bne IntelliNews – Uzbek energy reforms focus on energy saving and high efficiency in the first phase
Uzbekistan, under the leadership of its new president, Shavkat Mirziyoyev, is a country preparing for a bright future – in that the president wants to make sure there is enough electricity to keep all the lights on. lit as the economy and population grow rapidly.
“Now the situation is very dynamic. Economic growth is rapid and the energy sector will not be able to meet all the needs. Today we have 15 GW of capacity and the plan is to increase it to 30 GW by 2030, of which 25% will be renewable energy, ”said Azim Akhmedkhadjaev, the newly-appointed First Deputy Minister of Energy. appointed. bne IntelliNews in an exclusive interview.
The president launched a sweeping five-year energy reform plan in 2019, which is, after banking sector reforms, possibly the most advanced of all the country’s reforms.
Investments in power and power infrastructure have accelerated over the past four years, during which time investment in power infrastructure accounted for 75% of total investment in the independent period, or 2.5 times more than in the previous 26 years, according to the ministry.
Uzbekistan has enough electricity for now, but it’s already clear that if the pace of growth goes as planned, it will need to double its generating capacity by the middle of the decade.
There are several other elements going into the transformation. One of them is the greening of the electricity sector. Another is to reuse the gas from its use as a fuel and reuse it as a raw material for a booming petrochemical industry.
In August, the Energy Ministry announced plans to increase its renewable energy targets by 2030 and the EBRD reports that there has been a lot of interest in projects proposed by international investors.
The original concept note on securing electricity supply in Uzbekistan for 2020-2030, released last year, outlined plans to expand power capacity by rebuilding existing power plants, inviting private developers to participate in the development. sector and deepening reforms in the energy sector. sector. He also said that photovoltaic and wind power will account for a significant part of the production capacity.
Among the agreements signed to date, in 2019, Uzbekistan selected Masdar Clean Energy from the United Arab Emirates as the winner of its first ever solar public-private partnership (PPP) to compete to develop a solar power plant in large scale located in the Navoi region. .
But the main driver of the program at the moment is to make more use of what Uzbekistan already has.
“The green trend is very fashionable at the moment but it’s a chicken and egg situation: we want to invest in renewable energies but people are wondering about the time and the cost, because it is complicated . Let’s invest in what we have, they say. There is enough gas, ”Akhmedkhadjaev said.
“The president’s policy is to invest in green energy and build more capacity. Uzbekistan is committed to a net zero carbon future. Now we are working on the best way to get there, ”Akhmedkhadjaev said.
The main fuel in Uzbekistan is coal, which is still in use, but Akhmedkhadjaev says the state has invested heavily in purification and other technologies to reduce emissions as the green generation is built which will ultimately replace much of it. coal.
It also frees up the country’s limited domestic gas production for other value-added uses. The country’s first petrochemical plant was built in 2001 under former President Islam Karimov, but the new administration is investing heavily in expanding this profitable business.
“We are self-sufficient in gas and there are imports and re-exports of gas. In addition, we have a lot of undiscovered gas and exploration is underway in Sukhand and Karakalpakstan, ”Akhmedkhadjaev said. “Mirziyoyev stressed that we should focus on creating value and creating jobs so that gas is used in [the] petrochemical industry.
The money was poured into the gas separation plant built on the crest of a long-forgotten Aral Sea cliff, which now produces polypropylene, polyethylene and hessian bags for the export to the region and beyond.
“Added value” is the buzzword in Uzbekistan and in every sector part of every reform program is looking for opportunities to move up the value chain. The most obvious example is cotton production, where the president simply banned the export of raw cotton and forced local producers to invest in textile production. The same logic is applied to energy when applicable.
Uzbekistan is currently in talks with Russian petrochemical giant Sibur on a deal to form a joint venture, as the country’s own plant cannot meet demand from the domestic market alone. A second plant was launched in 2015 and the third should be commissioned in the first quarter of 2022, says Akhmedkhadjaev.
Exports of petrochemicals are also starting to grow with Uzbekistan’s neighbors. Exports to Afghanistan rose from zero to $ 100 million, until recent regime change suspended business there. And exports to Kazakhstan have grown from $ 50 million to over $ 1 billion in sales. Trade with other ‘Stans is also growing rapidly, Akhmedkhadjaev says.
At the same time, to meet demand, the country is considering its first nuclear power plant since 2018 which will be built in cooperation with Russia, which is providing the technology and funding. Russia’s nuclear exports are booming and it has commissioned several new nuclear power plants (CNP) in other emerging European countries such as Belarus and Turkey.
The government’s forecast, as set out in its Electricity Sector Development Concept for 2020 to 2030, projects that current demand of around 68 billion kWh will increase to 110 to 115 billion kWh by the end of the year. of the decade. “This increase is due to two factors: the population is increasing and will increase from 34 million today to almost 38 million by 2030, and per capita consumption, which is currently below the world average, is also expected to increase”, said Bakhrom Umarbekov, project responsible for renewable energy at the Ministry of Energy, said bne IntelliNews in a separate interview.
The entire structure of the electricity market is being overhauled and brought to market. Uzbekistan plans to introduce a wholesale electricity market by 2025 that can improve the management of the electricity industry and reduce state ownership.
In June, the Energy Ministry presented its plan to create a wholesale electricity market by 2025, which again aims to improve management and reduce state ownership. Such a market, if competitive, would improve the management of the electricity industry and reduce state ownership, the Uzbek energy ministry said on June 15.
The transition will take place in three stages. In the first, state-owned electricity companies will be liberalized and private companies will be allowed to obtain licenses to sell electricity. In a second step, an operator of the electricity distribution system will be created, after which the functions of selling electricity to consumers will be gradually transferred to licensed suppliers. And in the final phase, the government will launch an intraday electricity trading platform. It will allow the online exchange of excess or deficit volumes of hourly electricity production and consumption.
While this is happening in the background, the ministry has invested in new high-efficiency power plants. There are already several joint ventures with German engineering company Siemens and Turkish entrepreneurs which have already produced positive results.
“They provide energy efficient equipment. If it works well, we will modernize our existing electrical installations or rebuild them using newer and more efficient equipment, ”Akhmedkhadjaev said.
A project to build a high-efficiency power plant in Tashkent has already been completed with Turkish partners and has been built on a PPP basis.
“The installed capacity was the same as that of the plant it replaced, but the energy efficiency is double. [as good] and the factory covers an area a third of the size, ”Akhmedkhadjaev explains. “It was an extremely successful project.”
The plan is to expand this model and find investors to continue building more modern, high-efficiency power plants so that old inefficient ones can eventually be shut down. The first phase will continue for the next eight years, but the entire modernization program for all the power plants should run until 2050.
The energy efficiency improvement policy runs through the entire energy reform program down to individual households, because simply using electricity more efficiently will be as good as producing more electricity.
State-owned enterprises (SOE) consume 60% of all energy in Uzbekistan, which, according to Akhmedkhadjaev, “is not normal”. But it also tells a story of visiting a house in a remote village where they used an open flame from a gas pipeline to heat the house. “It was heating the street, not the house, but they didn’t have the money to buy a better system,” Akhmedkhadjaev says.
The government also intends to tackle this problem by investing in improving the use of energy in collective housing and in new developments. A fund has been established and a TV, Facebook and YouTube campaign has been launched to publicize the program, which is supported by the World Bank.
In the short term, the government is investing in modernizing the electricity grid to ensure sufficient electricity capacity, but in the longer term, the aim is to privatize the sector and place it on a market basis.
“Now we are working on the concept of privatizing the energy sector,” Akhmedkhadjaev says. “The last mile activity will be sold to private owners and in the first phase 25% of the gencos will be sold to private investors. Then, any new electricity production capacity will be 100% private. It will become a market where private investors will respond to the demands of supply and demand. It will be a fully market regulated system. It is not easy, but there is no other way.
Akhmedkhadjaev says that as Uzbekistan is late in the game, he has the advantage of learning from other countries’ mistakes and has been closely monitoring their progress.
“We observe failures but we are in no rush,” Akhmedkhadjaev says. “We will take it step by step and we will have to charge people for the electricity they use, because it is a closed circle.”