Hydropower in Central Asia: investors will come if they see profit

Hydropower is a strategic industry in Central Asia, as industrial production is developing and digitalization is ongoing in the region.

How to attract investment in the hydropower sector, improve cooperation and develop green energy in the region? These issues were discussed by the participants of the international congress “Hydropower Central Asia and Caspian 2020” held in Bishkek, Kyrgyzstan on February 19-20.

Over 150 managers from hydropower sector, state authorities, international investors and leading manufacturers of hydropower technologies and equipment took part in the event.

Regional cooperation

The development of energy sector is impossible without international cooperation.

In Soviet times, there was a reliable and efficient single energy system in Central Asia. Kyrgyzstan and Tajikistan possess rich water resources while Kazakhstan has coal and gas. Then Kyrgyzstan accumulated water, and Uzbekistan and Kazakhstan watered their fields during the growing season. In winter, Tajikistan and Kazakhstan compensated with electricity.

With the collapse of the Soviet Union, each country began to resolve energy issues on its own. The parallel operation of energy systems has not become reliable enough, energy expert Shamil Dikambaev said.

It is necessary to create a common energy market in Central Asia. The work has begun on creating the Eurasian Economic Union’s electricity market which will be launched before January 1, 2025.

For instance, there is a problem with tariffs in electricity trade between Kyrgyzstan and Kazakhstan. The complexity will remain even if the unified energy system is restored, since electricity tariffs in Kazakhstan are much higher than in Kyrgyzstan.

The southern Kazakhstan bordering with Kyrgyzstan experiences electricity shortages, said Yernur Djienbayev, Head of the Samruk-Energy JSC Project Office. Kazakhstan is interested in using Kyrgyzstan’s hydropower to regulate morning and evening peaks in the region.

In Kazakhstan, more than 70% of electricity is generated at coal-fired power plants, kursiv.kz reported. For comparison, in the EU energy systems, the share of electricity generation at coal-fired power plants is 19%, in the US — 27%, in Russia — 17%, and in Uzbekistan — 19%.

Kazakhstan, which has dozens of power plants, is a large consumer of electricity due to increased demand in the industrial sector. Over the past few years, electricity consumption has grown by more than a third, while the capacity of hydropower plants (HPP) has been replenished by only 3.5%.

The most realistic way out is to increase trade in electricity supplies from neighboring countries.

CASA-1000 project

CASA-1000 is a new electricity transmission system to connect Kyrgyzstan, Tajikistan, Afghanistan and Pakistan.

Kyrgyzstan and Tajikistan have abundant hydropower resources with water cascading from the mountain ranges and filling the rivers every summer. Both countries have a surplus of electricity during the summer. Nearby in South Asia, Afghanistan and Pakistan suffer from chronic electricity shortages.

CASA-1000 project would help make the most efficient use of hydropower resources in Central Asian countries by enabling them to transfer and sell their electricity surplus during the summer months to the deficient countries, Afghanistan and Pakistan.

Industry challenges

Electricity consumption in Kyrgyzstan is increasing by 4% annually, but since 2010 no hydropower plants have been launched or built in the country. The country’s hydropower potential is 142 billion kilowatt-hours, of which only 10% is used.

Due to high wear and tear on equipment, annual maintenance costs are rising.

The country has HPPs from 63 to 92 years old, but thanks to the professionalism of employees, they are still operating. Some hydroelectric units have served more than a hundred years, since they were transported from Europe and installed in Kyrgyzstan during the Second World War, representative of Kyrgyz Energy Holding Kubanychbek Astapaev said.

Currently, with the support of ADB, one of the largest projects is being implemented — the reconstruction of the Toktogul HPP, which will result in a 20% increase in its capacity.

During the first phase, the electrical and mechanical equipment was upgraded. The second phase includes replacing of two hydraulic units, resulting in 60 megawatts power increase of each unit. In the third phase, the remaining two hydraulic units will be replaced by new ones.

The rehabilitation is to be accomplished in 2022. As a result, the HPP’s total capacity will increase by 240 MW.

Kambar-Ata-1 HPP

Kyrgyzstan plans to begin construction of the Kambar-Ata-1 HPP, head of the National Energy Holding Aitmamat Nazarov said.

The feasibility study is ready, and negotiations are underway with several investors and international financial institutions, he added. It is planned to hold negotiations with Uzbekistan and Kazakhstan, so that they also take part in the construction. Earlier, Kyrgyzstan signed a memorandum with Uzbekistan on joint HPP construction, and it is in force.

The National Energy Holding intends to give the project national status. The capacity of the Kambar-Ata-1 HPP will be 1,860 megawatts with an annual output of 6 billion kilowatt-hours. Kambar-Ata-1 will generate 1.5-fold more electricity than the country’s largest Toktogul HPP.

The Inter RAO Russian energy company is developing projects in all Central Asian countries. The company is also interested in the Kambar-Ata HPP project, Inter RAO’s representative Dmitry Volkov said.

The Kambar-Ata HPP-2 was launched in 2010. The two projects are important and interconnected, because Kambar-Ata-2 cannot fully work without launching Kambar-Ata-1.

In 2008-2009, the Kyrgyz government was in talks with Inter RAO on the construction of Kambar-Ata-1, but due to certain disagreements, the project was suspended. At the congress, the Inter RAO representative said that the company had not denounced the project and was ready to return to it.

Renewable energy

Eight HPP cascades, including 34 small hydropower plants, can be built on the Naryn River, the largest in Kyrgyzstan. Their total capacity will be 6,450 megawatts, and an average annual output — 25 billion kilowatt-hours.

According to the National Energy Holding, the Upper Naryn HPPs cascade project is of interest to many investors.

Earlier, the project of building small HPPs was widely promoted in the country but it was delayed due to lack of funding.

The only problem with small HPPs is their profitability. In 2014, a tariff was introduced for energy companies to purchase electricity for 4.4 soms per kilowatt hour, but energy companies cannot afford such price.

The development of renewable energy sources (RES) needs political will based on mutual interests, said EBRD representative Erlan Ramazanov.

Another important point is the term for concluding a contract for the purchase of energy from a producer. According to Kyrgyz law, electricity generated from RES can be sold at an increased price for ten years. This is not a sufficient period of time, Ramazanov believes. It is 15 years in Kazakhstan, and 20 years in Uzbekistan.

Regulatory changes that improve investment conditions will positively affect investment growth and the signing of contracts, which is especially important for Kyrgyzstan.

According to the State Committee for Energy, Industry and Subsoil Use of Kyrgyzstan, the potential of the country’s small HPPs is 258 MW and of wind energy — 44 million kWh.

Uzbekistan has enormous potential for the development of solar and wind energy. In collaboration with the Masdar Clean Energy Company, UAE, it is planned to build wind power stations with a total capacity of 500 MW based on the G2G principle. A memorandum was also concluded with the EBRD on the implementation of PPP projects in wind energy.

Tariffs

To build new HPPs, investments are needed. However, potential investors, having learned about electricity tariffs in Kyrgyzstan, refuse to cooperate. The country has the lowest electricity tariffs in Central Asia. Investors will come when they see profit.

According to the National Energy Holding, Kyrgyzstan has the lowest average electricity tariff among the EEU countries. In Belarus, it is about $0.7 per one kW, in Russia — $0.37, in Kazakhstan — $0.25, in Tajikistan — $0.17, and in Kyrgyzstan — an average of $0.07.

In Kyrgyzstan, production of one kilowatt hour of electricity costs 1.69 soms and most of the electricity is sold at a social tariff of 0.77 soms. So, companies involved in the generation of electricity operate at a loss.

Raising tariffs is an important issue, and political will and a balanced system are needed, expert Ramazanov said. It is necessary to take the first step and determine a strategic line, having developed a long-term strategy. This is what investors need, he concluded.

The National Energy Holding proposed raising tariffs to breakeven. The State Committee for Industry, Energy and Subsoil Use and the Energy Holding are now drafting a proposal to increase the tariff for thermal energy.

Green energy

When considering energy projects, financial institutions take into account environmental issues, and more attention is paid to clean energy and renewable energy sources.

In 2015, the EBRD adopted the Green Economy Transition (GET) approach, under which the Bank had to increase green financing to at least 40% of total annual investments by 2020.

In Kazakhstan, the first RES law was adopted in 2009, and the EBRD was the first international institution to fund the first renewable energy project in the country.

In Uzbekistan, a law on RES was adopted two years ago and the first result was last year. The EBRD is currently working with the Uzbek government on wind generation.

Emil Osmonbetov, Chairman of the Kyrgyz State Committee for Energy, Industry and Subsoil Use, believes that Kyrgyzstan can be called a country with green energy, since more than 90% of electricity is generated from hydropower.

To attract investment, there should be a base and tools within which financial institutions could develop projects, bring them up for discussion and implement them, expert Ramazanov said.

All countries in the region are competitors in the investment market, and they should provide attractive opportunities for investors to come.

Source: Times of Central Asia