Does Kazakhstan need to increase the share of renewable energy to 10% by 2030?

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What risks it is already facing

ФОТО: Elena Zhuravleva /pexels.com

Does Kazakhstan really need to develop its green portfolio if it is the common path for countries, which do not have enough energy resources and is the main reason for the energy security. Though this issue is not a subject to Kazakhstan, the Government of Kazakhstan is still fascinated to show that the country is moving towards global trends and trying to develop a new green portfolio.

Ainur Mazhenova, author of this article
Ainur Mazhenova, author of this article
ФОТО: личный архив

Since the traditional fossil fuel sources of energy increase carbon emissions, which lead to climate change and global warming, one of the solutions according to the Kyoto protocol (1997) and later Paris Agreement (2016) is the development of renewable energy. Thus, Kazakhstan issued the Law on the Support of Renewable Energy Sources in 2009 and in 2013 set some goals in the «Concept for transition of the Republic of Kazakhstan to Green Economy» (Concept - 2013). One of the main objectives of the Concept - 2013 is to increase the share of renewable energy in electricity generation from zero to 3 percent by 2020, 10 percent by 2030 and 50 percent of alternative sources and renewable energy by 2050. In 2020 Kazakhstan reached the declared 3 percent share of renewable energy in electricity generation. Despite the indicated objectives in Concept - 2013, Kazakhstan has many attendant risks and problems, which the government should take into consideration in energy policy development.

First of all, although there is a rapid growth of renewable energy in Kazakhstan and support from the government through appropriate legislation and preferences there is still no proper strategy on renewable energy development. The lack of the strategy on renewable energy or at least its long-term plan does not allow investors to properly plan the necessary capacity of renewables. This also does not allow the government itself  (Ministry of Energy), state, public and private energy organizations and companies to see the overall long-term perspectives of renewables, which would have been used in further energy and public policies.

Second, the development of the electricity market in Kazakhstan has its own way, which is also noteworthy. The Electricity Law issued in 2004 was a starting point in defining the overall new strategy on the energy system after taking its independence. However, in 2008 the law was updated and the liberal reforms were mostly cut down and some of its essential reforms were put off for a long-term period. Thus, instead of moving towards to liberal market, from 2008 the government started its intense intervention leading Kazakhstan to become unattractive for foreign strategic investors. If Kazakhstan is interested in liberal electricity market and competitive environment, the current electricity legislation (Electricity Law and the Energy Concept - 2030) requires reconsideration and needs to move away from its ineffective regulation. This means to revise the reforms, like tariff system, main source of energy capacity, intergovernmental cooperation on dispatching issues, technical development (modernization of electricity lines and construction of new high voltage lines), development of energy markets (balancing market, capacity market), the source of investment and so on. Therefore, the government should revise its energy development policy taking into consideration current challenges and possibly to renew earlier started liberal reforms.   

Just to remind that renewable energy does not have a constant nature and brings some substantial disturbance to the energy system, the current energy infrastructure needs some substantial upgrade and systematic development as well. Though the national lines from time to time have been modernized and new lines have been constructed, still according to the Kazenergy report, 2021 over 50-70% of them have been deteriorated with low carrying capacity and transmission losses 8.3% (due to its big territory and distances). Thus, there is also a question whether Kazakhstan needs to increase the share of renewable energy in electricity generation from 3 percent to 10 percent by 2030 if currently with such a physically and technologically deteriorated energy infrastructure Kazakhstan has more serious challenges in overall energy system development.

Third, as per Azhk (Almaty REC) experts, the uncontrolled and unplanned construction of renewables over Kazakhstan is also a big risk for the electricity system. The quality in planning the location of renewables is quite poor. Mostly, renewables are built outside economically developed regions where there is no actual demand and consumers (households or industries), so it becomes useless for such a region. Most of the time these renewables do not work constantly, not in full electricity capacity and the existing grid is not able to support the produced electricity of it. However, in order to fulfill the targets set in Concept - 2013, state electricity grid operating companies and regional electricity companies (REC) are obliged to provide new renewables with grid lines, which requires financial investments for its construction and development. At the same time, from the effectiveness perspectives the available resources should be better spent into the development of cities’ lines and near located areas, where the necessity in energy is much higher. Therefore, when renewable locations are planned, there should be taken into account the following: how it will be implemented, which places are suitable, if there are any lines ready to transmit the installed capacity, if there is a need in that region, and what capacity is needed. So, renewable energy can not just be developed randomly only because there is a support from the government, they should be located in those places where they initially wisely predetermined and planned.

Fourth, it is also important what the government should take into account in implementation of the strategy on renewables so that it will increase the quality of installed renewables in the future. There should be clear and correct qualification requirements for investors on equipment and their components. For example, not allowing second-hand equipment, obligations to take responsibility for all capital investments including constructing roads and so on.

Fifth, even though the tariffs for renewables are formed via auction bidding process, the selling and purchasing of renewable energy electricity is done by a single buyer - the Financial Settlement Center (FSC).  Namely, all renewable energy is bought by the FSC and redistributed among conventional generators. However, according to the World Bank report «Stuck in Transition» dated 2017, renewable energy support tariff could have been collected from large consumers and ESOs rather than conventional generators. It also stated that renewable energy targets indicated in Concept - 2013 are inconsistent with the aim to contain future tariff increases to maintain its competitiveness for the electricity - intensive commodities that dominate its exports.

Thus, it would be good if Kazakhstan reconsiders its objectives in the Concept - 2013 regarding the share of renewable energy in electricity generation indicated in 2030 and 2050 as there are more serious and more important challenges in Kazakhstan's energy market.   

*The article has been written mostly using information from Nazarbayev University’s thesis «The influence of regulation on renewable energy development in Kazakhstan» dated 2019.

Ainur Mazhenova, MPA, MBA, Nazarbayev University Alumni, ALBA Graduate Business School Alumni

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