The amendments to Resolution N556 of Georgia’s Government regarding the Support Scheme for Production and Use of Energy from renewable Sources and Capacity Auction Rules came into effect on 17 June 2024. This article gives a brief overview and assesses the significant changes brought about by these amendments.
Background and Framework for the Resolution
The original Resolution was adopted on 7 December 2024 by the Government of Georgia to align with the goals outlined in Article 11 of “The Law of Georgia on Promoting the Generation and Consumption of Renewable Energy Sources (the Law)”. Article 11 outlines mechanisms to promote renewable energy, such as investment aids, tax rates that are reduced, and special green tariffs. The Resolution is a key tool for implementing the Support Scheme to Encourage and Facilitate the Use of Renewable Energy (the Support Scheme), whose goal is to encourage and facilitate renewable energy use.
The Support Scheme applies to all energy projects, whether they qualify as public-private partnerships under Georgia’s Law on “Public-Private Partnerships” or not. The scheme includes ongoing projects in the feasibility phase at the time of the resolution’s adoption, but excludes those that were already in construction prior to that date.
Key Features of the Support Programme
The Support Scheme is a set of measures that are designed to support construction and operation of Power Plants with installed capacities greater than 0.5 Megawatts (the Power Plant). The Support Scheme includes a contract for difference (the CfD), which is an agreement between the JSC Electricity Market Operator and the winner of the capacity auction or directly selected entity. ESCO compensates the price difference under the CfD if the day-ahead price during the support is lower than that specified in the CfD. In the event that the day-ahead price is higher than the tariff, ESCO will compensate the selected entity for the difference.
The Support Scheme provides a 15-year period of support following the commissioning the power plant. This period varies depending on the type of renewable source of energy:
* Hydropower Plants : 8 months (September – April)
* Wind Power Plants : 9 months (August – April)
* Solar Power Plants : 12 months (all Year)
* Power Plants using Other Renewable Sources (All Year): 12 months
Resolutions with Significant Amendments
Direct Selection Procedure
Prior to the amendments the Support Scheme was only available to entities that were selected through capacity auctions. The amended resolution introduces two selection processes for beneficiaries:
* Capacity auction selection: Entities can be selected through competitive bidding.
* Direct Selection – The Ministry of Economy and Sustainable Development is now empowered to select directly the beneficiaries of the Support Scheme. This will improve the efficiency of the selection procedure.
The capacity auction commission is responsible for ensuring that the requirements of the Resolution are met in the case of selection by capacity auction. The amendment stipulates that the Ministry is responsible for selecting the applicants who will be selected through the direct selection procedure. The selected applications are sent to the Government of Georgia for approval.
The process is streamlined significantly when the Ministry has the authority to select applicants directly. By bypassing the Commission, the Ministry can speed up the decision-making process, leading to a faster approval and an overall more efficient selection process. This direct approach increases the flexibility of the procedure and ultimately benefits all parties involved.
Technical-Economic Feasibility Agreement & Implementation Agreement
A Technical-Economic Feasibility Agreement is signed by the Government and the interested party after the government has approved the application. The Feasibility Agreement specifies that a CfD may be executed if all conditions in the Feasibility Agreement have been met. In addition, the recent amendments introduced an Implementation Agreement, a new step in the procedure, which formalizes a relationship between the government and the project implementer once the Feasibility Agreement is met. The Implementation Agreement, a new step in the process, sets out the additional requirements for the stage of project implementation.
New Bank Guarantee Requirements
The amendments introduce new procedures for the submission of bank guarantees. Project implementers must now provide guarantees at each stage of the execution of agreements with government. The applicant must provide two types of guarantee to ensure compliance with the obligations defined in the Feasibility Agreement as well as the Implementation Agreement.
* Pre-construction guarantee: This guarantees that the obligations set out in the Feasibility Agreement will be met.
* Construction Guarantee: This ensures that the obligations specified in Implementation Agreement are met.
Previously, applicants were required by law to provide both guarantees at the stage of execution of a Feasibility Agreement. One guarantee is now provided after the execution of the Feasibility Agreement as well as the Implementation Agreement. The amount of both the Pre-construction and the Construction Guarantees has been doubled.
* Pre-construction guarantee: USD 20,000 (20 000 United States Dollars), or its equivalent in Euro multiplied by the installed capacity of your plant.
* Construction Guarantee: USD 40 000 (forty Thousand United States Dollars) multiplied by the installed capacity of your plant.
Implementation Timeline
The Order was issued by the Ministry on 23 August 2024. It is a Ministry Order N 1-1/323 relating to the announcement of direct selection of beneficiaries for the Support Scheme. The Order includes the following key details:
* Date of the first day for receiving applications: 9:00 am, 2 September 2024
* Fixed Tariffs For The Scheme: Hydroelectric Power Plants : 6.5 US Dollar cents Wind Power Plants : 6.0 US dollar cents Solar Power Plants : 5.6 US dollar cents
* Hydroelectric Power Plants: 6.5 US dollar cents
* Wind Power Plants – 6.0 US Dollar cents
* Solar Power Plants: 5.6 US Dollar Cents
* Deadline to submit applications: 6:00 pm, 31 December 2024
The amendments to Resolution N556 are a significant advance in the support framework of renewable energy development in Georgia. The government hopes to increase operational efficiency and attract more investment in the renewables sector by introducing direct selection, new Implementation agreements, and stricter financial guarantee. These changes streamline the application process and reinforce accountability, fostering a more sustainable energy environment in the country.
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