Assessing the Challenges of Electricity Market Liberalization Transition: Capacity, Cost-Benefit Analysis, and Security of Supply in the Armenian Context

Electricity Market Liberalization Under High VRE (Variable Renewable Energy) Growth: Early Lessons from Armenia

This group analyzes Armenia’s electricity market liberalization and its interaction with rapid solar PV growth, focusing on tariffs, system adequacy, regulatory capacity, and market stability.

Abstract

#1 Article: Electricity market liberalization has been widely implemented to enhance efficiency, transparency, and competitiveness; however, its interaction with rapid variable renewable energy (VRE) growth remains insufficiently understood in emerging economies. Armenia constitutes a salient case, where the launch of the wholesale competitive market in 2022 coincided with accelerated solar photovoltaic (PV) deployment, increasing from 0.07% of generation in 2018 to 8.5% in 2024. This study employs a mixed-methods design, combining systematic literature review, international benchmarking, and semi-structured interviews with policymakers, regulators, and market actors. The analysis identifies three interrelated challenges: (i) institutional and regulatory capacity gaps, (ii) tariff volatility and price uncertainty, and (iii) operational inefficiencies of nuclear and thermal plants under high VRE penetration.

Simultaneously, liberalization has stimulated private investment, diversified ownership, and advanced energy transition objectives. By situating the Armenian experience within comparative international cases, the paper contributes new empirical evidence on how liberalization trajectories in small, import-dependent systems are shaped by rapid VRE integration, thereby providing lessons of broader relevance for post-Soviet and emerging electricity markets.

#2 Article: High penetration of variable renewable energy (VRE) in liberalized electricity markets have significant implications for tariff structures, price dynamics, and system adequacy. This article investigates Armenia’s transition, where 369 MW of utility-scale solar PV were operational by mid-2025, with an additional 245 MW under construction, in the context of recent wholesale market reform. Using national datasets on generation and consumption, combined with international benchmarks, the study develops scenario models to assess the effects of 50% VRE penetration by 2030 and 60% by 2040 in Armenia’s tariff formation. Time-series forecasting (ARIMA) and market simulations may reveal that increased VRE shares reduce average wholesale prices through the merit-order effect, while amplifying short-term volatility and undermining the economic viability of conventional generators.

Distributional impacts across consumer groups and the potential mitigating role of flexibility services, storage, and cross-border integration are also examined. The findings advance the literature on tariff design in small liberalizing systems under high VRE penetration and provide evidence-based recommendations for regulators seeking to balance affordability, investment incentives, and security of supply.