Armenia Enabling the Energy Transition Program

Armenia is an upper-middle-income country with a per-capita gross domestic product (GDP) of US6,661 dollars in 2022 that has experienced high yet volatile growth over the past two decades. The government’s vision for the development of the energy sector aims at enhancing Armenia’s energy security while reducing the country’s GHG emissions. In 2021, the Government of Armenia (GoA) issued the “Republic of Armenia Energy Sector Development Strategy to 2040” (ESDS 2040), which lays out the vision for the development of the Armenia energy sector until 2040 and is built around five key strategic priorities: (i) implementing power transmission infrastructure investments (including the interconnections with Georgia and Iran), (ii) promoting a gradual liberalization of the electricity market, (iii) extending the lifetime of the Armenia Nuclear Power Plant (ANPP), (iv) tapping into the RE potential, and (v) scaling up energy efficiency (EE) across all sectors. To improve the security and reliability of the power supply and enable the integration of RE, Armenia needs to continue investing in modernizing the power transmission network and reduce its reliance on public funding and guarantees to finance investment in power sector state-owned enterprises (SOEs). As highlighted by key performance indicators, the quality of the power supply in Armenia is deteriorating and falling behind its ECA peers, indicating the urgent need to continue investing in and modernizing the network, including electrical substations and grid digitalization. According to the ESDS 2040, total projected investment needs in the power sector are estimated at US$2.1 billion over the next 15 years. While over the years 2007-2019, 30 percent of the total power sector investment (US$750 million) was public or publicly guaranteed (0.5 percent of GDP per year on average), further commercial financing would be required in view of the projected large investment needs for network modernization and clean energy...