“Green” Energy in Kyrgyzstan: New Game Rules for Market Players

“Green” or renewable energy is the energy that comes from natural resources. In other words, it comes from sunlight, water flows, wind, high tides, geothermal heat, as well as biofuel (wood, vegetable oil and ethanol). 

First, the sources of such energy are considered endless in historical terms. That is, the installation of any station can supply any given location with the required amount of energy for the unlimited time.

Second, when the stations that generate “green” energy work, they do not release hazardous substances into the air. 

Third, the installation of such stations does not do harm to the surrounding landscape.

First, in October 2019 Kyrgyzstan ratified the Paris Agreement on the United Nations Framework Convention on Climate Change, which provides for the obligation to reduce carbon emissions to the atmosphere. Now the government of the country must develop a plan to combat climate change and submit reports about its emissions regularly.

Within the framework of this agreement, Kyrgyzstan has an option to receive funds from the Green Climate Fund, where developed countries pay nearly 100 billion dollars every year.

According to the Centre for Climatic Funding of the Kyrgyz Republic, they have four domestic projects amounting to 41.6 million dollars approved:

1. 29.9 million dollars for the project to increase carbon sequestration in Kyrgyzstan via support of climate investments to forests and pastures.
2. 8.5 million dollars for the project to support food insecure and vulnerable communities in Kyrgyzstan.
3. 300 thousand dollars for the project to increase the capacity and develop strategic frameworks of interaction between Kyrgyzstan and the Green Climate Fund.
4. 2.6 million dollars for the project to develop the National Adaptation Plan.Second, Kyrgyzstan has the programme of the “green” economy development  for 2019–2023 that is in force today. This document provides for the improvement of well-being of the people by using resources efficiently and by preserving the natural ecosystems in the country. In other words, the changes are coming almost in all sectors of economy in years to come. However, the changes remain on paper so far.The document describes the real sector with the word “green”, which implies “planting of greenery”: “green” energy, “green” agriculture, “green” industry, “green” transport (i.e. low carbon and ecologically clean), sustainable tourism, communal waste management, “green” cities.Third, the country is bound to export energy from Kyrgyzstan and Tajikistan to Afghanistan and Pakistan under the large-scale project CASA-1000. This refers to the transfer of surplus summer power.

   The minimum amount of export, according to the National Power Grid of Kyrgyzstan, must be about 400 million kWh per year.  Kyrgyzstan is planning to implement and complete its part of obligations, namely the construction of the 500 kW Datka-Khujand line, in 2022. Export supplies are to begin at this period. In this case, electricity will be sold at 5.1 cents per 1 kWh.

   Fourth, the amount of energy consumption is rising every year amid the lack of the reserves of power-generating capacity. This fact creates high risks for the sustainable functioning of the sector, experts say.

In Kyrgyzstan, “green” energy can be generated by four sources:

• the sun,
• the wind,
• the water,
• the biomass.

It is fixed in the law on RES, which was adopted back in 2008.

According to GKPEN, small hydropower sector can generate 5 to 8 billion kWh per year, wind power stations – 44.6 million kWh per year, solar power stations – 490 million kWh per year, and biomass power generation – 1.3 billion kWh per year.

However, the practical use of alternative energy sources, according to specialists, is less than 1 per cent. The total hydropower capacity of the country is 142.5 billion kWh. Thus, Kyrgyzstan takes the 3rd place in the CIS, after Russia and Tajikistan. However, the percentage of use is as low as 10 per cent. 

Because of expensive equipment, “green” energy may come at a high cost to end users. According to approximate estimates of experts, its price will be several times higher than the existing rates.

Among main problems that make the RES sector unfavourable for potential investors is the lack of buyers and, despite the existing law on renewable energy sources, the lack of clear mechanisms of how to connect to grids and how to sell electricity to consumers.

“When we don’t know who provides guarantees, at what rate and for what time, it’s hard to get a loan from a bank,” Eleonora Kazakova, the chair of the RES Association in Kyrgyzstan, said. 

The new document determines the rules of the game on the RES market:

1. It clearly defines the responsibility of the authorised bodies. GKPEN will determine the policy in the RES sector, the State Agency for Fuel and Energy Complex (GARTEK) will be regulating tariffs, while local governments will be solving matters related to the allocation of land plots.
2. All procedures to be passed by the “green” energy producer or “green” technology supplier before they become full market players and use all preferences provided by the state are described in it.
3. It introduces the concept of “register” of RES entities. It will let the authorised bodies count the exact number of market players and the annual amount of renewable energy generated by them.
4. “Green” energy supplies will be made by quotas and without quotas only to distribution companies of the country, and they may be made to private entities and used for own needs.
5. A model form of contract for the supply of “green” energy demanded by the banks for loan issue procedure has been developed in it.

The document binds distribution companies to buy “green” energy from suppliers at 0.034 dollars per 1 kWh. This is an assured sale for private companies.

“A quota for 275 MW to be evenly distributed among the seven regions will be provided. Distribution companies buy energy from us and resell it either to the population, or to industrial companies, at their own discretion. The rate policy is not changing for end users. We understand that distribution companies do not earn. In this case, we have introduced quotas for them not to have financial problems,” Eleonora Kazakova, the chair of the RES Association in Kyrgyzstan, said. 

Land problems are not solved under this new regulation. Today, according to the RES Association in Kyrgyzstan, a package of new amendments to the land code of the country is pending.

It allows construction of installations with the use of RES on the lands of the forest fund and provision of land plots for long-term land tenure. In this case, the problem of land transformation from one category to another will be automatically solved.

Yes, enterprises that generate energy with the use of RES shall be exempt of profit tax for 5 years within the date of commissioning. The guaranteed quota-based sale of “green” energy to distribution companies shall be valid for 10 years. The grace period for guaranteed supplies out of quota shall be determined by GARTEK based on feasibility indicators of RES projects.  

“These are only first steps and many challenges wait us ahead. All we have to do is to start and spur the development of this sector. If the law adopts the contractual price, we hope the situation will change. This will be another stage, which we have to work on. In this case, roughly speaking, if you want to buy energy from me for 5 som, I can sell it to you. Now the tariff policy of GARTEK does not allow us to do it.

Moreover, we do have financial resources; but we lack resources in state administration in order to help the RES sector. We still do not have a country document to set forth the purposes and tasks of the renewable energy sector. The draft strategy of the RES development was already started, but once the energy ministry was liquidated, this work stopped as well,” said Eleonora Kazakova, the chair of the RES Association in Kyrgyzstan.

By the way, only three employees work in the RES project department of GKPEN.