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COLLECTION AND ANALYSIS OF THE ENERGY SECTOR DATA AIMED AT ENERGY MARKET
LIBERALIZATION
APPLICATION FOR A RESEARCH WORK
Research works’ applicants team
Petrosyan Anushik, YSU , Faculty of Economics and Management
Sargsyan Sona, YSU, Faculty of Economics and Management
Khalatyan Ani, YSU, Faculty of Economics and Management
Yerevan 2019
Table of Contents
1.
2.
3.
4.
Personal data of the applicants----------------------------------------------------------------------------------2
Executive Summary-------------------------------------------------------------------------------------------------3
Background/Problem Statement---------------------------------------------------------------------------------3
Project Description, Scientific/Technical Objectives ---------------------------------------------4
4.1. Timeline of Activities/ Annex 1
5. Technical Approach-------------------------------------------------------------------------------------------------6
6. Expected Impact, outcomes and key performance indicators/success criteria which must be
measurable-----------------------------------------------------------------------------------------------------------6
7. Relevant experiences of team members and publications------------------------------------------------7
8. Budget and narrative /Annex 2
9. Annex 1----------------------------------------------------------------------------------------------------------------10
10. Annex 2----------------------------------------------------------------------------------------------------------------11
Collection and analysis of the energy sector data aimed at energy market liberalization
Application for a research work
1.
Personal data of the applicants
Composition of the research works’
applicants team and their contact
details
Petrosyan Anushik, YSU , Faculty of Economics and Management
Tel. (+37498) 100 339, E-mail: [email protected]
Sargsyan Sona, YSU, Faculty of Economics and Management
Tel: (+374)- 99 41 56 45, E-mail: [email protected]
Khalatyan Ani, YSU, Faculty of Economics and Management
Tel: (+374) 99 75 99 35, E-mail: [email protected]
Title of the research work
Collection and analysis of the energy sector data aimed at energy
market liberalization
Key words
Modeling, economy, energy sector, market
investments, data science, applied mathematics.
Duration of the research work
12 months
Total budget of the research work
6 960 000 AMD
liberalization,
2
2.
Executive Summary
Currently, the Armenian energy market is in a situation where a number of activities will be taken to liberalize
the energy market in the coming years. There are a number of preconditions, legislative documents and bylaws, as well as reforms, undertaken by the Government of the Republic of Armenia that aim to create
opportunities for the local and foreign investments. In this context, there is a need for comprehensive
analysis based on the available and forecasted data, to say what approaches should be taken to liberalize the
energy market, what investments should be made in this area, what approaches should be taken in the long
run for equalizing the marginal costs to the prices.
The proposed research activities are aimed at sustainable development of the energy market, which will also
lead to an increased share of the alternative energy, competitive export and etc. In our research we will try to
perform the following: collect and group the electricity sector’s database of the Armenia; interpret certain
models of the electricity market liberalization; collect and assess data for the proposed microgrid’s model;
analyze investments costs in the power market from the macroeconomic point of view; and evaluate the
effects of the mentioned models processing possible results on the socio-economic indicators.
Econometric methods will be used to estimate the electricity production, producers and supplier cost
functions, investments in the energy sector, residential electricity demand and etc. Through implementation
of the optimization methods, which are usually used in macroeconomic and microeconomic theories, we will
be able to formulate the above-mentioned problem. For the investment modeling the real options methods
will be used. In the final stage of the work we will compare the results of the different investment variants for
the competitive energy market models.
The research work aims to present models, which will ensure efficiency in data management, and reduction
of welfare loss through collection and analysis of data for market liberalization. As a result, more favorable
conditions for the producers and consumers will be ensured.
The expected results can help to identify the effective mechanisms for the transition to the liberalized energy
market and assess their impacts on the socio-economic indicators in RA.
3.
Background/Problem Statement
Competition in the international markets is mainly related to the trans-shipment of goods, their qualities and
etc. Hence the coordination of procedures between the suppliers and distributors is an important signal for
the entire energy market type. The main motivation of the companies and cooperatives to be integrated in
the market is to affront to the market fluctuations and rational use of production capacities.
The electricity sector has significant role in ensuring the public security, social policy and economic
development. The losses in the transmission and distribution networks have been 15.1% of the electricity
production in 2010, but in 2018 it was 10.2%, while electricity consumption during these years increased
from the 4507.7 mln kWt to 5388.3 mln kWt. The power market is split into three functional areas:
generation, transmission and distribution.
The problem is that the current model of the Armenian electricity market is based on the "sole buyer / seller"
model, in which the electricity distribution company is licensed to buy and sell electricity from the wholesale
electricity producers. At the same time, the electricity market in both wholesale and retail is fully regulated,
and the import and export of electricity is also regulated too. In many developed and developing countries,
3
the electricity markets are already liberalized and are based on a fully competitive market structure.
The need to move to a new, up-to-date energy market model in the energy sector is driven by the needs of
the domestic market, as well as the importance of cross-border trade opportunities.
The main idea of the research is based on this aspects. It means that distribution and supply functions should
be performed by the different companies, as the network design of many developed countries shows. The
practice of that countries shows that such approach will improve the market conditions for competitiveness of
the electricity market. Consequently, it will increase the efficiency of the electricity network.
The liberalization of the electricity market requires a transition to a new market model, which will increase
the efficiency of wholesale and retail markets. Also, it requires promoting interstate commerce, which will
allow some elements of competition in the domestic market. We think that in the energy sector of RA it is
possible to go to the competitive market framework through implementation of the rate-of return regulation
type, as the power sector has typical economic characteristics of infrastructure as high sunk costs, network
externalities, sub-additive cost function i.e. there are conditions for natural monopoly. This approach allows
the company to earn profits just large enough to provide an implicit return on capital a little larger than the
market rate of return on investments, approximating normal profits, zero economic profits. If the electricity
price is equal to the long-run average cost (LRAC) at the point where the long-run average cost curve crosses
the demand curve, the company makes zero profits and produces as much output as it can without making
losses.
Therefore, we suggest to study competitive energy market models and to get some quantitative assessments
for the possible competing these models, which can help achieving a situation when the rate-of return
regulation is implemented and we have the above-mentioned economic situation in the energy market. Such
activities may create better conditions for the transition to the competitive energy marketplace more quickly
and can be essential for the economy of RA.
4. Project Description, Scientific/Technical Objectives and Timeline of Activities
Currently a number of reforms are being implemented in the electricity market of Armenia aimed at
liberalization process. The EU requirements for internal electricity market involve also all the aspects
including the problems, which are concerned with gathering and analyzing the database and economic
effects of the liberalization process. Electricity market liberalization is conditioned not only by cross-border
electricity trade, but also by the newly appearing participants in the internal trade relations. Here the role
and the possibilities of the households, communities or separate physical or legal entities are essential during
4
the liberalization.
While going through the competitive market relations it is needed to assess the costs and benefits of the
supply and demand sides. In particular, the number of the households producing solar energy with solar
panels for their own consumption has increased in Armenia in recent years1,2, and they can sell the
electricity to the main grid3 after satisfying their demand. Consequently, Republic of Armenia laws LA-262-N
and HO-261-N have been adopted by the National Assembly of the Republic of Armenia on December 21 in
2017, according to which the 150 kW threshold set by the RA Law on Energy has been revised for the legal
entities, and made 500 kW4. Legislative framework have been established for major electricity consumers to
carry out the functions of autonomous power producers.
According to the Law of Energy, an autonomous energy producer (microgrid) is a legal or physical entity,
which generates electricity to meet its own needs, and whose installed capacity of the plant does not exceed
the total installed capacity of its electricity consumers, but not more than 150 kWh ( for solar energy
producers it is 500 kWh threshold is defined until till December 31, 2022)5. The microgrid is a localized
grouping of electricity sources, which usually operates at the same time with a traditional centralized
network, but can be switched off, and operates on its own according to the physical and/or economic
conditions.
Currently, the majority of the existing microgrids are localized, self-contained microgrids, which usually
operate in parallel with the common network and serve only one consumer object, as required by the
legislative framework. At the moment the government is implementing a five-year program to liberalize the
energy market6, which will include the introduction of new mechanisms, institutions, regulation of issues for
cross-border energy trade and legislative reforms. Therefore, we can say, as the energy market’s type will be
changed, the government will implement new approaches. In this context, we propose to implement
electricity exchanges between the autonomous power generators and the electricity distribution license
holder (Distributor) in a way, so that the autonomous power generators deliver electricity to the physical or
legal entities, who have benefits or subsidies from the state (beneficiary households), from the electricity
surplus by the Distributor according with the conditions set by the state. In this way the electricity generated
from the one point (address) shall be supplied to other addresses: the electricity supplied by the Distributor
shall be consumed elsewhere within the interconnections, and the total amount of electricity consumed at all
points of consumption will be offset from the volume of the electricity delivered to the Distributor by the
autonomous power generator. The autonomous power generator will act in such a way under the conditions
which are suggested by the state.
Therefore, we set the following objectives in our research:
1
https://www.arlis.am/DocumentView.aspx?docid=119953
http://www.minenergy.am/en/page/416
3 CJSC “Electric Networks of Armenia” distributes and sells electric energy. The company is mainly engaged in
regulated distribution and sales of electric energy. Overall spread of its grid is 36 thousand km. Power
distribution is implemented at tariffs confirmed by the Public Services Regulatory Commission of RA. The
company provides service to more than 1mln customers. http://www.ena.am/index.aspx?lang=2
4
http://www.irtek.am/views/act.aspx?aid=91350
5 http://www.irtek.am/views/act.aspx?aid=91350
6http://www.mtad.am/hy/news/item/2019/06/21/mtad21.10/?fbclid=IwAR2SW_0Co4Eo1eGm_tV2hD3Dp8rTVzSXdcJ_kaQUuQnqRnRCjfCkRUKbyE
2
5





Collection and grouping of the Armenian electricity sector’s database.
Interpretation of certain models of electricity market liberalization in RA.
If it is possible to collect data for the proposed microgrid’s model, we shall asses the effectiveness for it.
Investments costs modeling in the power market from the macroeconomic point of view.
Evaluating the effects of the mentioned models through processing possible results on the socio
economic indicators.
4.1. Timeline of Activities
Attached in Annex1.
5. Technical Approach
We will use econometric and optimization methods such as ARIMA model, Multiple Regression, Nonlinear
Regression and LP for the collected data analysis. Econometric methods will be used, for example, to estimate
the electricity production, producers and supplier cost functions, investments in the energy sector, residential
electricity demand and etc. Then we shall be able to group the information which we have already got,
estimate the relations among the indicators. Implementing the optimization methods, which are usually used
in macroeconomic and microeconomic theories, we shall be able to formulate the mentioned problem. For
solving this problem, we will need the results of the investments’ costs too. There are investment risks in the
energy sector, and we shall not be able to include risk reduction and neutralization all the possible ways for
our study. It is conditioned by the political situations or insufficient technical and capital means, human
resources and the legal framework. Therefore, it is useful to implement the real options methods for the
investment modelling. This way it is possible to assess the energy sector investments, taking into account the
standard deviations from the appropriate econometric models and to make decisions about investments
costs. In the final stage of the work we will compare the results of the different investment variants for the
competitive energy market models.
6. Expected Impact, outcomes and key performance indicators/success criteria which must be
measurable
The expected outcomes of our study are the following:

Increase of the efficiency of data management in the energy sector of the Republic of Armenia,

Introduction and analysis of the energy sector liberalized market models and comparison of their
possible applications.

Welfare loss reduction, which will lead to more favorable conditions for producers and consumers.
Differentiated approaches should be implemented for consumers, which are currently available for
consumers with different KV (110, 35, 6, 0.38) and socially vulnerable consumers.

Proposals for the investors of a new valuation approach for the Armenian energy sector under
uncertainties.
 Assessment of the impacts of the studied models on the socio-economic indicators in the RA.
6
7. Relevant experiences of team members and publications
Anushik Petrosyan
o 2016 - Project Manager of A2R NGO, R2E2 Found, Research - Energy efficiency, EE-CS-14/2016.
o 2018 – Project Manager A2R NGO, EU4Armenia’s Sustainable Energy.
o 2018 – Project Manager A2R NGO, EU4STED Sustainable & Transparent Energy, ENI/2016/382-04Coalition-9
o 2019 – Project Manager A2R NGO, The CSO Coalition for Sustainable & Transparent Energy,
ENI/2016/382-304-Coalition-9-1
1. Petrosyan A. , Babayan T., Sociological Evaluation System for Energy Efficiency Investments in
Armenia, Problems of Energy Efficiency and Energy Saving, International Conference, 3-4 November,
2017,
pg.
20-22,
http://www.ysu.am/files/7-1548057450-.pdf,
http://ysu.am/files/PROCEEDINGS_CONFERENCE_1.pdf.
2. Petrosyan A., Methods for the formation of energy efficient behavior, Problems of Energy Efficiency
and Energy Saving, International Conferanc, 3-4 November, 2017, pg. 62-64,
http://www.ysu.am/files/6-1548057330-.pdf http://ysu.am/files/PROCEEDINGS_CONFERENCE_1.pdf.
3. Mathematical methods for operations researches, textbook, Avetisyan R., Tonoyan G., Petrosyan A.
Sargsyan S., 136 pages, Yerevan, 2017. http://publishing.ysu.am/hy/1493319761.
4. Petrosyan A., Tavadyan A. and others, Economic and mathematical methods and models, 2017|
Book, Yerevan, 2017թ., 324 pages.
5. Petrosyan A., Bunatian M., The quantitative assessment of RA Tourism Sector: - YSU, Faculty of
economics and management, Yearbook 2012, pp 243-254.

2.12-4.12, 2018, Yerevan, Konrad Adenauer Stiftung, “Armenia: the Sustainable Energy Lighthouse”
regional forum

17.03-23.03, 2019, Germany, Konrad Adenauer Stiftung, Stady trip, Renewable Energy and Energy
Security.

1-2 April 2019, Yerevan, Modeling the Economy and politics for the optimal Development.

September 9-13, 2019, Aghveran, How to Manage Strong Coalitions.
Sona Sargsyan
1. Consumption of energy resources and their impact on the environment. Solution of the models of
optimality for clean development mechanism, SINERGIA. Systematic and sustainable energy efficiency
in Armenia. Proceedings of the final workshop at the State University Yerevan, 2017.
2. A. Arakelyan, S. Sargsyan, A. Kalatyan, V. Marukhyan, Energy Economy, SINERGIA. Systematic and
sustainable energy efficiency in Armenia. Proceedings of the final workshop at the State University
Yerevan 2016, , pp 50-53, Oldenburg 2017.
3. Markosyan A., Matevosyan E., Sargsyan S. , The problems of energy development and export of
7
electricity of the Republic of Armenia, 168 pages, Yerevan, 2017.
4. Avetisyan R., Tonoyan G., Petrosyan A., Sargsyan S.,Mathematical methods for operations researches,
textbook, 136 pages, Yerevan, 2017 .
Research programmes:
Joint research program between the Economic Institute of Carl von Ossietzky and YSU
SYNERGIA - Systematic and Sustainable Energy Efficiency in Armenia, 2014-2016
Ani Khalatyan
2017 - The Armenian National Science & Education Fund grant, Theme: The impact of structural
changes on of the energy market on the electricity tariffs in RA.
2014-2015 – SINERGIA: Systematic and sustainable energy efficiency in Armenia: “Joint research
program between the Economic Institute of Carl von Ossietzky and YSU”.
2014 August 26-29- 54th ERSA Congress in St. Petersburg, Presented topic: The modeling of the
Investment Factor under uncertainty in the Energy Sector of RA from the point of Energy Security
view».
2015, August 25-29 - 55th ERSA Congress in Lisboa, Presented topic: “The modeling of the residential
electricity consumption in Armenian regions”.
1. A. Khalatyan, The analysis of the electricity production and investments trough VAR model.
Proceedings of Engineering Academy of Armenia. 2013, Volume 10(2), p.p. 233-238.
2. A. Khalatyan, A. Kakosyan, Investment decision making for small hydropower projects with real
options method for RA. Journal of Finance and Economy, Yerevan 9(159) 2013, p.p. 38-39.
3. A. Khalatyan, A. Kakosyan, Uncertainty in the cost of electricity demand through the comparison of
real options method. Proceedings of Engineering Academy of Armenia. 2013, Volume 10(2), p.p. 633637.
4. A. Khalatyan, The assessment of investment under demand uncertainty with real options method.
Journal of Finance and Economy, Yerevan 9(159) 2013, p.p. 36-37.
5. A. Khalatyan, A. Kakosyan, Electricity and natural gas consumption analisis from energy security
viewpoint. Economic Yearbook 2013, Faculty of Economics, Yerevan, 2014, p.p. 459-464.
6. A. Khalatyan, The provision of energy security of RA from the view of electricity internal consumption
and export. Republic of Armenia Anania Shirakatsi University of International Releations. Collection of
scientific articles for Sustainable Development Issues of RA. Yerevan 4(20), 2013, p.p. 112-115.
7. A. Khalatyan, Residential Electricity Consumption in Armenian Regions. The new science: strategies
and vectors of development. ISSN 2412-9739, The international scientific periodical publication
according to the results International scientific-practical conference. Sterlitamac, RF, 19 March, 2016,
p.p. 116-119.
8. A. Khalatyan, The analysis of the features of regulatory framework in the energy sector of RA while
integration in the regional energy market. Proceedings of Engineering Academy of Armenia. 2017,
Volume 14(2), p.p. 186-190.
9. A. Arakelyan, S. Sargsyan, A. Kalatyan, V. Marukhyan, Energy Economy, SINERGIA. Systematic and
sustainable energy efficiency in Armenia. Proceedings of the final workshop at the State University
8
Yerevan 2016, Oldenburg 2017, pp 50-53.
8. Budget and narrative
Attached in Annex 2.
9
Annex 1
Timeline of Activities:
Months
Activities
1
2
3
4
5
6
7
8
9
10
11
12
Action 1
1.1 Data
collection, data
processing and
analysis
1.2 Study and
presentation of
the existing
models
Action 2
2.1 Designing of
new models based
on Action 1
2.2 Evaluation of
interactions of
relevant indicators
using econometric
models
Action 3
3.1. Model testing
3.2 Evaluation of
results
3.3 Analysis and
presentation of
results
10
Annex 2
8. Budget and narrative
(1) salary
No
AMD (taxes included)
Name, Surname
Amount of
payment
(monthly)
Period (number of
months)
Total
1
Petrosyan Anushik
190 000
12 months
2 280 000
2
Sargsyan Sona
186 667
12 months
2 240 000
3
Khalatyan Ani
182 500
12 months
2 190 000
Total (1 salary)
559 167
(2)
6 710 000
Other expenses
AMD
Amount
Transportation, printing,
representative expenses
250 000
Total
250 000
Period (number of months)
Total
12 months
250 000
250 000
Cost estimate for services
AMD
Budget line
Currency
Total
1. Remuneration
AMD
6 710 000
2. Other expenses
AMD
250 000
Total
6 960 000
11
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