Ageing Energy Infrastructure is Holding Central Asia Back


Blackouts and “rationalisation” of energy consumption (a euphemism for coordinated blackouts) are all too frequent in Central Asia. Energy shortages arising from limited generation, insufficient energy imports, or the poor state of the transmission network mean that blackouts recur. This winter, however, the situation grew significantly worse. Amid exceptional cold weather, many households, businesses, and schools remained without heating and electricity for days on end. Unusually, the blackouts not only afflicted communities in remote regions but also capital cities.

Most of the region’s inefficient power generation and transmission infrastructure dates to the Soviet era. Central Asia faces rising demand for energy, spurred by population growth and climate change. Steadily rising energy consumption has strained power grids. Demand from new types of consumers, such as cryptocurrencies miners, has also exacerbated recent crises.

At the same time that they face chronic energy shortages, Central Asian states must also significantly cut carbon emissions and accelerate the transition to clean energy—a challenging path, especially for Kazakhstan, Uzbekistan, and Turkmenistan, where domestic production of hydrocarbons secures the majority of domestic energy consumption.

Besides generation capacity, natural gas supplies and distribution present their own technical and political problems. Kazakhstan is the world’s ninth-largest exporter of coal and crude oil and twelfth largest exporter of natural gas; its total energy production covers more than twice its energy demand. Yet, it has not been able to reliably supply electricity within its own territory. In mid-January, Turkmenistan, despite sitting on one of the world’s ten largest natural gas reserves, disrupted gas supplies to Uzbekistan for over a week due to technical problems. Last year, several regions of Uzbekistan, Kazakhstan, and Kyrgyzstan were hit by blackouts caused by a technical incident in the so-called “energy ring,” a Soviet-era grid connecting border regions of these three countries, including the Kyrgyz and Uzbek capitals and Kazakhstan’s largest city, Almaty.

Central Asian authorities and international stakeholders have acknowledged the urgent situation facing the energy sector. The existing infrastructure is being operated “well beyond its shelf-life,” and loses caused by inefficiency may reach around 20% in the electricity sector.

But addressing all these demand-side and supply-side challenges simultaneously is impossible; governments in the region will have to prioritize specific sub-areas of their energy sectors. In the meantime, they will need to grapple with new economic challenges arising in part from Russia’s invasion of Ukraine.

The recent blackouts sparked considerable public anger given the financial impact, health risks, and general discomfort. Protests took place in several cities across Kazakhstan, Kyrgyzstan, and Uzbekistan. While these recent protests were small, the “Bloody January” protests in Kazakhstan and the Karakalpakstan protests in Uzbekistan point to the possibility that social and economic grievances can give rise to more significant unrest. Furthermore, many families relied on stoves to keep their homes warm, adding to the already high levels of pollution in Central Asia cities, resulting in further complains.

These extensive blackouts are also of concern to potential international investors. Without stable supplies of such basic utilities, investors will be deterred from Central Asia, leading to further economic stagnation. The ongoing crisis is a big test for Kazakhstan and Uzbekistan, and to a lesser extent Kyrgyzstan, three countries whose presidents have linked their political legitimacy with improving the economic and social conditions inside their country. To create jobs for their growing populations, these countries must grow their economies. But to grow their economies, the countries must boost energy production and significantly improve the distribution network. Securing the necessary financial resources for the extensive renovation of energy infrastructure is they key step for solving the energy shortages in the region. But securing new financing has become even harder because of the Russian invasion of Ukraine, which has significantly added to the already significant risks of investing in Central Asia, resulting from power struggles and corruption within the ruling regimes.

This has not stopped Central Asian leaders from promising new injections of investment in energy generation and improvement of the existing grid. President Shavkat Mirziyoyev of Uzbekistan announced a package of $1 billion to be invested in energy generation in the Tashkent region. But Mirziyoyev’s promise of new investment was clearly a political ploy, an effort to respond to public anger. The details of the investment and the expected economic, social, and political impact remain unclear. Governments in the region are luring new investors in the renewable energy sectors by setting ambitious targets. Kazakhstan aims to introduce new projects totaling 6.5 GW by 2035 and Uzbekistan plans to launch 7 GW of new capacity by 2030. However, many of these projections include nuclear power projects involving Russia’s Rosatom, which are now very unlikely to break ground.

Successful renovation of the energy sector at the national level also requires stronger political partnerships between countries given knock-on effects in the broader region. Tajikistan and Uzbekistan deliver electricity to Afghanistan, but domestic power outages in Uzbekistan briefly halted the export last month. Such disruptions in the national or regional grids are bound to reoccur and will add to the hardships faced by Afghans.

ADB predicts that demand will rise 30 percent across the entire CAREC region (which includes Central Asia, the Caucasus, Mongolia, and Pakistan). This means that no country has significant excess capacity it can share with its neighbors. The bank’s estimates put the cost of energy infrastructure modernisation for the region at between $136 billion to $339 billion by 2030. Upgrading transmission and distribution infrastructure alone is estimated to cost between $25 billion to $49 billion.

There are also other hidden costs. For example, the state usually subsidises electricity, gas, and coal, and any price increase brings a high risk of public dissatisfaction. Furthermore, there is a vast discrepancy in consumption between the winter seasons and the summer, which both generation and transmission infrastructure needs to reflect. The revenue potential of energy exports is deeply intertwined with the global economic situation. Hence, current estimates and political promises are bound to be revised sooner or later.  

The recurring blackouts and subsequent deep freeze in Central Asia were caused by three decades of neglect, corruption, and poor planning. Any significant improvement in the situation would require years of persistent effort to overcome economic and political challenges. After the disruptions of the pandemic and the Russian invasion of Ukraine, valuable time has been lost to begin the urgently needed modernisations of power plants and grids. For ordinary people in Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, and Turkmenistan, the countdown to the next winter has already begun.

Source: Bourse And Bazaar