The Role of Renewable Energy in Central Asia’s Development Strategy
Renewable energy is currently one of the most important long-term energy sources for developing countries, contributing to their energy security and decreasing the side effects of traditional energy sources such as oil and gas. In this context, the Central Asia region emerges as a dynamic area that proactively develops its business environment to attract investment and utilize its green energy sources. Countries in the region follow different strategies to increase renewable energy electricity generation in their total energy generation mix.
In this regard, Kazakhstan emerges as one of the dynamic countries in the region that attracts investment and utilizes its green energy sources. Kazakhstan has applied multiple policies to utilize its resources. Regarding both short and long-term plans, Astana’s development of green resources has implications for both domestic and foreign policy. However, before clearly mapping the main purpose and implications of renewable energy, it is important to understand Kazakhstan’s policies towards these resources.
Resources, National Plan and Regulatory Development
There are a range of conditions that draw external actors’ interest to the country’s sources. The first is about the presence of renewable energy sources, which Kazakhstan has in abundance. In this context, Kazakhstan’s wind energy potential is 354,000 MW and solar energy potential is 3,760,000 MW, which reflects its huge potential. The presence of vast energy sources is important for international companies to assess long-term investment opportunities and also the market of potential host countries. In this background, Kazakhstan’s energy resources create sustainable opportunities for investors in the long term.
Another critical component is the existence of a national plan for renewable energy sources. In this regard, Kazakhstan is unique in the region in having adopted the “Kazakhstan-2050” plan, a long-term strategy that prioritizes diversification in total energy consumption. The administration aims to increase the share of renewable energy sources to 50% by 2050, with solar and wind power accounting for 39%, nuclear and hydroelectric power 14%, gas 16% and coal-fired thermal power plants 31%. The presence of a national strategy on renewable energy reflects the government’s commitment to utilizing resources and creates positive market signals for international companies or organizations to align their plans with the country’s purposes.
In addition to its available resources and strategic plans, a crucial aspect of Kazakhstan’s green transition has been the development of a robust regulatory framework. In 2009, the government introduced a renewable energy law as an initial step toward fostering a favourable environment for the sector. However, this law fell short in driving significant investments. It lacked comprehensive regulatory guidelines, creating uncertainty and high risks for potential developers. The absence of clear rules ultimately discouraged investors from entering the market.
Rather than offering a universal, currency-indexed feed-in tariff (FiT) system, it was based on project-based tariffs that required each project to be negotiated with the regulators. This created a particularly high barrier for international investors. FiTs offer several advantages: they reduce project risk, attract more developers and lower financing costs; incentivize adoption of new technologies; and are effective in centralized power systems. However, their simplicity also presents drawbacks. Governments often struggle to anticipate technological advances and cost reductions, risking overpayment to developers. This can result in windfall profits and market distortion, potentially undermining the long-term effectiveness of the incentive mechanism.
In 2017, recognizing the limitations of feed-in tariffs (FiTs), Kazakhstan’s government shifted to renewable energy auctions. This move aimed to expedite progress towards renewable energy goals and take advantage of declining costs in the sector. The auction system proved successful, with 71 renewable energy auctions held between 2018 and 2023, offering a total installed capacity of 3,255 MW. These auctions resulted in the award of 2,502.84 MW of installed capacity, distributed across various renewable energy types. Wind power plants led with 1,534.79 MW, followed by solar power plants at 566.5 MW. Hydropower plants contributed 381.09 MW, while biomass power plants added 20.55 MW to the mix. This diverse allocation demonstrates Kazakhstan’s commitment to developing a balanced renewable energy portfolio through its auction system.
A range of companies from countries such as Turkey, China, UAE, and France participated in auctions, which reflects positive aspects of the program in maintaining diversity and different offers. The successful implementation of these programs plays an important role for external companies to invest because it reflects market transparency and fair competition, long-term contract certainty, and alignment with global best practices. In the long term, it ensures companies of standardization and stability in investment environments. In addition to developing a regulatory framework, Kazakhstan also provides a range of subsidies and incentives to companies. Overall, the dynamic regulatory environment mitigates risks for companies, increases certainty and market confidence, and contributes to long-term stability.
Domestic and Foreign Policy Implications
The existence of three factors – available resources, a national plan, and dynamic regulatory environments – enables Kazakhstan’s renewable energy market positively and promotes investment attraction. There are two different reasons why Astana is eager to develop its green energy resources in the short and long terms. These can be divided into reasons for domestic politics and reasons for foreign policy.
Domestic Policy
Renewable energy’s domestic implications for Kazakhstan are significant. Firstly, it aids in reducing air pollution and carbon emissions. Kazakhstan ranks 40th out of 134 countries in the 2023 World Air Quality Report, highlighting the severity of its air quality issues. This pollution, primarily due to heavy reliance on traditional energy sources, threatens public health and could lead to social unrest. Coal dominates the energy mix at 49.6%, followed by natural gas (26.7%) and oil products (21.7%). By developing renewable sources, Astana aims to decrease this dependence and improve long-term air quality.
The second reason is the growing energy consumption in parallel with growing energy shortages in Kazakhstan. Despite its vast natural gas reserves, it has struggled to maintain a healthy natural gas surplus as the country’s gas processing capacity lagged far behind rapidly growing domestic demand. Compared to 2022, the total primary energy consumption increased by 5% in 2023. In terms of final consumption, households accounted for 30.8% in 2022 and 35% in 2023, which reflects a substantial increase in household energy consumption. In this regard, by promoting renewable energy deployment, Astana plans to increase green energy sources consumption in the overall energy mix to meet people’s energy consumption needs.
The final component is solving the disparity between the north and south regions of Kazakhstan. The renewable deployment could help balance regional disparities. Currently, 80% of electricity is produced in the coal-rich north, while the south relies on imports and inefficient long-distance transmission. In this context, deployment of renewable energy resources can help generate additional electricity in the southern region and reduce its dependence on electricity imports from the northern region and neighboring countries.
Foreign Policy
In addition to domestic politics, utilization of green energy sources has foreign policy implications for Kazakhstan. First, due to the growing energy crisis, Astana started to import gas from Russia. This helps the state meet people’s growing energy consumption, but in the long term, this can create further dependency on Russia, which can increase the state’s energy vulnerability. In this regard, growing renewable energy deployment can help Kazakhstan switch between different sources, decrease its vulnerability, and improve its energy security in the long term.
In addition to developing energy security, growing electricity generation by renewable energy sources can enable Kazakhstan to not only meet the population’s growing energy needs but also export electricity to different countries in the long term. The discussion on export of electricity is ongoing. The energy ministers of Azerbaijan, Uzbekistan, and Kazakhstan announced the signing of a memorandum of understanding in early May to explore their joint electricity export potential by harnessing mainly wind and solar power. The main target for electricity export is the European Union.
In addition to the European market, the development of renewable energy sources and the modernization of both domestic and cross-border transmission grids may enable Kazakhstan to also export electricity to China’s central and eastern provinces. In the long term, possible electricity exports from Kazakhstan to different markets can help diversify its economy and revenue generation. Moreover, it can strengthen its multi-vector diplomacy and create interdependence between neighbors, increase the stake of other countries in the state, and help reduce potential security risks from external actors.
Conclusion
Overall, Kazakhstan’s proactive policy to integrate renewable energy into its long-term national strategy has promoted the development of a business-enabling environment and encouraged a range of investments in the sector. As a result, growing generation in renewable energy electricity has the potential to create multiple effects in both domestic and foreign policy. While it can help reduce air pollution and meet people’s electricity consumption with environmentally friendly sources, it can also reduce the country’s dependence on external energy imports and create new export opportunities in the long term.