The agreement on providing USD 300 million (main portion in loans) for the modernization of Armenian-Russian Metsamor Nuclear Power Plant is an important turning point for Armenia’s energy sector.

The life span of the nuclear power plant will be extended for 10-15 years. It will secure certain viability for Armenia’s electric power system, however, it will also be noted that 15 years down the road Armenia’s atomic energy will, in all likelihood, disappear.

Strange as it may seem, Armenia has still not given up the project to build a new power-generating unit. Nevertheless, turning it to reality is close to minimum, and it is mainly accounted by lack of investments.

Over the past years, the project of a new nuclear power plant estimated at USD 5-6 billion failed to attract international investments. Such interest will most likely not spring up as the project is not economically attractive. It is due to the fact that the consumption market of electric power is unknown. Armenian economy does not need a plant with a capacity of 1000 MW as the consumption is limited in the country and there are other – hydro and thermal – capacities.

It is less likely Armenia will today or in the near future have a chance to export to external markets. The border with the largest market – Turkey – is closed and it is not clear whether our neighboring country will want and/or will need to import electricity from Armenia if the borders are opened. The need is merely an economic factor in this case as Turkey is dynamically developing its own capacities and the construction of the expected new Russian-Turkish gas pipeline will grant Ankara a chance to have large volumes of cheap Russian gas, which in its turn, will make the development of thermal energy more attractive. Besides, Turkey is building its own nuclear power plants.

Georgia has long ceased to import electricity (except for small seasonal volumes) and is morphing into a major exporter.

As to Iran, it is also developing its own capacities but at the same time, it will hardly stand ready to pay high prices for imported electricity, whereas, the price for the electricity generated by Armenia’s new nuclear power plant will be way higher.

Public debates in Armenia do not focus much on this, as people are used to viewing nuclear power plant electricity as the cheapest. It’s true in case of the operating nuclear power plant, which is called “Armenian” only conventionally. The Armenian government has not spent even a penny to build it, and it was a USSR project. It means the power plant did not and does not have investment return concerns.

Investment return will play a significant role in the price of electricity generated by the new nuclear power plant once it’s built, and it will make the prices quite high. The electricity generated by the nuclear power plant built in Turkey by Russia will come at AMD 62 per 1 kWh without the margin of the distribution company, which might bring the final price to a sum equivalent to AMD 100. It is obvious that such price will not be affordable for the Armenian consumers.

Nevertheless, Metsamor Nuclear Power Plant is the largest structure in Armenia, which was built in the Soviet period and which continued to operate and play an important role in Armenia’s economic life after it gained independence. But there is now a real and visible prospect that the operation of the plant will be discontinued and Armenia will face a strategic issue of developing alternative capacities.

Sevak Sarukhanyan is a visiting Fulbright Fellow at Georgetown University. These views are his own.