Powering up Uzbekistan’s electricity supply
A radical restructuring and upgrading of Uzbekistan’s power sector is creating opportunities for foreign investors and adding new generation sources, from renewables to nuclear
The restructuring of Uzbekistan’s energy industry has been mirrored in its power sector, where policymakers have embarked on a radical programme of reforms to increase capacity and attract foreign investment.
The country’s power complex has traditionally struggled to meet the demands of a rapidly growing population and developing economy due to outdated infrastructure and inefficient management.
With consumption forecast to surge over the coming years, as economic reforms spur a jump in industrial production, the need for change has become urgent.
“We are seeing new industries coming on line in processing, textiles, agriculture, manufacturing and metallurgy, as well as a huge expansion in tourism and other services,” says Jurabek Mirzamahmudov, first deputy minister of energy. “All of these will need access to a stable and reliable electricity supply.”
Meeting this demand will not come cheap. Over the next five years, officials estimate that more than $2.8bn will be required to upgrade existing infrastructure, while adding new power generation could cost as much as $14.4bn.
“The aim is to create a modern, highly efficient electric power complex based on the use of advanced world experience to create an optimal, economically sound structure of generating capacities and electric grid facilities,” says Fayzulla Shaismatov, deputy chairman of Thermal Power Plants.
To reduce the drain on the state budget, as well as enhance the flow of technology and know-how into the country, the government is looking to attract foreign investors to a sector that until recently was largely off-limits to outsiders.
“We have never had private sector investment in our power generation or distribution network, so this is a huge opportunity,” says Mirzamahmudov. “And on the first come, first served principle, those who get in earliest will benefit the most.”
The key step in the opening up of the sector was taken in March, when a decree by President Shavkat Mirziyoyev ordered the break-up of Uzbekenergo, Uzbekistan’s notoriously inefficient state-owned electricity giant.
Previously, the firm was responsible for the production, transmission, trade and distribution of nearly all Uzbekistan’s electricity.
The new structure, devised in collaboration with international financial institutions (IFIs) including the World Bank and Asian Development Bank (ADB), splits these roles between three new joint stock companies.
Responsibility for electricity generation has been assigned to Thermal Power Plants. National Electric Networks of Uzbekistan now oversees transmission and trade, including imports and exports, while Regional Electric Networks distributes and markets electricity to end users.
“We want to introduce modern corporate governance into all three companies,” says Mirzamahmudov. “We are in discussions with IFIs to bring in foreign experts, not only as consultants but also potentially as senior managers.
“We also plan to move all the companies to IFRS reporting standards to improve transparency.”
At Thermal Power Plants (TPP), these changes will apply not only to the company itself but also to its subsidiaries. The firm, which last year generated 90% of Uzbekistan’s electricity, controls 10 power plants across the country. Most are gas-powered, although two in the Tashkent region use coal.
Under the new system, these plants have also been restructured as joint stock companies with their own supervisory boards and independent directors, with TPP effectively acting as a holding company, as part of the preparation for a planned programme of privatisations.
A pilot deal is already in the works. In March, during a visit by President Mirziyoyev to the United Arab Emirates, Abu Dhabi-based investment company Mubadala agreed to start negotiations to take a stake of at least 50% in the Talimarjan thermal power plant in Kashkadarya province.
The plant has already been expanded in recent years with the addition of two combined-cycle plants with a total capacity of 900MW constructed by Daewoo and Hyundai.
A second project is underway to build another two combined cycle gas turbines (CCGTs) with a capacity of at least 900MW, with $790m of financing backing from the ADB and European Bank for Reconstruction and Development.
Further privatisations of existing power plants are scheduled to follow. In the meantime, investors keen to gain access to the sector also have the option of getting involved in greenfield projects.
Work is already underway on the construction of two combined cycle gas turbine plants by Turkish companies in the Sirdaryo and Tashkent regions, and in September Saudi Arabia’s ACWA Power signed an agreement with the Ministry of Energy to build two power plants with a total capacity of 2,250MW.
Renewable energy to the fore
One of the plants will be gas-fired but the other will utilise wind power, as part of an ambitious plan by the Uzbek government to build renewable energy capacity.
“We have large reserves of natural gas but like any resource that will deplete over time,” says Mirzamahmudov. “That’s why we are actively working to introduce new power generation sources, as well as increasing the efficiency of existing plants, in order to reduce gas consumption.”
At present, Uzbekistan has a total installed capacity of 11.2GW. Policymakers are aiming to triple that by 2030, with nearly half of new capacity coming from renewable sources.
Part of this increase will come from hydroelectric power. Currently Uzbekistan’s only renewable energy source, the government is aiming to double its share in the country’s energy mix over the next 10 years to around 13%.
The remainder of the renewable energy quota — and a fifth of total electricity generated in Uzbekistan — will be provided by new solar and wind power installations.
A survey by the Uzbek government, in conjunction with the ADB, shows high potential for solar power in the south of the country, especially in the Surxondaryo region, as well as in the Fergana Valley. For wind power, the most promising regions are Navoiy, Bukhara and Karalkalpakstan.
The majority of new capacity will come from solar power, which is expected to provide 5GW of installed capacity by 2030. Wind power will account for a further 3GW. All of these new facilities are scheduled to be built by foreign investors through public-private partnerships.
Initial indications suggest that interest in the sector will be intense. A pilot 100MW solar power plant project in the Navoiy region, developed with the support of the International Finance Corporation, attracted expressions of interest from 24 firms, of which 11 qualified for the second phase of the tender.
IFIs have also backed wind power initiatives, including a 0.75MW pilot project near Lake Charvak in the Tashkent region and feasibility studies for new installations in the Karakalpakstan region.
Mirzamahmudov notes that adding renewable energy capacity will also require the expansion of Uzbekistan’s gas-fired power network. “We will need additional capacity to regulate supply and ensure sufficient reserves,” he says.
New gas-fired power plants will be overseen by a new department of the Ministry of Energy, created in August by presidential decree, which has been tasked with co-ordinating and overseeing the development of energy-efficient technologies.
“This unit has the responsibility of ensuring that new CCGTs are built to maximise efficiency and reduce the consumption of gas,” says Mirzamahmudov.
For nuclear power, meanwhile, policymakers looked closer to home for help. Uzbekistan signed an intergovernmental agreement with Russia in September 2018 for the development of the country’s first nuclear power plant.
The facility, which will be constructed by Russian state-owned giant Rosatom, will have two blocks with a combined capacity of 2.4GW. The first is due to come on line in 2028 and the second in 2030.
“We want to add nuclear power as well as renewables to ensure the sustainability of our energy mix,” says Mirzamahmudov. “With nuclear, you can plan your energy strategy for the next 60 years — and we are one of the top countries in the world for uranium production, so we have the raw material.”
For all current and potential investors in Uzbekistan’s electricity generation sector, one of the key issues will clearly be the future direction of tariffs.
Traditionally, electricity prices have been heavily subsidised by the state but President Mirziyoyev’s government has undertaken to introduce market mechanisms. A rise in tariffs was implemented in August and further increases are promised.
“This will be a sensitive issue, because tariffs are not only a mechanism to attract investors but also have a high social impact,” says Ergashevich. “To protect the population, the government has therefore decided to implement gradual increases in tariffs.
“Nevertheless, we have a strong understanding that tariffs should be cost-covering.”
Following the unbundling of Uzbekenergo, each power plant in Uzbekistan will now negotiate tariffs separately with the monopoly purchaser, National Electric Networks.
The company, which is scheduled to remain in state ownership, is also responsible for co-ordinating cross-border electricity trade and transmission.
At present, Uzbekistan imports electricity from neighbouring countries including Kyrgyzstan, Tajikistan, Kazakhstan and — since last year — Turkmenistan.
“We are trying not to utilise older generation units that are not energy efficient so we are not running at 100% of our installed capacity,” says Mirzamahmudov. “We have therefore enhanced regional co-operation in this area in order to meet increasing demand.”
At the same time, Uzbekistan is also looking to step up exports of electricity to Afghanistan. The country has been selling electricity to its southern neighbour since 2002 and last year delivered 2.6bn kWh.
National Electric Networks is now working on a new 154km transmission line to Afghanistan. The Uzbek government has agreed to provide a discount for the construction of the line in return for a 10-year contract from the Afghan purchaser, a condition set by the ADB for the provision of project finance.
The final pillar of Uzbekistan’s new power complex is Regional Electric Networks, which is responsible for delivering electricity to end users.
The company comprises 14 regional electric power networks, which supply around 300,000 Uzbek businesses and seven million households. Individual and communal domestic consumption accounts for 35% of the total, with industry and agriculture taking a further 41% and 20% respectively.
As with the other parts of Uzbekistan’s power network, the lines and facilities operated by Regional Electric Networks are severely outdated. The company estimates that around 58% of all types of overhead power transmission lines require modernisation and one-third of all substations.
“More than 55% of the elements of distribution power networks are operated with a period of more than 30 years and have practically exhausted their resources,” says a company spokesperson.
“The deterioration of power lines and transformer units means there will be a problem with the supply of electricity in the near future. As well as modernising existing infrastructure, we urgently need to commission new facilities.”
Under the new power sector strategy, Regional Electric Networks has been tasked with constructing and reconstructing at least 15,000km-17,000km of transmission lines and 450 transformer substations annually for the next 10 years.
The company is also implementing a new automatic system for the commercial accounting of power consumption to reduce loss and theft of electricity, improve collection of revenues, and allow remote power connection and disconnection.
“After the implementation of the project, the share of average commercial losses from the total forecast losses will decrease from 12.5% to 5.0%,” says a company spokesperson.
The total cost of Regional Electric Networks’ expansion and modernisation programme is estimated at $1.7bn over the next 10 years.
Again, the government is looking to source some of this from foreign investors. “We want to bring in private sector investment, including from outside Uzbekistan,” says Mirzamahmudov. “We are also considering privatisation as an option.
Investment highlights: electricity
The modernisation and upgrade of 22 main power substations in Uzbekistan
- Starting date: 2017
- Finish date: 2022
- Finances: World Bank’s loan: $150m
- The total cost of the project: $292m
The construction of the Takhiatash-Sarimoy transmission line in the Khorezm region
- A 340 km stretch of line
- The total cost of the project: $258mn
- $150m by the Asian Development Bank (ADB)
- Finishing date: 2019
An overhead transmission line from Navoiy TPP to Besopan
- The total cost of the project: $80m, partly funded by the European Bank for Reconstruction and Development (EBRD)
- Electricity for the newly established mining and metallurgical production facilities in the Navoiy region and to develop the power grid in the northwest
A high-quality power supply to the Tashkent Metallurgical Plant
- Construction of Puli Khumri (Hoja-Alvon) power line
- The total length of the line is 245.6km, of which 45km runs through the Surkhandarya region and 200.6km through Afghanistan