Path to independence: can Armenia ensure its energy security?
Energy security of Armenia
The terms “sovereignty” and “independence” have become especially relevant for Armenia in recent years, following the 2020 Karabakh war. These words are often used in the context of political developments and assessments. However, to achieve full and sustainable independence, the country needs to rid itself of dependencies in a number of areas. Notably, in almost all cases, the subject of this dependency is Russia. The energy sector is no exception.
When and how did Armenia start working towards achieving energy independence, what has already been accomplished, and what still needs to be done?
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Gas imports and price discussions
Armenia doesn’t have significant natural resources like oil and gas. So, for about thirty years, it has been buying almost all its hydrocarbons from Russia. The world market sets the prices for these oil products, leading to constant changes in the cost of gasoline in Armenia.
In the case of gas, Yerevan and Moscow don’t look to international markets but instead agree on prices for a year or more ahead through direct talks. Over the last five years, this has generally worked out well for Armenia, allowing it to get gas much cheaper than the global average. You’d think Yerevan would be happy with this. However, there’s usually a political angle to Russia’s energy relationships.
During the 2020 war, Moscow didn’t help Armenia when Azerbaijani forces moved into its territory. This caused a serious rift between the two countries.
If this trend continues, which seems likely, Armenia may soon face problems exporting goods to Russia and with its gas supply and pricing. Simply put, Moscow might use gas sales as a way to politically pressure Yerevan.
The pipeline as a symbol of dependence
In March 2007, a significant event occurred – the grand opening of the Armenia-Iran gas pipeline. This meant the diversification of gas delivery routes. In other words, Armenia could now receive gas from the north through a pipeline across Georgia from Russia, as well as from Iran.
It seemed like the event was in line with Armenia’s national interests. But there was a backstory. Initially, the pipeline was also intended to transit Iranian and Turkmen gas to Georgia, and from there further to Europe and Ukraine.
The Armenian authorities originally planned the project with this vision in mind. However, the project’s direction shifted when Russia started to actively assert its interests. Then it turned out that Russian entities would also participate in the pipeline’s construction. Later, other details of Russia’s influence on the project emerged.
The pipeline’s diameter was significantly reduced, making it unsuitable for gas transit. Now, the Iran-Armenia pipeline, at best, can only supply half of the gas consumed by Armenia.
As a result, an energy connection meant to strengthen the country’s independence became a symbol of its dependence on Russia.
Here’s what The Independent wrote in 2007:
“When Gazprom fails to achieve its goals by carrot or stick, it simply bulldozes its way through, as in Armenia, where it bought up the entire local energy infrastructure to prevent Iran from competing with it for gas supplies to Europe.”
The outcome of lengthy negotiations around the project was the transfer of a 40-kilometer section of the Iran-Armenia pipeline to the management of “ArmRosGazprom,” a subsidiary of Russian Gazprom.
Nuclear power and moving away from Russian dominance
For many years, the main factor in the relative stability of Armenia’s energy sector has been the Metsamor nuclear power plant. Despite ongoing complaints from Azerbaijan and Turkey about its existence, it provided the majority of the country’s electricity. Nuclear power remains a fundamental element of Armenia’s energy sector. The operational power unit of the nuclear plant, with a capacity of 440 MW, covers 40% of Armenia’s demand.
Interestingly, in the 2000s, the power plant came under the management of the Russian entity “Inter RAO” due to unpaid debts. In 2012, the nuclear facility was returned to Armenian control. But the dependence on Russia remained. To extend the plant’s operation until 2026, the Armenian government signed a loan agreement with Moscow in 2015 for $270 million to begin the reconstruction and re-equipment of the Metsamor NPP.
However, in 2020, Armenia rejected part of the Russian loan and allocated its own funds to continue the work. Before this, the Russian side had tightened the loan terms, suggesting 80% of the funds be spent on services from Russian companies and the purchase of Russian equipment.
The Armenian government deemed this would create a monopoly for Russian manufacturers and service providers and limit the opportunity to acquire quality and significantly cheaper goods and services.
This turn of events displeased the Russian side. But ultimately, Moscow had to accept the situation. For the first time in a long while, Armenia made energy sector decisions that aligned exclusively with its own interests, without regard to Russia’s position.
What’s next: can Armenia build a new nuclear power plant?
In 2018, just months after Nikol Pashinyan came to power in Armenia, the new prime minister announced that Yerevan intended to build a nuclear reactor. The operation of the current NPP power block has been extended until 2036, and Armenian authorities clearly plan to launch a new station by then.
Initially, Armenia discussed building the new reactor exclusively with Russia. In 2022, the parties even signed an intergovernmental agreement planning the construction of a 1000-1200 megawatt power unit. However, initial technical issues followed by changes in the political climate make this option seem unlikely now.
Later, it became known that Armenia is negotiating the construction of a new NPP not only with Russia but also with the USA.
“The government’s program in Armenia includes the development of nuclear potential capabilities. The current Armenian NPP has a fixed operational life after which it cannot be used. Currently, we are actively negotiating with several partners regarding the construction of a new NPP. Negotiations are ongoing with Russia, the USA, and other countries,” said Armenian prime minister Nikol Pashinyan in May 2023.
Previously, Maria Longi, the coordinator of U.S. Government assistance programs to Europe and Eurasia at the State department, stated that the USA is considering the possibility of constructing small modular nuclear reactors in Armenia.
Indeed, these are significantly less powerful than conventional reactors. But under the current circumstances, Armenia seeks the most favorable option for constructing a new reactor. Yerevan cannot ignore the political aspect, which may become the main factor if the station ends up being built by Russia.
Considering the deteriorating Armenian-Russian relations and the general dependence of the Armenian economy on Russia, the country’s authorities are unlikely to want to further increase Moscow’s influence on key national structures.
Alternatives for Armenia
Since 2010, Armenia has started building small-scale solar power plants and simultaneously setting up the assembly of solar panels. After a while, these panels began to be installed on individual homes.
The ultimate goal of developing alternative, renewable energy in Armenia should be to increase its share in the total electricity production. This will strengthen Armenia’s independence from other players.
Currently, solar energy’s share in the total energy production has reached about 8%. By 2026, this figure is expected to exceed 10%, and by 2030, to reach 15%. According to the country’s energy strategy, by 2050, Armenia plans to completely abandon the import of hydrocarbons and meet its needs through domestically produced electricity.
In this regard, the country is receiving significant support from the European Union. Western organizations aim primarily to modernize urban infrastructure and assist in the transition to renewable sources. For example, some public transport stops in Yerevan are now powered by solar energy.
The European Union has also launched the “EU for Yerevan: Solar Community” program, under which several dozen apartment buildings have already been equipped with solar panels.
But the real game-changers will be the large solar power plants, which are either already operational or planned to launch in the coming years. Overall, the country has already signed memorandums and agreements for the construction of new stations, with a total value exceeding $500 million.
If Armenia ultimately succeeds in implementing several large and ambitious renewable energy projects, the entire structure of both hydrocarbon consumption and electricity production will change in the next decade. This, in turn, will be an important step towards achieving the country’s carbon neutrality.
