How post-Soviet de-industrialization Became Armenia’s Opportunity for Renewable Energy

On a frosty November morning in 2012, several dozen mostly elderly protesters gathered before then-president Serzh Sargsyan’s official residence in Armenia’s capital. They represented the few hundred remaining workers at Yerevan’s once-imposing Nairit Chemical Plant. In its heyday, the chemical giant employed up to 3000 highly skilled workers, whose rubber products would be exported throughout the Soviet Union to be used in everything from commercial goods to highly secretive military applications. 

With the collapse of the common market and the command economy following the breakup of the Soviet Union, the plant fell on hard times, operating only sporadically until 2008, when the global financial crisis became the straw that broke the camel’s back. Despite a number of international tenders to privatize the plant, offers eventually fell through. Its former employees then spent the next half-decade pressuring the government to finally disperse the backpay they were entitled to. 

“They hold ribbon-cutting ceremonies every time someone creates 20 jobs,” one disgruntled former employee told the media, “but Nairit lost more than 3,000 jobs and no one cares about that.” These workers’ uncertain fate would be similar to that of hundreds of thousands across the small republic who saw their lifetime employment guarantees at Soviet manufacturing giants all but evaporate as Armenia’s industrial base dwindled into a shadow of its former self. Factory after factory were shuttered  for the last time, with equipment, and even entire facilities being dismantled and exported abroad. Indeed, for at least the first decade since independence, scrap metal remained among Armenia’s top exports.

Unfolding on the sidelines of the human tragedy that came with the plant’s closing was another development: a stark improvement in Yerevan’s air quality. Long-time residents of the city recall a distinctly foul smell that invaded the air across town whenever the chemical plant was in operation. With industrial production stalling following the collapse of the USSR and ensuing energy crisis, Yerevan’s air became breathable again; at least until the economy recovered and the ever-increasing number of cars now clogging the city’s streets lead to a new air pollution problem. In their tireless drive to catch up with the West, the Soviets never considered the environmental impact of industrial projects, with the now-abandoned hulks of former chemical, petroleum, heavy metal plants and mining operations posing a looming environmental disaster for those still living in their shadows.

Evolving Energy Market

With this antiquated industrial capacity all but gone, Armenia’s transition toward a post-industrial economic development model has also translated into a shift in energy consumption habits, and in turn, energy production methods. Armenia saw a dramatic drop in per-capita energy consumption starting in the 1990s which closely paralleled the protracted economic crisis in the wake of the Soviet Union’s collapse, dropping from a high of 2317 KG of oil equivalent in 1991 to a mere 420 KG by 1994, before steadying around an average of 1KG by the end of the decade. 

Unlike the notoriously inefficient and energy-intensive Soviet-era mega-factories, Armenia’s diversified market economy adapted to trade conditions which denied it overland trade access through two borders, due to the ongoing double blockade by Turkey and Azerbaijan, as well as expensive access to sea ports. The result was an economy less dependent on the manufacture of physical commodities, and more geared towards less tangible goods and services such as software products, financial services, adventure tourism and agriculture. 

Still, Armenia requires energy to function as a modern economy. The country’s energy consumption has more than doubled in the two decades since the year 2000. The International Energy Agency (IEA) estimates that Armenia’s current annual energy demand averages above 3 Mtoe (megatonnes of oil equivalent), which is comparable to Moldova or Tajikistan. At least 63% of that energy supply is filled by natural gas, virtually all of which is imported from Russia and Iran. Aside from direct applications, natural gas also covers 40 percent of Armenia’s domestically produced electricity. 

Without local access to fossil fuels, Armenia still meets about a quarter of its energy needs through domestic production, mostly through the region’s only functioning nuclear power plant, a pair of modern combined-cycle gas turbine plants, and a series of hydro-electric dams across the country. 

Renewables: Turning a Burden Into an Asset

One foundation myth popular among Armenians describes God’s agonizing over which plot of land to assign to which ethnic group as he is about to bring planet Earth into existence. According to the legend, God gifted the Greeks with a beautiful peninsula capped with breathtaking views on a sea rich in fish and other natural resources. For the Georgians, God crafted a land of lush fertile valleys hemmed in by breathtaking mountain ranges to one side, and a coast on the other. When it came time for the Armenians, God only had a pile of rocks left in his workshop which he plopped onto the map with only instructions to “make do”. And that’s exactly what Armenians did.

For Armenia, domestic energy production is not a mere vanity goal, but a national security priority. Locked into a seemingly eternal rivalry with two of its neighbors in one of the globe’s most strategically vital energy corridors, Armenia cannot afford the risk of being cut off from imported energy supplies. Experts warn that Armenia’s heavy reliance on a single source of natural gas is compounded by its substantial dependence on gas itself, which is used for both residential and commercial applications. But for a country devoid of any apparent fossil fuel deposits, energy security means renewable energy.

In terms of energy policy, that means transforming Armenia’s harsh mountain environment into an efficient energy-producing powerhouse. Armenia’s fast-flowing alpine rivers are dammed, their might harnessed into hydro-electricity, the gusts that whistle through the country’s peaks now also turn the blades of wind turbines. The average 300 days of sunshine which bleach Armenia’s fields yellow in the summer now power an assortment of solar farms across the country, turning non-arable land into productive real estate.

Thanks to continued infrastructure investments, renewable energy is projected to account for 28 percent of total energy consumption by 2036, including an additional 414 MW of hydroelectricity production, 150 MW of wind generation, 30 MW of geothermal production and 40 MW of solar. 

Sustainable energy production is simultaneously being developed at an institutional scale and a local proportion. The steep hill near the village of Tsapatagh on the eastern shore of lake Sevan now hosts the largest solar farm in Armenia. It is the first in the region to include an integrated solar tracking system which means the panels move to match the sun’s position, thus ensuring optimal energy production for most of the day. A larger one still is expected to be built nearby, this time with substantial Emirati investment. This new 500 hectare, 200-megawatt (MW) solar photovoltaic (PV) farm will be built on the alpine wasteland outside the town of Talin considerably altering Armenia’s energy mix.

At the community level, the Armenian Government, with support from the European Union has piloted a new concept dubbed micro solar plant which sees the construction of cost-effective solar stations (at the cost of about 1.5 million EUR) near rural communities which would sell excess power into the grid, with profits being reinvested in a sustainable business development fund accessible to local residents. At least seven such solar farms are either already operational or in the process of being constructed across Armenia.

Ordinary Armenians are also participating in this ongoing renewable energy revolution. Once seldom seen, solar panels, and even solar-heated water tanks now dot the countryside, or adorn rooftops across Yerevan as people take advantage of the government’s renewable energy credits to save on electricity costs, and even sell onto the grid at a profit. As of February 2022, Armenia has transitioned to a fully liberalized energy market.

Armenia’s plans to boost solar energy capacity in particular has garnered praise from international experts as the most effective route to reducing foreign energy import dependence. This reliance is due to the relatively low up-front investment cost, virtually non-existent maintenance cost, and lack of reliance on any imported component (such as nuclear fuel or natural gas) to run, availability of sunlight being the only condition for producing sustainable electricity. 

Making Bank at the Carbon Market

Perhaps the most interesting opportunity for Armenia to capitalize on its post-industrial economic model comes in the form of Article 6 of the Paris Climate Summit. As one of the 197 members of the United Nations Framework Convention on Climate Change, Armenia is expected to meet carbon gas emission reduction goals. It also has access to a carbon market. 

A deal reached at the UN Climate Summit in Glasgow last year set parameters for how a carbon offset market would work at the country-level. Essentially it means that countries that fail to meet their carbon reduction targets can purchase excess emission credits from other countries which are already well below their targets. 

Armenia submitted a revised Nationally Determined Contributions (NDC) goal to the UN’s registry in 2021 which stipulates a commitment to reduce carbon gas emissions to 40% of 1990s levels by 2030. But the near total absence of energy-sucking and polluting heavy industry has enabled Armenia’s carbon emissions to remain stable at a modest 1.57 tonnes per capita. Aside from keeping Armenia on track to meet its NDC, this also allows Armenia to profit from the arrangement by selling excess carbon credits. 

WATT the Future Holds 

Despite praise for Armenia’s active efforts towards energy diversification, and sustainability, obstacles remain. Renewables can likely only make up for so much of the country’s energy needs, especially as sustained economic growth has translated into more demand. Furthermore, not all renewable sources of energy are necessarily green. Considerable controversy has emerged over Armenia’s reliance on micro hydro plants due to their propensity to divert rivers and alter local ecosystems. On the other hand, the looming energy crisis that Western Europe is expected to sustain over Russia’s invasion of Ukraine should serve as a reminder to Armenia’s policy makers that outside sources of energy supply are not immutable nor are they shielded from global shock.

With Armenia’s sole nuclear reactor, which produces approximately a third of the country’s entire energy supply still aging gracefully, the need to find a suitable replacement is ever more pressing, given that nuclear power remains, despite lobbying for renewables, the cleanest, most efficient and safest form of energy production available. A recent reappreciation of nuclear power has sparked renewed funding for research in the field with new atomic reactor concepts being ever more cost-efficient, maniable, and safe. The considerable upfront cost might prove to be one of Armenia’s best long-term investments.

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