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07 September, 2022
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How to solve the problem of electricity shortage in Kazakhstan

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According to forecasts, the deficit may exceed 1 billion kWh

As you know, there is a projected shortage of electricity in the country. According to «KEGOC» JSC, the deficit may reach 1.5 billion kWh in the upcoming heating season. In order not to leave Kazakhstanis without electricity in winter, the import of electricity from border states is not excluded. In addition, tariffs for electricity-producing companies have been increased by an average of 10-12%.

About how to solve the problem of shortage, and how the domestic electricity market is organized, the correspondent of spoke with the Chairman of the Board of JSC «KOREM» Kairat Rakhimov.


The electricity market needs competition


The electricity market of the republic lives and works according to its own laws. However, as in any other market, there are key players here: energy producers, sellers, and consumers. Electricity trade in the country is mostly decentralized, based on bilateral purchase and sale agreements. However, in addition to this, there is also centralized trading, where all operations and transactions take place on the same platform.

The only operator in the republic for centralized trade in electricity and electric capacity is JSC «KOREM». The company organizes electronic auctions on its own site, and analyzes the entire electricity market. According to Chairman of the Management Board Kairat Rakhimov, the company was originally created in order to stimulate competition in the electricity market.


«This means that a platform is being created to which all players in the market, both electricity producers and buyers, are invited. And the principle was laid down as follows – electricity trading takes place according to the same simple and understandable rules for all participants, which ultimately stimulates competition in this market. It was assumed that there would be no regulation of producers' tariffs, that is, there would be no sellers, everyone would come in with their own offer (price), which would be calculated taking into account the cost price and the level of profitability,» says Rakhimov.


  However, since 2009, the state has taken a course to strengthen regulation of the electricity market. Thus, marginal tariffs were set for producers, they had no right to sell electricity more expensive than them.


«But at the same time, such a policy guaranteed the possibility that owners, investing money in investment programs, would receive a refund at the expense of the established marginal tariffs. A tariff program was launched in exchange for investments. So the tariffs were increased annually. The program itself was designed until 2015. It must be admitted that the containment of tariffs has almost completely destroyed competition in the market. Therefore, many players simply went into closed schemes of bilateral agreements, centralized trade became uninteresting to everyone, agreements between players went,» says Kairat Rakhimov.

From that moment, the dynamics of trading on the site began to decline. Thus, the share of centralized trade in the electricity market did not exceed 10%. Now this figure is only 2% per year

Today, all auctions on the operator's site are held in electronic format, and information on the results of the auction is made publicly available. In addition to centralized electricity trading, since 2018, auctions of future projects in the field of renewable energy sources have been launched at the site. The program attracted investors from more than 12 countries, which is more than 200 companies. On an annual basis, in addition to centralized electricity trading, auctions for the selection of renewable energy capacities have begun to be held.

The electricity market has its own specifics. After all, electricity is a commodity that needs to be consumed immediately after its production, otherwise the energy balance in the power grids will be disrupted.


«We depend on the structure of the market itself. Our tariffs are regulated, and this fact, plus the dependence on the cost of fuel used for electricity production, environmental requirements that are tightened from year to year, brings its own nuances to the work of the market,» says Kairat Rakhimov.

Currently, electricity auctions are held at the operator's site in the short term (spot auctions for the day ahead), medium-term and long-term periods (weekly, monthly, quarterly, annual auctions).


The shortage of electricity will be solved by new capacities


Electricity consumption is increasing annually in Kazakhstan. According to the Ministry of Energy, this figure has grown by more than 16% over the past five years. The main consumers of electricity in the country are the three largest cities of Nur-Sultan, Almaty and Shymkent, as well as industrial giants like Arcelor Mittal Temirtau, Kazchrome, KTZ and others. By the way, these companies consume more electricity than some cities of the republic. It is worth noting that Kazakhstan now imports electricity from neighboring Russia, although it was previously an exporter.

According to Kairat Rakhimov, in order to close the electricity shortage in the country, it is necessary to build new capacities and implement an energy saving program in practice.


«The need to increase capacity is due to the annual growth of consumption in Kazakhstan. This is observed both in the household sector and in industry, as well as the aging of fixed assets of generating enterprises. In addition, a new digital mining industry has been actively developing since last year, which has contributed to the growth of electricity consumption in the country. That is why the construction of new facilities is necessary,» Kairat Rakhimov believes.


Thus, the Ministry of Energy of Kazakhstan, last year approved a forecast plan for the commissioning of new capacities in the country until 2035. Both basic and renewable energy sources were taken into account in the calculation. At the same time, most of the capacities will be built at the expense of private investment.

For this purpose, already this year, the KOREM platform organized two auctions to attract investors for the construction of a 240-megawatt thermal power plant in Kyzylorda, with a maneuverable generation mode, and a 960-megawatt gas station in the Turkestan region. According to forecasts, these two projects should cover the electricity shortage in the southern zone.

Another problem of the industry is the state of networks. The wear of power transmission lines in Kazakhstan reaches 80%. Thus, according to the Mayor's Office of the city, in Almaty, the average wear of power grids was 60%.


«It is impossible to average, because there are power transmission lines that are within the limits of the standards for wear, and there are those whose wear reaches 85%. If we take it as a whole, the state of power transmission lines in our country is in a rather deplorable state. This is due to the underfunding of investment programs. The owners of these lines are classified as subjects of natural monopolies, which means they are fully regulated by the regulator. At the same time, the regulator is not responsible for the development of the industry, setting tariff levels for natural monopolies,» explains Kairat Rakhimov.

Since 2015, special indicators have been established for the owners of electric networks, such as the dynamics of reducing losses in the network, the dynamics of reducing wear, equipping with metering devices and more. At the same time, the owner, receiving the tariff, must invest all funds in the modernization of equipment.


«But we must admit that the tariff level set for a natural monopoly entity often does not allow for the modernization of networks in full. Therefore, one of the measures that will allow owners to engage in modernization and investment is an increase in the tariff. We are now talking about the need to introduce digitalization, the principles of smart grid. All this will require large investments that pay off only at the expense of tariffs, so their growth is inevitable. No one will say exactly how much it needs to be raised now, for this it is necessary to conduct a large-scale audit of all the country's power grids. There has not been such a program yet, but now KOREM, together with the Ministry of Energy and the World Bank, is working on a similar project, which we plan to start next year,» says Rakhimov.

According to the Ministry of Energy, this year the marginal tariffs for energy-producing organizations in Kazakhstan will be increased by an average of 10-12%. As noted in the department, tariff changes will affect not all companies, but only half. By the way, now there are 47 manufacturing organizations operating in the republic. According to Kairat Rakhimov, the increase in tariffs is primarily due to the growing costs of purchasing fuel, materials, equipment components and the need to increase the salaries of production personnel.


«Why they are increasing, first of all it is connected with the components of the tariff, these are items of expenditure. The main item of expenditure is fuel. So the cost of coal, fuel oil, gas has increased over the year. For example, coal prices are not regulated, coal companies set prices themselves. The second important point is the need to increase the remuneration of production personnel, the level of which, in comparison with related industries, remains at a low level and leads to an outflow of qualified personnel,” says Kairat Rakhimov.


However, along with the construction of new capacities, modernization of power plants, power transmission networks, another point remains important. To reduce the shortage of electricity, it needs to be saved.


«This issue concerns everyone, both producers and consumers. The main equipment of the stations is outdated. And with the current market structure and approaches to setting tariffs, their owners are not interested in investing in new technologies. For example, even if we carry out work on fuel economy, reduce unit costs, then by the end of the year it will have a tremendous effect. Reducing the own needs of energy enterprises, technical losses in the networks, all this will help to offset the growing need for energy capacity. Of course, energy saving is important for the end user. The discipline of electricity consumption is necessary. We can get a huge effect due to energy saving,» Kairat Rakhimov notes.


It should be added that today about 70% of all electricity in Kazakhstan is obtained from coal, natural gas accounts for about 20%, the rest is divided between large hydroelectric power plants and renewable energy sources.