Renewable Energy in Kazakhstan: Problems and Prospects
Gennady Doroshin Русский/Russian
July 2008 - Kazakhstan has one of the highest ratios of GHG emitted to GDP produced in the world. Coal–which dominates Kazakhstan’s energy balance–is at the heart of the problem: coal-fired plants generate some 45 percent of Kazakhstan’s total GHG emissions. By 2012 Kazakhstan’s GHG emissions from the energy sector are projected to reach their 1990 level (100 million tons of CO2 equivalent).
Although Kazakhstan possesses substantial renewable energy potential, it is almost completely untapped; renewables only represent about 1 percent of Kazakhstan’s energy balance. Efforts to promote renewables are therefore featuring prominently in discussions about reducing energy intensity and pollution. The national programme for transition to sustainable development calls for increasing renewables’ share in Kazakhstan’s energy balance up to 5 percent by 2024. Wind power could play a particularly important role: in a number of Kazakhstan’s regions, average annual wind speeds exceed 5 metres per second (quite high by international standards).
Expert assessments indicate that Kazakhstan’s wind power potential exceeds 1.8 trillion kilowatt hours (kWh) per year. However, Kazakhstan’s inexperience in harnessing wind power, and the absence of appropriate legal and regulatory frameworks for wind power, continue to stand in the way.
Feed-in tariffs and renewable energy certificates
Other countries employ various legal frameworks and mechanisms to support electricity generation from wind power and other renewable energy sources. Under ‘feed-in tariffs’, electricity distribution companies are legally obligated to buy energy from power producers that use renewables at fixed (typically higher) prices that ensure renewables’ commercial viability. This type of regulation is simple, transparent, and provides guarantees to investors. Such systems are today used in Germany, Denmark, Spain, and some 40 other countries. Under renewable energy certificates, electricity distributors or users are obligated to ensure that a certain share of the electricity they purchase is generated from renewable sources. These purchases are documented via renewable energy certificates that register the production, consumption, and source of the “clean” electricity. Market prices for these certificates change depending on the demand for electricity generated from renewables (which is a policy variable) and their supply (which is determined primarily by the commercial viability of renewable energy technologies). Certificate mechanisms can be more complicated to administer than feed-in tariffs; and companies that generate or sell electricity produced from renewables are vulnerable to fluctuating certificate prices. Still, such systems are in place in Poland, Sweden, the United Kingdom, and the United States.
Which system for Kazakhstan?
The introduction of a feed-in tariff mechanism in Kazakhstan would mean large increases in electricity prices for consumers in those regions where relatively large amounts of electricity are generated from renewable technologies. Kazakhstan’s large size and low population density, as well as the current regulatory framework, makes it impractical to spread the higher costs of wind energy across users in areas in which the windmills are not located. The use of renewable energy certificates therefore seems more desirable, as this would spread the additional costs of renewables across all users and make the increase in electricity tariffs for any given user negligible.
The regulatory framework for such a system has been developed by UNDP and the government of Kazakhstan, in cooperation with the Renewable Energy and Energy Efficiency Partnership and the Global Opportunities Fund. The government approved the relevant legislation for this framework in 2007; this draft legislation is now undergoing discussions with interested public bodies and organizations. Its submission to Parliament is expected in 2008.
Under this framework, electricity producers would be obliged to possess renewable energy certificates for a certain share of their annual output. These certificates would be issued and initially sold by producers of ‘green energy’. However, since the market on which these certificates would be bought and sold does not exist in Kazakhstan, the certificates would be purchased from green energy providers by the Agency for Renewable Energy (ARE) for resale to electricity distributors. ARE would also conclude long-term contracts with energy companies for the purchase of certificates for the duration of the project recoupment period. Because this system is relatively complex, ARE would face large administrative and other costs in making it work. However, as renewable energy markets develop, ARE’s functions related to purchasing and distributing the certificates could pass to the market itself, thereby reducing administrative costs.
If introduced as proposed, this system will allow the state to:
• align the expansion of the certificates (and the underlying renewable energy technologies) with the expansion of the renewables sector;
• attract private investments into renewable energy production, by concluding long-term contracts at favourable prices;
• competitively select those renewables projects with the best technical and performance indicators; and
• evenly distribute the extra costs of renewable energy generation across large numbers of users.
Expert assessments suggest that the market could today absorb some 3 billion kWh of electricity generated from renewable sources. By 2024, this figure could rise to 10 billion kWh, covering some 6 percent of Kazakhstan’s total electricity needs. The resulting reductions in GHG emissions during 2010-2024 are estimated at 70 million tons of CO2 equivalent. Should this mechanism work in Kazakhstan, it could easily be replicated elsewhere–particularly in neighbouring CIS countries, where climatic conditions are similar.
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