In Central Asia, a Soviet-era electricity network could power future energy sharing
EconomyWith expanding regional cooperation and a readily available
platform, the building blocks are in place for Central Asia to achieve energy
security, resilience and economic competitiveness.
When countries cooperate, they prosper. Increased dialogue
between nations can boost trade in goods and services, open larger markets for
businesses, and strengthen energy security. Energy sharing is particularly
important in Central Asia – a region with rich but unevenly distributed fossil
fuel and hydro resources.
In the Central Asia Power System – a Soviet-era electricity grid – the region has a readily available platform that can help expand energy trading and boost regional energy security.
Kazakhstan, Turkmenistan, and Uzbekistan are rich in fossil
fuels, while the Kyrgyz Republic and Tajikistan have extensive hydropower. Yet
in winter, the hydro-rich countries suffer from power shortages due to a
combination of reduced water flow and higher demand for heating. The solution
is for these countries to share energy.
To achieve this, they need physical infrastructure such as
transmission lines to move electricity in bulk and a governance structure to
ensure the market functions properly. An integrated system would enable the
hydro-resource rich nations to buy electricity from their fossil-fuel rich
neighbors in winter, while surplus power can flow in the opposite direction in
summer.
The good news is that countries in Central Asia have begun
to expand regional cooperation. In August 2020, Afghanistan and Uzbekistan
signed a decade-long power purchase agreement while a new 500kV transmission
line will connect both countries. In 2019, the Central Asia Regional Economic
Cooperation (CAREC) Program’s 11 members signed a landmark energy cooperation
agreement.
Investments have continued to flow into the region’s other
mega projects including the
Turkmenistan-Uzbekistan-Tajikistan-Afghanistan-Pakistan electricity project,
the Central Asia South Asia Electricity Transmission and Trade Project, and the
Turkmenistan-Afghanistan-Pakistan-India gas pipeline.
With strong momentum towards greater regional connectivity,
there is renewed attention on the strategic importance of the Central Asia
Power System. Built in the 1970s, power sharing under the system has steadily
declined in recent decades. But given the system connects Kazakhstan, the
Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan, it can act as a
readily available platform for regional energy security.
Here are four ways to help advance the regional electricity
grid as a platform for deeper regional integration.
First, it is essential to ensure adequate transmission
capacity in the region, which is a pre-requisite to enabling power trading.
Transmission systems in Central Asian countries are generally old and
inadequate – they must be strengthened at the country level to meet
fast-growing national demand. In parallel, regional interconnectivity needs to
be conceived to enable power to flow to other countries.
However, cross border interconnectors will need to generate
large bilateral gains to outweigh the costs and thus should be thoroughly and
independently studied. Longer-term, ongoing regional network development plans
supported by the Asian Development Bank will help to identify critical
corridors for regional interconnections.
Second, harmonizing regulations to facilitate greater power
trading. Currently, power is traded across the region based on bilateral
contracts with agreed tariffs between two parties, while ancillary services
such as frequency regulation follow established rules in the Central Asia Power
System and interconnected Russian system.
Instead of re-inventing the wheel, the rules of the Central
Asia Power System could be further refined and harmonized to provide better
governance which could facilitate trading. The Coordinating Dispatch Center,
CDC Energia, located in Tashkent, Uzbekistan for example, could function as a
regional transmission system operator.
Different market mechanisms need to be assessed for deeper
integration including market pooling and day-ahead/real-time trading, which can
facilitate different forms of electricity trading between countries. This may
also lead to more competition than in bilateral arrangements and result in more
efficient use of resources.
Based on past experiences, this will be a long and complex
process so a roadmap for reform and development of the regional power market
should also strengthen the institutional and governance arrangements, and the
design of the integrated power market.
Third, domestic reform efforts must continue. The region is
characterized by a range of market structures and uneven market development
because of the varying speeds of electricity market reform. While regional
trade can still happen without significant market reforms, in many cases,
effective electricity trade also requires reform at the domestic level. For
instance, energy subsidies, particularly fossil-fuel subsidies, should be
phased out gradually as they distort the accurate prices of the traded power,
making price determination difficult without cross-subsidizing neighbors.
Third-party access to their transmission networks is
necessary for power transit to move through different jurisdictions. Measures
to improve the sustainability of a country’s own electricity market are pivotal
to the creditworthiness of power importers and exporters. Going forward,
continuous regional commercial power trading will eventually require a more
flexible market structure. Renewed attention needs to be paid to electricity
market reform at the country level.
Lastly, the Central Asia Power System can serve as the
springboard to introduce more renewable energy into the region’s energy mix.
The system was originally designed to balance the uneven distribution of fossil
fuels in Kazakhstan, Turkmenistan, Uzbekistan, and hydro resources in
Kyrgyzstan and Tajikistan through electricity trading - the same principle can
facilitate the shift to green energy systems of countries by relocating carbon
emissions from one country to another that can manage emissions more
efficiently, and eventually reducing them.
One of the benefits of regional interconnection includes
shared reserve margins which can introduce additional capacity in the region,
and act as a buffer against energy intermittency – one of the main factors
affecting renewable energy. Given that solar and wind-based systems are
dependent on the amount of sunlight and wind at any given time and can be
subject to seasonal variations, electricity from these sources is inherently
affected by intermittency.
Better interconnected capacity would enable countries to
use the capacity from neighbors, enabling greater flexibility to accommodate
variable renewable energy in the region. A reformed Central Asia Power System
could spur private sector investment to further accelerate the expansion of
renewable energy. Smarter and innovative technical solutions should be
considered at the regional level under broader initiatives such as the Central
Asia Regional Economic Cooperation program.
With strong momentum to expand and deepen regional
cooperation, and a readily available platform, the core building blocks are in
place in Central Asia. With further reforms to strengthen regional connections,
the resulting energy security, resilience and economic competitiveness will in
turn build the confidence essential for further investments in the region.