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Kazakhstan:On distinct energy transformation path,despite ageing network [free access]

October 10, 2019

Kazakhstan, which is bounded by Russia, China and the Middle East, is prominent as an energy producer and supplier within the Central Asia region with an abundance of energy resources.

 

Since its independence in 1991, the transformation in Kazakhstan’s power sector has been reflected in the country’s move towards market liberalisation and implementation of sector regulation. In most of the post-Soviet states, the power sector stood at the leading edge of market reforms, with the countries achieving much improved supply and demand balance with service quality. 

 

However, Kazakhstan faced difficult times following the 2014 crash in global energy prices. To add to its woes, its banking sector has been ailing, bogged down by non-performing loans. With heavy financial dependence on oil, the country's annual gross domestic product (GDP) growth dipped from 8.9 per cent in 2007 to just 4.1 per cent in 2018. To spur growth, the country has planned various structural and institutional reforms aimed at transforming the current oil-driven and state-run growth model — by reducing the role of the state in the economy — to one that facilitates the development of a modern and innovative non-oil sector.

 

At present, Kazakhstan has the largest recoverable coal reserves in Central Asia and is the second largest coal producer in the region. Kazakhstan continues to generate at least 75 per cent of its power needs from coal. However, with the growing environmental concerns on both the national as well as international fronts, the Kazakhstan government has set ambitious decarbonisation and energy efficiency goals.

 

The country aims to have renewable energy comprise 50 per cent of its energy mix by 2050, with intermediate targets of 3 per cent (or investments in new 2,000 MW capacity) by 2020 and 10 per cent by 2030. Consequently, the government has laid out its priorities over the next few years, which include construction of new power plants and expansion of the power transmission and distribution (T&D) networks.

 

Sector overview
Kazakhstan has unbundled its electricity generation, transmission and distribution functions. On the power generation front, about 87 per cent is in the hands of the private sector. The national transmission and dispatch system is operated by the Kazakhstan Electricity Grid Operating Company (KEGOC). KEGOC is a portfolio company of Samruk-Kazyna Sovereign Welfare Fund and operates as a monopoly covering the entire territory of the Republic of Kazakhstan. Distribution and supply services are provided by 21 regional electricity companies (RECs) in Kazakhstan. Of the total RECs, only two are state controlled while the remaining are private.

 

On the regulatory front, Kazakhstan’s Ministry of Energy is a policy-setting institution that oversees various energy segments including the electricity sector. Technical regulation is carried out by the Committee of Atomic and Energy Control and Supervision under the Ministry of Energy. The Committee on Regulation of Natural Monopolies and Protection of Competition and Consumer’s Rights (under the Ministry of National Economy) oversees and regulates the state monopoly activities (including transmission) and manages the protection of competition and the restriction of monopolistic operations in the country.
  

Power generation and consumption
In 2018, Kazakhstan’s  electricity production stood at 106,797 GWh, of which 81.3 per cent or 86,826 GWh was from thermal sources, nearly 10 per cent or 10,359 GWh was from hydro, 9 per cent or about 9,078 GWh was based on gas turbine sources and the remaining was based on renewable energy sources (RES). In the last five years, generation grew at a compound annual growth rate (CAGR) of 9.6 per cent, increasing from 93,935 GWh in 2014 to 106,797 GWh in 2018. Power consumption in Kazakhstan grew at a similar CAGR of approximately 9.4 per cent, increasing from 91,661 GWh in 2014 to 103,228 GWh in 2018. 

 

Transmission
KEGOC serves as a system operator of Kazakhstan’s unified power system (UPS). The company oversees electricity transmission in the national power grid; technical dispatching of electricity supply and consumption in the grid; and the management of electricity production and consumption balancing. The structure of the company includes nine inter-system electric network branches and the National Dispatch Centre of the System Operator branch (NDC SO).

 

In 2018, KEGOC’s transmission network stood at 26,620 km, ranging from the 110 kV to 1,150 kV voltage levels. During the five-year period 2014-2018, KEGOC’s transmission line length grew at a CAGR of 5.5 per cent, increasing from 24,848 km in 2014 to 26,620 km in 2018. The transformer capacity increased at a CAGR of 3.5 per cent, moving up from 36,221 MVA in 2014 to 36,637 MVA in 2018. The country’s power grid is interconnected with those of Russia, Kyrgyzstan and Uzbekistan.


Table 1: Growth in transmission network in Kazakhstan (2014-2018)

Voltage

2014

2015

2016

2017

2018

Line length (km)

       24,848

  24,849

     24,954

 25,552

  26,620

–1,150 kV 

         1,421

    1,421

        1,421

     1,421

    1,421

–500 kV 

          6,804

     6,805

        6,805

     7,403

     8,288

–330 kV 

          1,759

     1,759

        1,864

     1,864

     1,864

–220 kV 

       14,511

  14,511

     14,511

  14,511

  14,694

–110 kV 

            353

       353

           353

        353

        353

Transformer capacity (MVA)

36,221

36,241

36,639

35,971

36,637

Number of substations

75

75

76

76

76

Note: Data is for KEGOC’s grid network only and does not include the line lengths of regional grid companies that provide electrical connections between regions

Source: Kazakhstan Electricity Grid Operating Company; Global Transmission Research

 

Challenges in the grid

The Soviet Union was largely responsible for designing Kazakhstan's power system. With the fall of the Soviet Union, from an intra-regional interconnected network, the country moved to a model based on improved energy self-sufficiency. From 1991 onwards, the country prioritised heavy investments in power generation from thermal sources to match the increased demand as well as to promote energy security. However, it did little to modernise its generation or T&D network. Thus, a key challenge faced by the country today is the inefficiency of its ageing transmission and generation assets.

 

Presently, the majority of the country’s transmission lines are considerably beyond their normal service life. In 2018 alone, 72 per cent or about 19,184 km out of 26,776 km of KEGOC’s 110 kV–1,150 kV overhead lines had been operating for over 30 years.  

 

Various other factors also negatively affect the reliability and security of Kazakhstan’s power system. These include the weak connectivity between the power regions in Kyzylorda, South Kazakhstan and Zhambyl oblasts and the Kazakhstan UPS; the growing electricity and capacity deficit in the South Zone; the growing dependence on Russia’s frequency and power regulation services, as well as the foretasted growth in RES; transmission capacity congestion in the Aktau–Atyrau–Uralsk transmission line; a growing consumer base resulting from cheaper technologies (energy storage, local RES, etc.); and power control risks in the power system associated with the integration of intermittent RES generation into the grid.

 

Key initiatives and programmes

To consolidate Kazakhstan’s electricity sector, the government plans to reduce the number of energy transmission companies by 30 per cent by 2022. As a result, the number of transmission companies is expected to reduce from 160 to 110, while 27 public and 23 private energy transmission companies will cease operations by 2022. This step follows from Kazakhstan’s law on consolidation of all the regional power transmission companies.

 

Recently, in January 2019, the country launched its capacity market to encourage investments for the renovation of old, as well as construction of new, power infrastructure facilities. This is one of the 100 concrete steps launched by the Kazakhstan government in May 2015 to implement five institutional reforms: creation of a modem and professional civil service; ensuring the rule of law; industrialisation and economic growth; a unified nation for the future; and transparency and accountability of the state.

 

Moreover, to embrace and benefit from technological advances, KEGOC has launched various projects to increase the reliability, manageability and observability of the UPS. These projects include the introduction of a centralised system of emergency control automatics, automatic frequency and power flow control and a monitoring and control system based on synchro-phasor technologies. These projects will result in an increased transmission capacity of the grid without additional grid construction, smaller deviations of power at the border with Russia, and fewer consumer outages during technological disruptions in the network. The aforementioned projects are being implemented within the framework of Digital Kazakhstan, a government programme that aims to implement large-scale projects in information technology (IT), telecommunications and technological systems to ensure the reliable operation of the UPS.

 

Another major initiative being implemented by KEGOC is the Business Transformation Programme 2050. It is a set of projects designed to improve the efficiency of the utility’ operations, create a common information area and an integrated management system, and build a corporate culture of continuous improvement. The programme is in line with the country’s ‘Kazakhstan 2050 Strategy’, which aims to achieve a new political course for the nation and sets the goal of becoming one of the thirty most competitive countries in the world by 2050.

 

Recent grid developments and key future projects

Kazakhstan is working towards building a green economy. The Central Asian country aims to have renewable energy comprise 50 per cent of its energy mix by 2050, with intermediate targets of 3 per cent by 2020 and 10 per cent by 2030.

 

However, the success of such ambitious targets depends upon several factors, including addressing transparency concerns, providing a conducive legal framework, and combatting corruption and political instability. Moreover, such targets will also require a robust and efficient T&D network, especially given that currently, the country’s T&D network is dominated by ageing, Soviet-era infrastructure.

 

To address the bottlenecks in the electricity network, KEGOC plans to invest KZT545 billion in the development of its grid network during 2019-2028. Of this, it will invest nearly 23 per cent in the reconstruction of its existing 220 kV-500 kV line network.

 

KEGOC is also undertaking several transmission projects, which are at various stages of development. One of the major projects is the Balkhash electricity transmission project, which aims to evacuate power from the Balkhash thermal power plant (TPP) to be built on the south-western shore of Balkhash Lake in order to meet the growing electricity demand in the southern region of Kazakhstan. The KZT31.3 billion project involves the construction of a 500 kV overhead line from the Balkhash TPP to the YuKGRES substation and rehabilitation of the 500 kV YuKGRES substation. The project is part of the Kazakhstan Power Sector Development Programme 2010-2014, which was approved by Resolution No. 1129 of the Government of the Republic of Kazakhstan on October 29, 2010. The project is under construction and will be completed in 2020.

 

Another key project is the construction of the 550-km-long, 500 kV Nura–Zhezkazgan power line to supply power to the industrial region of Zhezkazgan located in south-central Kazakhstan.

 

Other projects include the construction of the 500 kV Aktau–Beyneu–Kulsary–Atyrau and the 500 kV Atyrau–Ulke transmission lines; the 500 kV YuKGRES–Zhambyl construction project; and the Torgai electricity transmission project. These projects will be implemented during the 2021-2025 period.

 

To address efficiency issues associated with the ageing transmission lines, KEGOC will make significant investments in the reconstruction of its existing transmission lines. A major project is the reconstruction of  the 220-500 kV overhead transmission lines of KEGOC branches, which will be implemented in three stages: stage I includes Aktubinskiy inter-system grid/inter-regional grid (IG), Sarbaiskiy IG  and Zapandny IG branches of KEGOC; stage II includes Akmolinskiy IG, Vostochniy IG, Severniy IG and Tsentralniy IG branches of KEGOC; and stage III includes Almatinskiy IG,  Tsentralniy IG,  Zapandny IG branches of KEGOC.

Table 2: List of key planned projects

Project

Voltage (kV)

Type of line

Length (km)

Scheduled completion

Balkhash electricity transmission project

500

Overhead

527

2020

500 kV Aktau–Beyneu–Kulsary–Atyrau transmission line

500

Overhead

NA

2021-2025

500 kV Atyrau–Ulke transmission line

500

Overhead

NA

2021-2025

500 kV Nura–Zhezkazgan transmission line

500

Overhead

550

2021-2025

500 kV YuKGRES–Zhambyl construction project

500

Overhead

NA

2021-2025

Torgai electricity transmission project

NA

Overhead

NA

2021-2025

Reconstruction of OHTLs of Aktyubinskiye IG, Sarbaiskiye IG and Zapadnye  IG branches of KEGOC

220-500

Overhead

NA

2021-2025

Reconstruction of OHTLs of Akmolinskiye IG, Vostochnye IG, Severnye IG and Tsentralnye IG branches of KEGOC

220-500

Overhead

NA

2020-2028

Reconstruction of OHTLs of Almatinskiye IG, Tsentralnye  IG, Zapadnye IG branches of KEGOC

220-500

Overhead

NA

2020-2028

Notes: OHTL – overhead transmission lines; IG – inter-system grid/inter-regional grid; NA – not available

Source: Kazakhstan Electricity Grid Operating Company; Global Transmission Research

 

Conclusion

Kazakhstan is emerging from the economic slowdown triggered by the global drop in oil prices. The country is now focusing on strengthening its non-oil economy by improving the private sector environment and reducing the role of the state in the economy. With respect to the electricity sector, although the country has set ambitious targets with regard to the share of renewable energy in the generation mix, the success of this move is not guaranteed. Achieving the targets will depend upon various factors including upgrading the ageing Soviet-era network, introducing relevant laws and regulatory norms, reducing the excessive role of the state etc. Meanwhile, significant questions relating to its dynamic regulatory perspective and legal risks remain unanswered.