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  • Renewable Energy as a Potential Driver of Kazakhstan’s Growth*

    15.05.2017 | Comments | Economy | 174 Dauren Aben

    Kazakhstan has implemented important reforms and achieved major breakthroughs in its political and socioeconomic development, and the nation’s energy and mineral resources have played a crucial role in this transformation. At the same time, however, Kazakhstan has not largely succeeded in developing its non-resource-based industrial and tradable sectors, which results in its high dependence on unfavorable events and trends in today’s world economy and politics. As international oil prices have plunged since mid-2014, economic growth in Kazakhstan has slowed leading to large budget and trade deficits as well as increasing macroeconomic and financial stability risks. The country’s real GDP growth fell from 4.1% in 2014 to 1.2% in 2015 and equaled a mere 1% in 2016 (World Bank, 2017; FocusEconomics, 2017).

    There are a number of government programs for economic diversification, such as the State Program for Accelerated Industrial and Innovative Development, but the country still remains heavily dependent on the oil and gas sector, which accounts for nearly a quarter of the GDP and over 60% of all export income (Kazinform, 2016). It is clear that Kazakhstan’s oil-driven growth model that has delivered positive results for more than 15 years is not efficient anymore, and the country needs to reinvent itself as a smart economy. The government must initiate structural reforms and find sustainable solutions to stimulate economic transformation, innovation, competitiveness, and job creation. Fluctuating oil prices have served in many ways as a wake-up call and created a window of opportunity for developing the non-oil based sectors that have stagnated or remained underdeveloped to date. New drivers of growth are required, and renewable energy being a knowledge-intensive and innovative industry can become such a driving force.

    Despite lower oil prices, the new reality is that the cost of generating power from renewable energy sources has reached parity with the cost of fossil fuels in many parts of the world, and the cost of renewable energy technologies also constantly decreases. Renewable energy currently accounts for over 30% of the global installed power generation capacity and 23% of global electricity production (World Energy Council, 2016). Renewable energy provides considerable environmental, economic, security and social benefits that should be an important consideration for policy makers. For example, the sector directly or indirectly employed 8.1 million people worldwide in 2015, while an additional 1.3 million people were employed in large hydropower. As renewable energy technologies become affordable, the total number of jobs in the industry continues to rise, in sharp contrast with depressed labor markets in the broader energy sector. It is expected that doubling the share of renewables in the global energy mix would result in more than 24 million jobs worldwide by 2030 (International Renewable Energy Agency, 2016).

    Kazakhstan’s current energy mix is dominated by fossil fuels, mostly coal (73%), while the renewable energy sector remains underdeveloped accounting for just 0.6% of power generation (Facts and Details, 2016). However, the country has a significant renewable energy potential in the form of solar, wind, small hydropower and biomass resources. Kazakhstan has areas with high insolation, especially in the south, receiving between 2200 and 3000 hours of sunlight per year, or 1200–1700 kW/m2, and its estimated annual solar energy potential is 2.5 billion kW. Kazakhstan’s vast steppe areas have average wind speeds suitable for power generation (4–6 m/s) and rich wind energy potential equaling about 760 million kW. Kazakhstan also has agricultural lands, grasslands and forests that provide abundant biomass wastes and residues that can potentially generate 35 billion kW annually. In addition, there are 15 large hydropower stations in Kazakhstan with a total capacity of 2.248 million kW that account for approximately 13% of the national generating capacity (Karatayev and Clarke, 2016; Kazenergy, 2011).

    At the strategic level, there is a solid foundation for the further development of the renewable energy sector in Kazakhstan. The long-term Kazakhstan-2050 development strategy has a primary goal of transforming Kazakhstan into a knowledge-based innovative and diversified economy capable of becoming one of the world’s 30 most advanced nations. There are also a number of government programs aimed to foster economic diversification and promote the transition of the country to a green economy. Kazakhstan’s ambitious plan is to bring the share of renewable energy in the total electricity output to 3% by 2020, 10% by 2030 and 50% by 2050. However, the strategic documents, while setting out Kazakhstan’s long-term vision, are not sufficient to provide an effective legal and regulatory framework. Other barriers that discourage national and foreign investors from participating in renewable energy projects include continued operation of Soviet-era distribution networks and power grids, resistance of the traditional energy industry, inadequate support level for R&D, low electricity tariffs, poor public awareness and community involvement.

    Global practices demonstrate that the development of renewable energy requires significant investment. In the case of Kazakhstan with its out-of-date and unreliable electricity transmission and distribution networks, the need for large-scale investments amounting to billions of U.S. dollars is even more pronounced. It is therefore important to establish clear rules of the game for investors because policy uncertainty is the largest risk for investments in renewable energy. To stimulate the development of renewable energy, the government of Kazakhstan must take a number of specific measures. Based on international experience, relevant agencies need to coordinate and adopt a set of comprehensive and explicit regulations, the key purpose of which will be to reduce technical, legal, economic, financial, administrative and bureaucratic barriers that slow down the advance of renewable energy technologies. Specialized government institutions must implement a long-term strategy to identify, assess and mitigate investment risks thus creating attractive conditions for private sector investment and the growth of the renewable energy market.

    To address the problem of low electricity tariffs and ensure investors, the government should promote the introduction of technology-specific feed-in tariffs and their indexation by the national currency’s devaluation rate, as well as provide subsidies and tax incentives, where necessary. Kazakhstan should also put in place innovative R&D programs related to renewable energy and support investments in technology improvement. Such programs would bring together researchers and investors, as well as facilitate technology transfer and help commercialize self-developed products in the field of renewable energy. The government needs to work closely with the private sector and civil society to design and deliver workable and long-term renewable energy solutions. Raising public awareness and human capital development should become an unalienable part of these activities.

    The development of the renewable energy sector will improve the diversity of the national energy supply and contribute to energy security, as well as help reduce the environmental impact associated with fossil fuels. Renewable energy sources can also provide good opportunities for urban and rural development. Urban households and businesses may be encouraged to install on-grid small-scale renewable energy applications, such as rooftop solar panels, with the possibility to sell surplus electricity to energy companies at favorable prices. Given that 47% of Kazakhstan’s population reside in the countryside, small-scale off-grid renewable energy systems could be offered to farms and rural entrepreneurs, providing the basis for regional economic development. Technologies may include decentralized rooftop solar panels, solar water heating, small-scale wind and biogas systems.

    In June-September 2017, Kazakhstan’s capital Astana will host Expo 2017, a major international exhibition that will focus on future energy issues, including innovative and practical energy solutions to tackle social, economic and environmental challenges. This event aims to create a global dialogue between countries, nongovernmental organizations, companies and the general public on the crucial issues of sustainable development and environmental protection and should become a turning point in the development of renewable energy in Kazakhstan.

    It is clear that renewable energy alone cannot become the driving force of Kazakhstan’s economic diversification and growth. The development of other non-oil industrial sectors, such as agriculture, tourism and physical infrastructure, along with tangible improvements in governance and investments in human capital, are critical in creating necessary conditions for economic modernization. At the same time, reliance on renewable energy as a driver of non-resource based growth can be regarded as an opportunity for establishing an innovative economy and embarking on a new trajectory of development. A gradual and non-reversible shift to renewable energy in Kazakhstan will create forward and backward linkages between the sector and the rest of the economy opening up new horizons for industries and businesses. At the same time, the development of renewables is a necessary step to prepare for the transition to a post-oil future when non-renewable energy resources are exhausted.


    References

    World Bank. (2017). Kazakhstan: Overview.

    Retrieved from http://www.worldbank.org/en/country/kazakhstan/overview#3

    FocusEconomics. (2017). Kazakhstan Economic Outlook.

    Retrieved from http://www.focus-economics.com/countries/kazakhstan

    Kazinform. (2016). S&P affirms sovereign credit ratings of Kazakhstan, Outlook Negative.

    Retrieved from http://www.inform.kz/en/s-p-affirms-sovereign-credit-ratings-of-kazakhst...

    World Energy Council. (2016). Variable renewables integration in electricity systems: how to get it right.

    Retrieved from http://www.worldenergy.org/wp-content/uploads/2017/01/VariableRenewables...

     International Renewable Energy Agency. (2016). Renewable Energy and Jobs Annual Review 2016.

    Retrieved from http://www.se4all.org/sites/default/files/IRENA_RE_Jobs_Annual_Review_20...

    Facts and Details. (2016). Energy in Kazakhstan.

    Retrieved from http://factsanddetails.com/central-asia/Kazakhstan/sub8_4e/entry-4674.ht...

    Karatayev and Clarke. (2016). A review of current energy systems and green energy potential in Kazakhstan.

    Retrieved from http://eprints.nottingham.ac.uk/32575/1/karatayevandclarke2016energyrevi...

    Kazenergy. (2011). Green Energy of Kazakhstan.

    Retrieved from http://www.kazenergy.com/ru/5-49-2011/3445-green-energy-of-kazakhstan.html


    *Published in the June 2017 No. 18 issue of the "Asya Avrupa: Haber-Yorum" journal.


    Note: The views expressed in this blog are the author's own and do not necessarily reflect the Institute's editorial policy.

    Tags: Kazakhstan, Renewable Energy, Economic growth

Author

  • Senior Research fellow

    Dauren Aben

    Dauren Aben holds a Master’s in International Relations from Kainar University, Almaty, Kazakhstan, and a Master’s in International Policy Studies and certificates in nonproliferation studies, conflict resolution, and commercial diplomacy from the California-based Monterey Inst