Why Is There a Shortage of Electricity in Kazakhstan and Why Should We Buy It From Russia — Expert Opinion

Sergey Agafonov, Head of the Kazakhstan Association of Energy Supply Organizations, explained to Orda the reason for the shortage of electricity in our country, what is wrong with the EAEU electricity market, and how to move forward with the current monopoly.

RMB: In Kazakhstan, since January 1, 2024, marginal electricity tariffs have been increased. This is due to an increase in costs beyond companies' control. In particular, an increase in fuel costs, i.g. coal, gas, including transportation.

The situation with Kazakhstan's purchase of electricity in Russia at an inflated price is due to the fact that our country has become an energy-deficient system for the first time. In the current autumn-winter heating period, we face a deficit of about 11-12%. This is a significant proportion, explains Agafonov.

According to him, the Russian energy system is the only source capable of compensating for the lack of energy. The expert notes that the cost at which our country buys electricity from PJSC Inter RAO (Russian energy company — Ed.) is indeed twice the price, which on average is formed by a single buyer:

"As you know, since July 1, a single buyer (SB) has been launched. During the second half of 2023, the average price, which was formed by the SB, was about 13-14 tenge. The cost of Russian electricity is about 26 tenge. Almost twice as much."

Monopoly and Lack of Freedom

The expert sees Inter RAO's monopolist position as the main problem. About 20 years have passed since its designation as a monopoly export/import operator.

Accordingly, we cannot buy electricity from anyone else, including on the Russian market, only from Inter RAO, Agafonov explains. 

He emphasizes that the discussion of the EAEU's common electric power market has dragged on. The timeframe for its commissioning has now shifted to January 1, 2025. According to Agafonov, a certain party is not very interested in this model:

"I and other experts doubt very much that these deadlines will not move again. Because, among other things, the model of this market assumes a certain freedom in terms of buying electricity. For example, as far as I remember, the Russian PBX should be defined as the market for the day ahead, the so-called RSV (competitive selection of price requests from suppliers and buyers a day before the actual supply of electricity with the determination of prices and volumes of supply for each hour of the day - Ed.). But so far, apart from a declaration, we have not seen anything."

In the future, according to Agafonov, this may mean that any entity, or the same single buyer, will be able to enter the Russian stock exchange and buy electricity:

We are subjects of the Kazakhstani market, we do not have a monopoly on the purchase and sale of electricity from outside. Any entity can either buy electricity from us (for example, from a Russian supplier) or export it. I'm referring to a best-case scenario. Now it is unclear how all this will really work. It is simply declared that the Russian PBX is defined as such a platform.

The expert also recalls that the Kazakhstani operator JSC KOREM (JSC "Kazakhstan Operator of the electric Energy and Capacity market") has been identified as a platform for concluding fixed-term contracts.

The main idea that I want to convey once again: unfortunately, the introduction of the common market does not go beyond the declaration. If this does not happen, we are forced to buy electricity from a single supplier — Inter RAO. And it has the right to set any price, which it does,  Agafonov stressed. 

He notes that the pricing inside is not visible, and the Kazakhstani side's proposal to disclose its procedure in Inter RAO has been rejected.

Agafonov also highlights that at the end of 2023, a new agreement on parallel work between Russia and Kazakhstan was signed. As far as he can remember, an Inter RAO subsidiary appeared in such documents as a possible supplier of electricity for our country:

If you open this document, you will see that Inter RAO Kazakhstan is clearly indicated there, which in no way adds transparency to this scheme, but monopolizes it even more. So the main claim is the monopoly on the Russian side. It does not even allow us to discuss any price other than the official one.

Lack of Energy and Lack of Control

The shortage of electricity in Kazakhstan, according to Agafonov, is caused by the growth rate of its consumption in recent years, which surpassed the growth rate of the capacity that was introduced:

If memory serves me correctly, over the entire 30-year period we have introduced no more than 7 GW, and this is not very much. At the same time, capacities were being dissipated because the wear and tear of stations in the country is quite high. On average, it leans towards 60%. In some sectors it is higher, for example, when it comes to thermal power plants, in some it is lower. But the average is about 56%. Therefore, all these factors, on the one hand, have developed into a deficit, which is compensated by the supply of imported electricity.

According to Agafonov, the expert community is also concerned about the lack of a "control body", and this is important, since now investments in new generation construction will be more intensive:

We need a body capable of effectively controlling, among other things, the process of utilizing these investments. Since this will be done through tariffs, which will increase. And there is such a tool. This is a market advice. The law on the electric power industry even provides for it. But it is still very decorative and does not perform the functions that should be in a normal model. And we all advocate that we still have a normal market council, which could become a public controller from the industry.

Original Author: Yuri Nizhegorodsky

DISCLAIMER: This is a translated piece. The text has been modified, the content is the same. Please refer to the original piece in Russian for accuracy.