About the Research
Strategy and Research department of RB ASIA conducted research of Energy market of Uzbekistan, which includes historical trends, structure, legal conditions and future potential.
The objectives of the research were to review the volumes of production and consumption, its prospects and structure, to analyse dynamics, to review key conventional and green energy project in Uzbekistan.
In 2019 the reform in the energy sector of the Republic of Uzbekistan began by establishing - "Thermal Power Stations", "National Electric Grids of Uzbekistan", "Regional Electric Grids", in accordance with modern methods of organizing the production, transportation, distribution and marketing of electric energy.
Uzbekistan Energy Market
Review of Legislative Changes in the Energy Sector of Uzbekistan`s Economy
Over the past few years, significant changes have been observed in the legislation of Uzbekistan, aimed both at increasing the efficiency of the energy industry enterprises and at increasing the investment attractiveness of this sector of economy as a whole.
At first glance it seems that in order to increase the efficiency of enterprises in the industry, it is necessary to privatize them, however, in order to attract investors, the enterprise must be effective and attractive in terms of profitability and return on investment.
In such a difficult situation, the government takes all necessary steps to introduce international practices in the management of enterprises in the energy sector in order to thereby increase their attractiveness to investors.
One of the many steps in this direction was the Decree of the Cabinet of Ministers No. 515 of July 6, 2018 “On Measures to Ensure Financial Recovery and Efficient Use of Assets of Organizations of Uzbekenergo JSC.
As part of this resolution, a roadmap was approved for financial recovery and improving the efficiency of organizations of Uzbekenergo JSC, which provided the introduction of a modern accounting system for the management of the full production and financial cycle in all enterprises of the joint-stock company; preparation and publication of the annual financial statements of Uzbekenergo and all its member companies; privatization of 72 assets nationwide owned by Uzbekenergo.
Also in this context, a resolution was adopted by the President of the country No. PP-3981 dated October 23, 2018 “On Measures to Accelerate Development and Ensure Financial Stability of the Electric Power Industry”, which provided for the adoption of the “Road Map” for 2018-2022, including next steps:
1. Implementation of 7 investment projects for the modernization of existing and commissioning of new generating facilities with a total capacity of 1,984 MW and a design value of 2.6 billion US dollars;
2. Annual reconstruction of existing and construction of new electric networks with a total length of 7.1 thousand km, installation and modernization of 2,500 transformer points at the expense of attracted loans and own funds of Uzbekenergo JSC;
3. Connection of 7 million consumers to the Automated system for controlling and accounting of electricity (hereinafter - ASCAE), bringing the coverage of ASCAE by the end of 2021 to 100 percent of the total number of subscribers;
4. The development of long-term loans totaling 1.8 billion USD, the allocation of which has been agreed with the World Bank, Asian Development Bank, European Bank for Reconstruction of Development, and other international financial institutions.
It is also worth noting that this resolution instructs the State Investment Committee (the current Ministry of Investments and Foreign Trade) together with Uzbekenergo JSC and the Public-Private Partnership Development Agency under the Ministry of Finance to start in 2019 a pilot project for the construction of a solar photovoltaic station with the capacity of 100 MW in Navoi region.
This gives a powerful impetus by the government to the development of alternative energy sources. To date, several meetings have been organized between representatives of organizations responsible for the implementation of this project, during which preliminary tender documents were considered and further joint steps were agreed, and were organized conferences for potential investors to this project. Currently, this project is open to potential investments.
The aforementioned resolution approved a work plan for reforming the electric power industry, according to which the responsible authorities were entrusted with the analysis of the current structure of the electric power system with identification of the main problems in managing the sector, regulatory and legal frameworks throughout the power supply chain (generation, transmission and distribution), and they were also entrusted with the development of a model for reforming (restructuring) the electric power industry.
And later in the presidential decree No. PP-4249 dated March 27, 2019 “On the Strategy for Further Development and Reforming of the Electric Power Industry of the Republic of Uzbekistan”, was approved the proposal of the Ministry of Energy, the Ministry of Economy and Industry, the Ministry of Finance, the State Assets Management Agency on reorganization of Uzbekenergo JSC in accordance with modern methods of organizing the production, transportation, distribution and sales of electric energy by:
a) Establishment of “Thermal Power Plants” JSC that manages thermal power plants that generate electrical and thermal energy;
b) Establishment of the JSC “National Electric Grids of Uzbekistan” on the basis of the abolished “Uzelectroset” UE and the branch of “Energosotish” of JSC Uzbekenergo, which would carry out the transportation of electric energy through the republic's main electric networks and interstate transit, export and import of electricity, the functions of a single purchaser of electricity energy from enterprises producing electric energy, as well as sales of electric energy to enterprises of regional electric networks;
c) Creation of the JSC “Regional Electric Grids”, which would manage the enterprises of territorial electric grids that distribute and sell electric energy to end consumers.
Such measures were taken as a result of studying international experience in managing the electric power industry and aimed at improving the energy efficiency of the country's economy.
This decree approved a list of 40 non-core and unused assets and shares of Uzbekenergo JSC and its constituent entities transferred to the State Assets Management Agency of the Republic of Uzbekistan for their subsequent privatization in the prescribed manner during 2019-2021.
Also, as part of the implementation of the state policy to improve the investment climate of the country, the President’s Decree No. PP-4300 of April 29, 2019 “On Measures to Further Improve the Mechanisms for Attracting Foreign Direct Investment in the Economy of the Republic” approved a list of state shares in the authorized capitals of companies proposed for sale to investors, including foreign investors, in which, among others were indicated such enterprises of the electric power industry as JSC “Angrenskaya TPP”, JSC “Novo-Angrenskaya TPP”.
Speaking at the 20th plenary meeting of the Senate of the “Oliy Majlis” of Uzbekistan, the president of the country noted that the only way to attract foreign investors to the energy industry is to liberalize electricity prices by raising them to market levels. It is also a factor of increasing the attractiveness of the electricity industry for foreign investors, in particular the abovementioned organizations and state assets.
One of the underdeveloped areas of the country's energy sector is the development of energy-saving technologies and renewable energy sources. In view of this, Presidential Decree No. 4422 of August 22, 2019 “On Accelerated Measures to Improve Energy Efficiency in Economic and Social Spheres, Introduce Energy-Saving Technologies and Develop Renewable Energy Sources” was approved.
This resolution states that “the share of renewable energy sources generated mainly by hydroelectric power plants, currently accounts for only 10 percent of the total electricity produced in the country. Despite the enormous potential, the possibilities of renewable energy sources such as the sun and wind are not being fully utilized.”
The resolution also notes that the Law of the Republic of Uzbekistan “On the use of renewable energy sources” provides for benefits and preferences in the field of use of renewable energy sources, including exemption from payment of: 1) all types of taxes for a period of five years from the date of state registration of manufacturers of renewable energy production facilities; 2) property tax for installations of renewable energy sources and land tax for the areas occupied by these plants (with a nominal capacity of 0.1 MW or more) for a period of ten years from the date of their commissioning; 3) land tax by persons using renewable energy sources in residential premises with a complete disconnection from existing energy networks for a period of three years starting from the month of using renewable energy sources.
There are still many problems in the energy sector of Uzbekistan, and the legislative acts themselves are not the final solution to the existing problems, however, all these changes in the legislation of the country indicate that the government has a clear understanding of the need for decisive measures to increase the energy efficiency of the economy in order to achieve the long-term development goals of the country, as well as its readiness for such actions.
Uzbekistan`s Energy Market
The energy market in Uzbekistan has traditionally been an area fully controlled by the state. Until today, almost all enterprises associated with the production, transportation and distribution of energy are in the balance of the state.
But most of them are unprofitable and constantly need government subsidies. Only as a result of the reforms launched in 2016 on economic liberalization did the government gain an understanding that without attracting private investments in the energy sector and without privatizing energy generating capacities, it would be impossible to effectively manage them.
And in order for these enterprises to be attractive to investors, it is necessary to abandon state control and establish market-based mechanisms for regulating electricity prices. This in particular was stated by the President of Uzbekistan at the 20th plenary meeting of the Senate of the Oliy Majlis on June 21, 2019. It is expected that a legislative act will be adopted in the near future, which will establish market-based mechanisms for pricing electricity.
According to British Petroleum, natural gas accounted for 36.6 million tons of oil equivalent (Mtoe) (83.4%) in the primary energy structure of Uzbekistan. Other sources, such as oil, coal and hydropower totaled 7.3 Mtoe (5.9%, 7.1% and 3.6%, respectively). It is worth noting that in the overall structure of primary energy production, the only renewable source is hydroenergy, whose share is only 3.6% of the total.
It is expected that in the near future this balance will change in favor of renewable energy sources, as the state is taking necessary steps for this, and more and more investors are realizing the country's great untapped potential in this area.
A positive signal in the development of the energy sector of Uzbekistan was signing in December 2017 of an agreement between the government of Uzbekistan and “Rosatom” Corporation on the construction of a nuclear power plant in Uzbekistan. A logical continuation of this agreement was that on February 7, 2019, Presidential Decree No. PP-4165 “On Approving the Concept for the Development of Nuclear Energy in the Republic of Uzbekistan for the Period 2019-2029” was adopted, which provides for “the construction in the Republic of Uzbekistan of modern and safe reference nuclear power plant of generation III+ consisting of two power units with a capacity of 1.2 GW each.”
This decree also approved the following stages in the implementation of the project for the construction of nuclear power plant:
1. Site selection and licensing of NPP location (2019-2020);
2. design of nuclear power plant and objects of its external infrastructure (2020 - 2022);
3. construction and commissioning of nuclear power plant (2022 - 2030) .
According to approximate data, in 2017 the volume of the electric power market of Uzbekistan amounted to 1.02 billion USD. According to forecasts, by 2030 the volume of the electricity market in Uzbekistan will get almost twice bigger.
As for the market growth rate, the electricity production in Uzbekistan over the past 10 years has grown by 24%, from 50.2 terawatt-hours in 2008 to 62.4 terawatt-hours in 2018. And compared with 2017, production increased by 3.6%. Of the total electricity generated in 2018, 60.7 terawatt-hours of electricity were supplied to subscribers, that is 97%. Moreover, the demand for the economy of Uzbekistan, according to rough estimates of experts, is 69 terawatt hours. The electricity shortage is 14%, as a result of which a significant part of the country's population is experiencing a shortage of electricity.
For comparison, in countries with approximately the same population as Malaysia (32.6 million people), Saudi Arabia (34.2 million people) and Canada (37.7 million people) in 2018 were produced respectively 168.4 terawatt-hours, 383.8 terawatt-hours and 654.4 terawatt-hour of electricity. This means that in 2018, electricity production per capita in Uzbekistan amounted to 1.9 megawatt-hours, in Malaysia - 5 megawatt-hours, in Saudi Arabia - 11 megawatt-hours, in Canada - 17 megawatt-hours. The same indicators in Germany per capita amounted to 7.8 megawatts-hours, in France - 8.3 megawatts-hours, in the UK - 5 megawatts-hours. All this suggests that Uzbekistan has a significant growth potential in electricity production, and in order to reach the level of developed countries, the republic needs approximately four- to five-fold increase in electricity production.
For this, in particular, it is necessary to modernize many power generating enterprises in the country, equipment and machinery, which was mainly installed back in the USSR and whose efficiency is significantly low compared to international standards; power lines that result in transportation losses. In fact, the equipment needs to be modernized at all levels, in particular, equipment in generating, transporting and distributing enterprises. All this requires the attraction of investments and privatization of relevant enterprises.
As for global indicators, the total electricity production in the world over the past 10 years has grown by 30%, from 20,433.3 terawatt-hours in 2008 to 26,614.8 terawatt-hours in 2018. And compared to 2017, electricity production in 2018 increased by 3.7%.
This indicates that the volume of electricity production in Uzbekistan is growing on a par with volumes of world electricity production, which serves as a positive signal for potential investors, and in the case of liberalization of electricity prices, a significant increase in interest from investors and their willingness to launch production locally can be expected.
On Measures for the Transition to Renewables in Uzbekistan
Due to its geographical features, Uzbekistan has a high potential for implementing projects in the field of renewable energy. Taking into account the length of sunny days in the country, the gross potential of the solar power industry is estimated from about 525 terawatt-hours to 760 terawatt-hours per year, and the forecasted wind power capacity is more than 520 gigawatts with an annual production of more than 1,000 terawatt-hours of electricity.
Over the past few years, a great increase in the popularity of alternative energy sources is observed in Uzbekistan; there are many reports from government agencies and individuals about new measures to implement plans for the transition to green energy.
So, for example, on November 8, 2017, the President’s Decree No. PP-3379 “On Measures to Ensure the Rational Use of Energy Resources” was adopted, providing for mandatory equipping of all new buildings, except for individual housing constructions, with certified solar water heating installations from January 1, 2018 for hot water supply.
The document stipulates that in old buildings and facilities such installations will appear during reconstruction, as well as the fact that in the future all buildings and facilities will be designed, built and reconstructed taking into account the use of energy-efficient and energy-saving technologies.
In the same month, a memorandum was signed on the implementation of a 100 MW wind power project between the then Uzbekenergo JSC, National Energy Saving Company JSC and Siemens Gamesa, one of the largest global manufacturers of wind turbines. The place for construction of a wind farm is chosen in Zarafshan, Navoi region. The project is designed for 2019-2020, and its cost is estimated at 100 million USD.
During the visit of President Shavkat Mirziyoyev to the Republic of Korea in November 2017, an agreement was signed between the then Chairman of the State Investment Committee Azim Akhmadhodzhaev and POSCO President Daewoo Joung Sang Kim.
The parties agreed that the South Korean company POSCO Daewoo will produce modules for solar panels and build several solar photovoltaic stations with a capacity of 2 GW in the model of public-private partnership. The total project cost is estimated at 637.5 million USD, of which 127.5 million USD is foreign direct investments. It is planned to build and launch the plant by 2035.
Investors may find it useful that the President’s Decree No. PP-3012 of May 26, 2017 “On the Program of Measures for the Further Development of Renewable Energy, Improving Energy Efficiency in the Economic and Social Spheres for 2017–2021” presents a list of 810 investment projects in the field of renewables totaling $ 5.3 billion USD.
In addition, during a workshop organized jointly by the Government of Uzbekistan and the World Bank in partnership with the International Renewable Energy Agency (IRENA) on renewable energy policy development, it was announced that “The World Bank supports the efforts of the Government of Uzbekistan to increase the share of renewable energy in the country's energy mix from 12.7% in 2016 to 19.7% by 2025.”
On January 30, 2018, the World Bank's Board of Directors approved the project “Improving the Energy Efficiency of Industrial Enterprises. Stage 3”, according to which the World Bank Group will allocate 200 million USD to improve energy efficiency and productivity of small, medium and large enterprises in Uzbekistan.
A presidential decree No. PP-3687 dated April 28, 2018, according to which SkyPower Global implements several investment projects for the design, financing, construction and operation of photovoltaic plants for a total amount of 1.3 billion USD, was also adopted. For these purposes, according to the decree, land allotment is provided in Tashkent, Samarkand, Navoi, Jizzakh, Surkhandarya and Kashkadarya regions.
“On October 9, 2018, a financial contract was signed between the Republic of Uzbekistan and the European Investment Bank to raise a loan of 100 million EUR and technical assistance funds of up to 2 million EUR for the joint implementation of subprojects to improve energy efficiency carried out under the project “Improving the energy efficiency of industrial enterprises” with the participation of World Bank loans, as well as Resolution of the Cabinet of Ministers of the Republic of Uzbekistan dated October 2, 2018 No. 785 “On additional measures for the implementation of the project “Improving the energy efficiency of industrial enterprises” with the participation of the International Bank for Reconstruction and Development (Additional Financing-2)" provides for a loan of the International Bank for Reconstruction and Development in the amount of 200 million USD for industrial enterprises to finance subprojects to improve energy efficiency and accelerate the implementation of energy-saving equipment and technologies”.
In October 2018, a new project for the construction of a 600 MW wind farm was announced by the Turkish company ETKO CO ENERJI A.S as part of the Development Concept for the Surkhandarya Region in 2019-2030, which is scheduled to be commissioned before 2020.
In October 2018, during the official visit of the President of Uzbekistan to the French Republic, an agreement was signed between the Government of Uzbekistan and TOTAL Eren on the construction of photovoltaic stations in Uzbekistan, for which the company will invest 150 million EUR. On September 13, 2019, the Ministry of Investments and Foreign Trade signed an agreement on the purchase of electricity, designed for 25 years, and an agreement on state support between JSC “National Electric Networks of Uzbekistan” and TOTAL Eren. A 100 MW photovoltaic station will be located in the Samarkand region.
On September 24, 2019, Uzbekistan`s Foreign Ministry announced that on September 22, 2019, an investment project for the construction of wind power station in the Bukhara region was officially launched. The project with a capacity of up to 1.5 GW of electricity and the cost of 1.8 billion USD, is being implemented by the Chinese corporation Lioaning Lide.
Another significant event in the energy sector of Uzbekistan was the fact that on September 20-21, 2019, Tashkent hosted the First Regional Dialogue of Energy Ministers of the countries of the Central Asian Regional Economic Cooperation (CAREC) and the “Energy Investment Forum-2019”.
“The Ministers of Energy of Uzbekistan, Afghanistan, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Mongolia, Pakistan, and Tajikistan participated in the First Regional Dialogue of Energy Ministers of the countries of Central Asian Regional Economic Cooperation. Turkish Energy Minister participated as an observer. ” In the framework of the dialogue, the participants noted that due to the accelerated pace of development of the countries of the region and the increasing demand for energy, by 2030 the region will need to double its energy capacity.
Also, during the meeting, the ministers signed a joint declaration, which provides for the development and implementation of the common energy strategy CAREC-2030, as well as cooperation in achieving the United Nations goal number seven in the field of sustainable development, which refers to “affordable and clean energy”. The parties also pledged to double the generation of electricity from solar and wind energy by 2023.
In turn, the Minister of Energy of Uzbekistan Alisher Sultanov proposed creating a unified dispatch center for the distribution of natural gas in Central Asia in Tashkent. The Minister emphasized that these countries have historically been in a single gas transmission system and that in Tashkent today there is a coordination and dispatch center within the framework of the region’s integrated energy system.
After the ministerial dialogue, delegation members took part in the 4th Energy Investment Forum. During the forum, the Ministry of Energy of Uzbekistan and the ACWA Power company (Saudi Arabia) signed an agreement providing for the construction of two power plants with a total capacity of 2,250 MW based on public-private partnerships: one thermal power station with a capacity of 1,250 MW and one wind power station with a capacity of up to 1,000 MW.
As part of the events, a ten-year contract was signed between the “National Electric Networks of Uzbekistan” and the energy company Da Afghanistan Breshna Sherkat for the supply of electricity. According to the Deputy Minister of Energy of Uzbekistan Sherzod Khojaev, this contract is not seasonal, but is designed for year-round supplies. According to the Deputy Minister, the volume of supplies at the initial stage will amount to 4.2 terawatt-hours and will gradually increase to 6 terawatt-hours.
Speaking about state guarantees, Sherzod Khodzhaev noted that the government will guarantee the purchase of 100% of the electricity generated by private companies from renewable energy sources, as well as that the government guarantees the security of foreign investments.
Former Deputy Minister of Economy and Sustainable Development of Georgia Georgy Chikovani during the forum noted that the liberalization of electricity prices in the short term can negatively affect household incomes, however, this will create attractive conditions for investors, which will further lead to an increase in the number of private electricity producers from RES and, accordingly, will lead to price stabilization.
Usmonali Usmonzoda, Tajikistan’s Minister of Energy, said the CASA-1000 project, which provides for the supply of excess electricity from Tajikistan and Kyrgyzstan to Afghanistan and Pakistan, will be launched in the near future.
In turn, the Foreign Minister of Uzbekistan Abdulaziz Kamilov on November 28, 2018 during the International Conference on Afghanistan in Geneva (Switzerland) stated that “the construction of the Surkhan-Puli-Khumri power transmission line will increase the supply of electricity from Uzbekistan to Afghanistan by 70 % - up to 6 terawatt-hours per year and that this power line will connect Kabul to the unified energy system of Central Asia. Moreover, the Surkhan-Puli-Khumri power transmission line can become an integral part of the CASA-1000 project.”
All this suggests that the electricity supply market for private investors is not limited only to Uzbekistan, but has the potential to expand to neighboring countries and regions.