Europe and Eurasia: Armenia

The Energy Sector

Armenia’s electricity is generated mainly by nuclear energy, natural gas-fired thermal power plants, and hydropower.[1] However, the country has low energy supply reliability. It is highly dependent on imported energy resources, and must diversify its energy mix in order to provide greater economic and energy security and meet rising demand, which is projected to grow by up to 3% annually.[2] To address these issues, the government is working to promote competitiveness and transparency within the energy sector, increase energy efficiency, and promote the integration of renewable energy (RE) resources.

For example, in 2004 Armenia adopted the Law on Energy Efficiency and Renewable Energy, which seeks to identify mechanisms to improve energy efficiency and develop additional sources of renewable energy.[3] As Armenia has great RE potential – with an annual solar capacity of approximately 1,720 kilowatt-hours and wind energy potential of approximately 450 megawatts[4] – the integration of RE resources will play an important role in creating an enabling environment for investment, reducing fossil fuel imports, and increasing energy independence.

Armenia has also reformed its power sector, which includes unbundling a vertically integrated electricity subsector and privatizing its power and gas distribution networks and of most its generating companies. In 2017, Armenia amended its Law on Energy to promote market liberalization and energy sector reform. A competitive and transparent wholesale electricity market is expected to be launched in 2022.

Through its partnership with the regulator for the energy sector, the Public Service Regulatory Committee (PSRC), NARUC aims to empower the regulator to ensure prudent electricity and gas system investments and increase resource adequacy. The PSRC establishes procedures for setting and reviewing tariffs, and will be key in helping to maintain affordable tariffs. 


Our Work

With the support of the United States Agency for International Development (USAID), NARUC supports the PSRC by helping to strengthen the regulator’s role in overseeing the natural gas and electricity markets. More specifically, the Armenia Energy Regulatory Partnership provides technical assistance to the PSRC in the areas listed below:

  • Updating the PSRC’s methodology to calculate natural gas technical losses
  • Developing an integrated natural gas and electricity demand forecasting tool
  • Developing periodic natural gas filing requirement templates

In addition to these projects, NARUC will support the PSRC as it looks toward strengthening energy reliabbility and efficiency through promoting the use of RE resources.


Focus Areas and Selected Engagements

Natural Gas and Electricity

In Armenia, the percentage of technical losses used for tariff-setting is determined by an outdated methodology. The percentage is typically set at 4-5%, which is considered a high number of technical losses to incur, and it is usually reviewed every few years. A decrease in technical losses will ensure that Armenia is equipped to satisfy its total energy demand and can act as an independent energy regulator. Since 2020, NARUC has been working with the PSRC to develop a methodology and network code for calculating technical losses in the natural gas transmission system. By enabling the PSRC to calculate the actual percentage of technical losses, the methodology and network code will help to ensure that the percentage of technical losses is reflective of the current state of the natural gas transmission and distribution infrastructure.

Simultaneously, NARUC is working to strengthen the PSRC’s capacity in market monitoring and evaluating investment plans submitted by utilities. In order to assist the PSRC with assessing the reasonableness of the long-term energy consumption and peak load demand forecasts, NARUC is developing a natural gas and electricity demand forecasting tool. Assessing the reasonableness of the long-term energy consumption and peak load demand forecasts is an essential first step in the NRA evaluation of the long-term transmission and distribution plans. Through use of the tool, the PSRC will be better able to determine appropriate incentives for energy savings measures as it will be able to plan for tariff structure changes.  

Cybersecurity Standards and Investments

In 2021, the Government of Armenia adopted an energy sector strategy titled The Strategic Program for the Development of the Energy Sector of the Republic of Armenia (until 2040). This strategy requires state-owned entities to implement international cybersecurity standards. However, a nationwide cybersecurity strategy is still being developed in Armenia, and the PSRC is waiting for an official directive to adapt its internal cybersecurity strategy once the national strategy is adopted.

Moreover, the PSRC is preparing to evaluate cyber-related expenditures in utilities’ investment plans to ensure reasonable investments. In 2020, NARUC released a primer titled “Evaluating the Prudency of Cybersecurity Investments: Guidelines for Energy Regulators” that empowers energy regulators to increase grid resilience by ensuring prudent and effective investments in cybersecurity by their regulated entities. Moving forward, NARUC will continue to engage with the PSRC by providing customized technical assistance that will help the regulator to move beyond the theoretical understanding of how to review cybersecurity investments and learn from real-world scenarios specific to its country context.


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Photo Credit: © dmitriygut / Adobe Stock

[1] Vardanyan,Yelena. “Laying off the Gas: Energy Security in Armenia.” EVN Report.

[2] “Armenia: Country Commercial Guide.” International Trade Administration.

[3] Idem.

[4] Idem.


At A Glance

Armenia Energy Regulatory Partnership

Project Dates: 2010-2017; 2020-Present

Primary Partners:

Public Service Regulatory Commission (PSRC)

Contact Us About This Project