Kazakhstan’s energy sector has been facing a large number of challenges in recent years. Today, the enterprises of the industry are implementing large-scale tasks to modernize their capacities and are on the path of ‘green’ transformation. Talgat. Temirkhanov, Chairman of the Kazakhstan Electric Power Association (KEA), presented his vision of the prospects for the development of the energy industry and possible risks in the interview with QazaqGreen.

– Talgat Kenesovich, you have repeatedly stated that the electric power industry needs a strategic document that will in the long term shape the policy of development of the country’s electric power industry. In 2022, the Ministry of Energy elaborated a Concept for the development of the industry until 2035. What is wrong with this document?

 – In recent years, Kazakhstan’s energy industry has faced many challenges related to the further development of the sector against the background of a changed global climate agenda. At the same time, there are a large number of unresolved issues within the industry that need to be tackled as soon as possible. There are significant depreciation of equipment and networks, loss-making companies, limited opportunities to change tariffs as well as new obligations to decarbonize the economy. Contrary to the expectations of the sector, the Concept for the development of the electric power industry, approved by the supervising ministry in 2022, did not answer most of the pressing questions. It is difficult to call it a strategic document. And we partly understand why this happened. Today, the energy sector in Kazakhstan is regulated by several government agencies at once. The Ministry of Energy supervises in general the development of the industry, including the issues related to providing industry and consumers with electricity and heat. The Ministry of Ecology and Natural Resources performs the tasks to improve the environmental situation without going into such specific details as tariffs, energy plans and so on. The third player on the pitch is the Ministry of National Economy, which directly influences tariff policy and carries out work on inflation containtment. There is also the Ministry of Industry and Construction, its area of responsibility extends to utility networks, the department is responsible for their reconstruction, and also deals with energy efficiency issues. Each body has its own tasks, and they all participate in the development of industry documents, which sometimes contradict each other.

Our country has adopted a low-carbon development strategy, which clearly outlines he need to reduce emissions of pollutants, including greenhouse gases. The main emitter of CO₂ is coal-fired generation. At the same time, we have a clear task to increase electric power and thermal capacities since we need to develop industry. On behalf of the Head of State, we need, we need to double GDP by 2028., this will require the construction of manufacturing plants, large factories, engineering facilities, and for this we need large amounts of electricity.

Finally, it is critically important for us to reduce network wear. This requires investments, and you can’t do without raising the tariff here. We simply do not have any other sources of financing. And here we are facing a tariff policy that absolutely does not encourage enterprises to modernize their capacities, since it is aimed at keeping inflation and not raising the cost of energy.

It turns out that, on the one hand, the electric powers sector faces large-scale tasks, there are instructions from the Head od State. On the other hand, we are limited by specific environmental obligations and the existing tariff policy. How should the industry develop in this context? The Concept of the country’s electric power industry does not say anything about this. Therefore, the Kazakhstan Electric Power Association has taken the initiative to elaborate a strategy for the development of the sector, which will combine all previously adopted disparate documents and answer the basic question: how to ensure the country’s energy security and further effective development of the industry in the context of the global climate agenda.

 – What are the key points of the strategy developed by the Association?

 – The document, as expected, provides for several scenarios for the development of the energy sector: optimistic, pessimistic and realistic. Together with a group of international experts, we applied economic and technical modelling tools to draw a clear picture of the industry functioning in the future. We want to show the government agencies how much our obligations in the tariff will weigh, how this will affect the overall structure of energy generation, and so on. The strategy is designed until 2030 with a further expansion of the planning horizon until 2060. After all, energy plans are being developed for a long time, since the construction of a single station can take up to seven years. And, of course, when writing the document, we proceeded from plans for the development of energy, decarbonization of industry, considered energy efficiency issues, as well as the need for the development of hydropower, maneuverable energy and renewable sources of energy.

– There are forecasts that Kazakhstan will face a shortage of electricity and capacity in the future. In your opinion, are alternative sources of energy capable of dramatically affecting the situation? And role will they play in the future?  

– The renewable energy sector in Kazakhstan is actively developing. Renewable energy sources are one of the basic components of generation. We propose different scenarios in the strategy, but it is too early to talk about them, since we must first discuss all options with authorized government agencies. In general, taking into account Kazakhstan’s commitments to achieve carbon neutrality, renewable sources of energy occupy one of the main roles in the structure of the country’s future energy market. Currently, a large volume of renewable energy generation is planned at the level of intergovernmental agreements. These are projects by Arab Masdar, French TotalEnergies, ACWA Power from Saudi Arabia, providing for the construction of wind farms with a total capacity of three gigawatts in the regions of Kazakhstan. It is still unclear how the flow of such large amounts of energy will affect the stability of generation, it needs to be correctly modeled and predicted. There are certain risks for the energy system as a whole. I think we need to discuss this issue at he upcoming international forum under the auspices of the Qazaq Green Renewable Energy Association, and together with experts from the sector, representatives of the government agencies and businesses, try to find the answer or at least get closer to solving it.

Another objective difficulty limiting the use of renewable sources of energy is related to the instability of natural sources. In general, it can be solved by introducing energy storage systems that could store excess electricity and supple it to the grid during peak hours. Today, the traditional energy sector interacts very closely with renewable sources of energy. We understand that without renewable energy, our presence in the country’s generation structure is in great doubt. Therefore, we are moving in close cooperation and coordinating our actions. In my opinion, the development of renewable energy should now receive a new impulse.

– So, we will be able to avoid the problem of shortage of capacity and generation, won’t we?

 – I think so. In this case it is necessary to understand correctly with which generation we will enter the market after 2030. Currently, the country is considering the construction of three coal-fired power plants and nuclear generation. Unfortunately, small hydroelectric power plants are not actively developing. There are several hydroelectric power plants built in Soviet times, and that’s it. This is partly due to strict requirements in the fields of specially protected arears and rivers. To install a hydroelectric power station or carry out construction work on the river, it is necessary to go through a huge range of approvals. Despite all the difficulties, hydropower must definitely be developed. We can start at least with small hydroelectric power plants. Their advantage is high maneuverability, during peak hours hydroelectric power plants allow to quickly start the required amount of generation. And then it is the ‘green’ energy and stability. Returning to the question of what the structure of generation and what the structure of the country’s energy will look like after 2030, I want to say one thing: the foundation needs to be laid now. All these issues are considered by the Kazakhstan Electrical Power Association in the strategy for the development of the electric power industry. Consequently, it will be necessary to develop a Roadmap with specific measures, it may be necessary to amend legislation but these are inevitable things.

– In European countries, they declare that they have almost completely abandoned coal generation and have reached 90% in the scale for ‘greening’ the economy. Kazakhstan’s industrial sector faces an ambitious goal to achieve carbon neutrality by 2060. What challenges and opportunities may the energy sector face in this regard in the future?

 – The production of environmentally friendly energy in Kazakhstan will definitely increase annually. At the same time, the amount of greenhouse gas emissions will potentially decrease. For our country, which now exports significant amounts of metals to Europe, it is very important to fulfill the conditions of the border carbon tax. Currently, a transition period is in effect for industrial enterprises until the end of 2024, two years later, will industrial sectors will be affected by the increased environmental payments for emissions. This is the production of ferrous metals and aluminum, cement, fertilizers, hydrogen and electricity. According to the estimates of exporters, the payment of a new cross-border duty may cost some companies in the range of $ 300 million, which is completely unacceptable for the domestic economy.

Speaking about the decarbonization of the industrial sector, we understand that the main challenge for us will be the large-scale modernization of the energy enterprises, where coal generation should be replaced. By gas and renewable sources of energy. This is a very ambitious task for Kazakhstan, as the share of coal generation in our country noa stands at about 65%.

We cannot simultaneously abandon the cheap and stable energy generated y traditional power plants. This will immediately increase the cost of electricity for both exporters and individuals. There are technologies that make coal-fired generation more environmentally friendly. These are mostly Chinese or Russian technologies, they cost a lot of money. Nevertheless, enterprises are ready to invest in stations to maintain the volume of basic generation. This requires changes in the tariff policy.

Talking about European countries, not all of them have abandoned the use of coal raw material. How can we apply their experience at home? The main tool that European companies use in matters of energy transition to cleaner energy sources is the absence of a restraining tariff setting mechanism. They have the cost of raw materials and all costs for the development of renewable sources of energy, including the closure of coal-fired generation facilities, included in the final tariff. Our tariffs are low and do not encourage the population to save. The executive authorities are interested in ensuring that utility bills do not shock consumers, and the state’s efforts are mainly aimed at curbing the growth of tariffs. When we restrain tariffs, energy-producing companies have to reduce some of their costs, mainly for reconstruction and repairs. To prevent this, the tariff, must cover all the costs that arise during the operation of the station. As an association, we advocate for improving the mechanism of targeted social assistance. To reduce the burden on socially vulnerable categories of the population, we propose to introduce differentiated tariffs. The method of paying for electricity can be similar to a progressive tax scale, in which citizens who are able to pay, will pay at a fair tariff. This practice is used in many countries, in particular, in the OECD countries. I think we need to try to implement international experience, which as a result will help the state and have a positive impact on the development of the industry.

 – Similar to electric power industry, modernization is required for the heat and power industry of Kazakhstan itself as well as for the concept of its development. What points are primarily necessary to be paid attention to?

 – Heat supply is the main service sector, which covers a wide range of enterprises and citizens. Its condition determines the well-being of society and the competitiveness of the country’s economy. Historically, the population believes that heat in our country should always be cheap. This is fundamentally wrong because there is a coat estimate that includes an increase in the cost of coal, wages, and transportation costs. Here, as in the case of electricity, there must be fairness in tariff setting. Over the past 20 years, there has been a problem of network deterioration in the country and it has not disappeared anywhere. According to the Ministry of Industry and Construction, the average wear of heating systems is 53%. This situation was the result of a tariff containment policy. Everyone understands that it is hardly possible to carry out a large-scale modernization quickly in the next year or two. A long-term industry programme is needed to retore fixed assets within five to six years, according to which outdated heating systems and equipment will be replaces throughout the country. Maintaining the infrastructure in working order requires significant investments. To our satisfaction, the Head of State hears the aspirations of power engineers. The second wave of the ‘Tariff-for-Investment’ programme, announced by the Government, is aimed at implementing its direct instructions to reduce the number of outdated networks by 15% over five years. We saw the first positive results of this programme last year, when we were given the opportunity to adjust the tariff for an increase in employee’s wages.

Now the electricity tariff has been raised quite well. In response to this, the companies have undertaken serious obligations to carry out repairs at the stations. This year, we may already be able to see positive results in the heat power engineering.

 – When do you plan to start discussing the document with the Strategic Planning Agency?

 – In the near future (by the end of May), we plan to organize several high-level meetings in the Ministries of Energy and National Economy. After all the discussions, we will take this. Document to the Agency for Strategic Planning and Reforms of the Republic of Kazakhstan.

 - Thank you for the informative conversation!