REEEP

Kazakhs Lean Towards Renewables Legislation

Alma Aty, 24.05.2007 - Peter Richards

Kazakhstan could become the next country to pass legislation supporting the development of renewable energy after government ministries declared support for the development of a draft law.

Kazakhstan could become the next country to pass legislation supporting the development of renewable energy after government ministries declared support for the development of a draft law.  At a seminar held in the Kazakh parliament building on March 29, 2007 the United Nations Development Programme (UNDP) presented a proposed framework for legislation to an audience of ministers and senior officials. 

After some debate, a resolution was passed stating that the Ministries of Energy and Mineral Resources and of Environmental Protection should work together with UNDP to continue the development of detailed drafts.  A further seminar in the Ministry of Energy on May 10, 2007, chaired by Deputy Minister Almasadam Satkaliev, approved draft legislation that is now subject to governmental consultations before being sent to parliament.

Kazakhstan has not ratified the Kyoto Protocol despite signifying its intention to do so.  Many commentators now believe that the country has missed any chance it had of deriving value from emissions trading under the flexible mechanisms provided by the first period of Kyoto.  At the same time many opinion formers in Kazakhstan are beginning to recognize the value of renewable power to this vast country.  In recent months the value of renewable energy as a means of hedging against world fossil fuel prices, reducing the country’s dependence on power transmission and eliminating energy deficits in remote areas of the country have all been recognized.

Large centralised power plants remain the norm in Kazakhstan, a country the size of Western Europe and the 9^th largest country in the world. Regional solutions to energy problems are often disregarded in favour of further coal fired capacity and ever more investment in transmission.

However, renewable energy is increasing its profile in Kazakhstan, helped somewhat by the Presidential Decree, “Concept for Transition of the Republic of Kazakhstan to Sustainable Development for the Period 2007-2024” passed last November.  In this context renewables are seen as a means of environmental improvement and mitigation of large greenhouse gas emissions.  The economic argument for renewable energy is also gathering strength as the cost of fossil fuels continues to rise on the world markets and access to finance for further investment in the country’s transmission network becomes more difficult.

In a number of credible scenarios, rising fossil fuel prices alone would make renewables commercially competitive in the Kazakh market by 2020.  Modelling work carried out on a Renewable Energy & Energy Efficiency Partnership (REEEP) funded project shows that if transmission tariffs were to reflect transmission distance then this date could be brought forward by five years.

Peter Dickson, UNDP project advisor for drafting the legislation stated that, “in a country the size of Western Europe with a population of only 15 million, it makes no sense to centralise power generation around the coal production areas.  Meeting power demand in Southern Kazakhstan by adding capacity at Ekibastus is like building a power station in Germany to supply power to Spain.”

The power sector in Kazakhstan is the responsibility of the Ministry of Energy and Mineral Resources which is also responsible for the oil and gas sectors and other extractive industries.

The power industry has been the focus of rapid deregulation since Kazakhstan gained its independence in 1991 with power generation being opened up to private investors and independent power producers in the mid-1990’s.  Recent new legislation has decoupled regional distribution from power supply and introduced the potential for competition in electricity supply.  Now in the power sector only the natural monopolies of distribution and transmission are regulated.

Tariffs for transmission and distribution are set after negotiation with the regulator, but generation and supply tariffs are set by the market.  Transmission rates are set on a regional basis and do not reflect transmission distance, which makes it difficult for smaller sustainable energy installations to benefit from being located close to the point of demand.

Kazakhstan is largely dependent on sizeable coal reserves for its power needs.  Eighty-five percent of the country’s power production comes from its sources of cheap and often poor quality coal.  As a consequence Kazakhstan is the largest per capita emitter of greenhouse gases in Central Asia.

The country has an operational energy generation portfolio of 14,000MW, all of which was inherited from Soviet times.  The current production of 67TWh/yr is beginning to fall behind demand and will soon act as a drag on economic growth.  Significant investment in both generation and transmission & distribution (T&D) infrastructure are necessary over the next 15 years in order to meet forecasted demand growth.

The REEEP-funded project, “Compiling RES Legislation for Kazakhstan” builds on the progress made by its parent project, “Kazakhstan, Wind Power Market Development Initiative.”  Interest in renewable energy is growing in Kazakhstan and more importantly the government is aware that legislation will be necessary to create the favourable circumstances required to attract investment into this new sector.

UNDP Regional Representative Haoliang Xu stated “Kazakhstan is in the process of transition to sustainable development and UNDP is supporting the government in implementation of the transitional programme.  A key part of the process is the promotion of RES in Kazakhstan and to facilitate this we used REEEP funding to draft a law tailored to the needs and conditions of this country.  The adoption of the law and the commitment shown by the Ministries of Environmental Protection and of Energy and Mineral Resources is a sign that RES development and environmental protection are being taken seriously by the Republic of Kazakhstan.”

A consequence of the project work is that a number of private institutions are now interested in new business opportunities presented by renewable power.  Financial institutions, engineering companies and entrepreneurs from all over Kazakhstan have benefited from the capacity building events organised to raise the level of expertise among primary stakeholders. 

Ambitions for renewable energy in Kazakhstan remain fairly modest by European standards, the power sector modelling carried out as part of the UNDP project shows that 1,000MW of small scale hydro power and 2,000MW of wind power can be constructed by 2024 without significant effect on the consumer price for power.  Nevertheless, the significance of this is immense in a country whose economy is so linked to the hydrocarbon markets.

Following the delivery of draft legislation to the Ministry of Energy a formal seminar was arranged at the Lower House of the Kazakh Parliament, the Majilis, in order to present the proposed mechanism and to seek support for the adoption of the drafts.  The event was jointly organised by the Parliament, the British Embassy in Astana and UNDP.

The seminar brought together the key decision makers in the field of power supply in the Kazakh Government and provided the platform for exploring many issues.  It was agreed that fossil fuels provide stable income for Kazakhstan and that by reducing the country’s reliance on them for domestic use, valuable resources can be saved. 

The conclusions of the meeting and the resulting resolution recognised the value of renewable energy in supporting sustainable development in Kazakhstan and in improving the environmental performance of the country.  Officials also endorsed the concept of passing legislation for renewable energy in Kazakhstan and encouraged cooperation between the Ministry of Energy and the Ministry of Environmental Protection for the detailed development of the law.

Marianne Osterkorn, International Director for the Renewable Energy and Energy Efficiency Partnership (REEEP) stated, “It is very exciting to see strongly emerging economies, particularly those with a dependence on hydrocarbons like Kazakhstan, making such a clear commitment to sustainability.” 

The development of detailed legislation for renewable energy is now on schedule in Kazakhstan based on the framework outlined  in the UNDP drafts.  Much work remains to be done but large steps have been taken towards establishing a new renewable energy industry.