Armenia has no proven oil or natural gas reserves and imports all of its fuel for thermal generation from Russia and Iran. The country relies on imported natural gas to generate roughly 30% of its power, primarily heat. Nuclear fuel, used to generate another 30% of electricity in Armenia, is also imported. Armenia’s dependence on imported fuels creates security of supply risks, and the sector is highly susceptible to fuel supply interruptions and price volatility. Within Armenia, 50% of available capacity is more than 40 years old, and one of the largest generating units, a nuclear plant at Metsamor, has had its retirement postponed twice.
Although the Government of Armenia has prioritized the use of renewable energy resources for its energy security, the absence of regulatory incentives, limited capacity for equipment acquisition and installation, a lack of technical capacity among local financiers, and underdeveloped local markets all serve as key barriers to the development of renewable energy in Armenia. SREP support will be critical in reducing the expected future cost of clean technologies that lie at the threshold of competing with other forms of energy generation in Armenia and can help overcome an aversion to the up-front capital costs of renewable energy.