Saving costs and resources

So far, over 75% of Armenia’s energy comes from one nuclear power plant and several thermal power plants, but the corresponding energy sources need to be introduced. Hydropower stations also provide energy. However, the country is heavily dependent on imports in terms of energy sources, in particular from Russia and Iran. With two exceptions, the current power plants date back to the period before independence in 1991. They are no longer state of the art.

Armenia wants to diversify its energy supply and thereby become less dependent on fossil fuel imports. In addition to hydropower, solar power is particularly suitable as a sustainable energy source with great potential.

Moreover, more efficient use of energy is also a way to become less dependent on fossil fuels and save greenhouse gases. However, many small and medium-sized enterprises (SMEs) work with machines and operate in buildings that date back to the Soviet Union. These are outdated and require a lot of energy, but SMEs lack the means to invest in innovation. They also usually do not have access to suitable loans.

The GAF, based in the Armenian Central Bank, offers a solution here: it provides funds for Armenian commercial banks to provide loans for investments in renewable energy and energy efficiency measures. As GAF provides these funds at long maturities, reasonable interest rates and in local currency, commercial banks can provide sub-loans on better terms than if they had to refinance them via the financial market. What makes these funds particularly special is that the borrowers receive them in dram and also pay their instalments in dram. This makes it easier for many SMEs to access loans. The Armenian Central Bank plays an important role here as it bears the exchange rate risk, even though the KfW loans are issued in euros. Since GAF was founded, KfW, commissioned by the Federal Ministry for Economic Cooperation and Development (BMZ), has provided more than EUR 400 million, which has been used several times in the meantime.

GAF Director Gayane Khachatryan emphasises: “The GAF programmes help save greenhouse gases, thereby promoting climate protection.” With the help of the GAF loans, companies are investing in energy efficiency, for example in better insulation for buildings or modern heating and ventilation systems. The energy-efficient modernisations reduce the costs for companies.

GAF is now also working with other donors, such as the World Bank, the European Development Bank (EIB) and the Asian Development Bank (ADB). KfW has so far provided more than EUR 111 million for SME promotion, EUR 72 million for housing promotion and EUR 50 million for agricultural promotion. In the areas of renewable energies and energy efficiency, there is still a great demand that the Armenian financial market alone cannot yet meet. Therefore, the BMZ committed to a new programme phase with EUR 12 million in 2022.

KfW financed the energy efficiency of SMEs with EUR 35 million and the use of renewable energies with EUR 136 million through the GAF. The focus is currently on photovoltaic systems. More than 2,000 loans have already been granted for the installation of small solar panels to households with a combined capacity of 45 MW. In addition, further photovoltaic power plants of 5 MW each have been built with the help of KfW-financed loans, with a total capacity of 120 MW. This makes optimum use of the high levels of sunshine that Armenia enjoys.

The GAF has already been able to use the funds provided by KfW several times. As a result, their impact is multiplying: through the revolving use, the GAF has provided a total of around EUR 800 million for more than 110,000 loans to date.

The GAF-funded residential building programme has enabled new energy efficiency standards to be introduced in Armenia. This in turn is setting standards for the entire construction sector. The GAF also financed the first ever photovoltaic plants in Armenia.

The country’s ample renewable energy resources are now being used. This is reducing greenhouse gas emissions and making it possible to sustainably meet the country’s growing energy demand. The GAF programme is financing technical support from an experienced international consultant from funds provided by the BMZ. This is contributing to the introduction of international technical, environmental and social standards for photovoltaic investments on the Armenian market.

The project contributes to the achievement of these following United Nations Sustainable Development Goals:

• SDG 7: Affordable and clean energy
• SDG 8: Decent Work and Economic Growth
• SDG 9: Industry, Innovation and Infrastructure
• SDG 12: Responsible Consumption and Production