over the past decade there has been virtually no growth in total annual electricity consumption as shown in Table 4. Maximum consumption peaked in 1983 at 9572 GWh and dropped to 8635 GWh by 1991 despite a doubling of residential and commercial/official consumption and a 50% increase in agricultural use.2 These increases were met by a corresponding decrease in industrial consumption which declined by 50% (from 65% to 32%) over the decade from 5487 GWh in 1980. The percentage shares of each sub sector are presented in Table 5. Table 4: Total Annual Electricity Consumption by Sectors (GWh) Scctor/Year 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Residential 932 1000 1158 1334 1310 1383 1456 1517 1559 1791 2047 2405 Industrial 5487 5345 5240 5336 4562 4465 4505 4626 4555 3663 2852 2780 Commercial 523 551 662 1040 1455 1078 1096 1028 1159 1143 1097 766 /Official Transport 295 303 319 322 319 312 361 392 366 399 386 347 Construc 216 206 204 188 222 240 246 248 253 291 464 352 tion Agriculture 951 977 1101 1314 1455 1446 1404 1453 1436 1665 1759 1542 Other 44 50 62 38 13 15 18 110 157 274 416 443 Total 8448 8432 8746 9572 8907 8939 9086 9374 9485 9226 9021 8635 Source: Ministry of Energy and Fuel of Arnenia (MEP) 2. Corswnption in 1992 was severely rationed due to fi4el shortages and therefore is nor representative of demand patterns.  S ~~~~~~~~~~~~~~~~Armenia Table 5: Historical Composition of Electricity Consumption Percentage 1980 1985 1990 1991 Residential 11 16 23 28 Industrial 65 50 32 32 Commercial/Official 6 12 12 9 Agriculture 10 16 20 18 Other 8 A _ 13 100 100 100 100 14. The largest industries are electronic equipment, footwear, mining, textiles, wine and cognac, chemicals and tires and machine tools. Despite the decline in industrial production, in part becaure of the shutdown on environmental grounds of the synthetic rubber plant,3 industry remains the largest consuming sector followed closely by the residential sector at 28% of total consumption. Load Charaedscs 15. Daily and monthly load factors have ranged from 80% to 89% in the winter months and 70-82% in the summer months during the period 1988-91. The average working day load curves for December, during the winter peak period (Figure 4), show a morning and evening peak. In 1991 the peaks were more pronounced as residential heating loads increased and high load factor industrial loads declined. Annual load factors have been in the 60 - 62% range since 1988 but by 1991, had dropped to 59.5% because of the shift in load composition. With constraints in energy supply, load shedding begun in late 1991 will continue and load factors will be higher than usual as a large portion of demand goes unsatisfied. 3. ae pkzr has been restarted Mi 1992 bw on a limned scale becawe ojf raw mawerials and energy shortages.  Power Demand and Supply Opdon 9 ,y; - 1.3 1,2 Is I2 0 L a 4 6 12 *i 20 24 T rIkE OF DAY O 109t ~+ 1909 O 1900 o 1061 Agure 4. Hourly Load Pattern, December 1988-91 16. The normal seasonal pattern of energy consumption and peaak load are evident from Figures 5 and 6. Maximum demand and load factors in winter months are higher than in summer because of the longer duration of the increased heating and lighting loads. The peak load in summer months is about 20% less than in winter and provides an opportunity for carrying out scheduled maintenance. Monthly Energy Consumption - 1966-91 Molthly PO.c.*,tage of Tots, 12 a a a 3 tOil. _ T ___ mm~~~~~~~~~o? * 2 3 4 ' E 7 E S o 0 Pat 12 Figure 5.: Seasonal Consumption Pattern  10 Armenia Monthly Peak Demand aet4o of A,rIl I Wgm 10a.co N \~ 04. co S-Cm 1 2 3 4 5 a 7 a I la 11 12 Fgure 6. Monly Peak Lead C. Future Demand Scenarios 17. Three electricitydemand scenarios have been considered in this study. They are &icnMrooWo swus summarized as index series in Table 6 and Figure 140 __ 7 and are discussed in detail below. The high 140 scenario was prepared by MEF while the G-7 0 _____ study based case and low scenarios were prepared 100- by the World Bank. Both World Bank scenarios so are based on the Bank's estimates for - *o macroeconomic development and projected i *0 reduction in electricity intensity. 20 0 1990 . 7 . Isis' c200. 0S .. ..2010 Yew W MM0 &rM. -4-07 STUDY IAS C43 -- C7 SliyWC~ASE Figure 7. Fiedtrdit Demnsd Scenarios  Power Demand and Supply Options 11 Table 6. 2ectncity Demand Projedions - Tlree Scenaios Sce Idex (1990 = 100) Denand (MW) 1990 1991 1992 199S 2000 200S 2010 MEF Socnario Lndex 100 98 90 97 115 127 140 G-7 Study Bas CwLe 100 98 90 80 93 107 123 (MW) 2146 2110 1930 1727 1904 2160 2452 G-7 Study Low Cue 100 98 90 66 65 78 93 Minstry of Energy and Fuel Capacity Planng Scenano 18. MEF has carried out an initial power system planning study based on the highest demand projection shown in Figure 7. Under this scenario, the economy is assumed to recover rapidly with the increased supply of electricity and other forms of energy and grow from the 1990 level of demand (2146 MW) as experienced before independence and the blockade. This scenario does not take into account efficiency improvements on the demand side or reductions in electricity intensity that would occur with economic restructuring. By 2000, demand would reach 2500 MW (index value 115), 2760 MW (index 127) by 2005, and 2970 MW (index 140) by 2010. Under projected conditions of economic growth, the MEF scenario is considered to have a low probability of realization. Macro Economic Scenanos 19. There is considerable uncerainty in the economic development of Armenia. The 9000 Bank's medium/base case scenario has been used as the basis of electricity demand forecasting while the high and low forecasts are also 9 7000 presented in Figure 8 (absolute values) and Figure 9 (index series) and show the wide range of ! 6000 estimates. 20. Under the medium economic -0ooo, scenario, the transport blockade is relieved by _____._._-_._._. __ mid-1993, but trade and investment are hampered 19901991 1992 199319941995 1996 19971998119992000 by further deterioration and disruption with the "k C FSU. However Armenia starts to reorient its trade - 5 - C / Ct Sc toward the west, and foreign investment picks up as the situation becomes more settled. A large Figure 8. Macro Economic Scenarios portion of existing capacity is restored to use, the situation stabilizes in the mid-90s, and the real growth rate is 5% in the last few years of the decade so that by 2000, GDP reaches 68% of the 1990 level. With continued growth at 5%, the 1990 level would be reached by about 2008.  12 Armenia 21. Under the low economic growth scenario, assuming the transport blockade is not ,w_ lifted before the mid-90s, the siege economy ._ _ would become entrenched 2nd GDP would remain at the current level based on labor intensive