Sustainable Energy in Kazakhstan

Moving to cleaner energy in a resource-rich country

Yelena Kalyuzhnova, Richard Pomfret

• Publisher: Routledge
• Year: 2017
• Print ISBN:
  9780367885106
• eBook ISBN:
  9781351972659
• Topic: Social Sciences
• Subtopic: Ethnic Studies
• Index: Social Sciences

Kazakhstan is rich in natural resources including coal, oil, natural gas and uranium and has significant renewable potential from wind, solar, hydro and biomass. In spite of this, the country is currently dependent upon fossil fuels with coal-fired plants accounting for 75% of total power generation leading to concerns over greenhouse gas emissions and impacts on human health and the environment.

This book analyses the implications of the global shift to cleaner energy for a country whose economy has centred on hydrocarbon exports. The challenge is urgent for Kazakhstan, whose recent economic growth has driven increased demand for energy services, making the construction of additional generating capacity increasingly necessary for enabling sustained growth. In this context, renewable energy resources are becoming an increasingly attractive option to help bridge the demand-supply gap. Chapters written by experts in the field provide a comprehensive review of the current energy situation in Kazakhstan including fossil energy and renewable resources and analyses policy drivers for the energy sector. Emphasising that clean energy covers a variety of renewables, as well as cleaner use of hydrocarbons, this book argues that future technological change will affect the relative attractiveness of the various choices.

Recognising technical, geographical and domestic and international political constraints on policymakers' options, this book will be of interest to an interdisciplinary audience in the fields of resource management and clean energy, development economics and Central Asian Studies.

Part I
Setting the scene

1 Resource-rich countries, clean energy and volatility of oil prices

Yelena Kalyuzhnova

The energy mix for any country is a complicated issue, which should be supported by the ‘correct’ state energy policy. This process is especially challenging in resource-rich countries, where the temptation to use fossil fuels that are readily available becomes much stronger, particularly during a period of lower oil prices. However, the beginning of a shift towards cleaner energy is possible to track in a number of resource-rich countries, including Kazakhstan. This chapter discusses the fundamental questions related to renewables in Kazakhstan: economic, financial and geographical, as well as policy issues from the long-term stability of the present development model.

1.1 Renewables: to be or not to be?

World oil prices are notoriously volatile. As Figure 1.1 clearly shows, there was an increase in world prices in the first decade of the twenty-first century, followed by a fall, recovery and then uncertainty from 2009 until mid-2014. There was almost a decade of high oil prices, followed by a drop of more than a half between June 2014 and January 2015, which only slightly picked up in May 2016, dropped again by around 10 per cent after the UK’s ‘Brexit’ vote on 23 June 2016 and then increased to US$50/bbl. Such volatility has caused companies and countries to reconsider and to reassess their energy choices. The energy mix for any country is a complicated issue, which takes into account the country’s resource endowment and its accurate assessment of the cost of energy. Countries also have to take into account not only the volatility of oil prices, but also the economic implications of such uncertainty. Understanding what this means for longer-term trends is also crucial (Jacobson and Delucchi, 2011).

Figure 1.1 Brent crude oil, price, 1990–2015, US$/bbl.

Source: BP Statistical BP Statistical Review 2016.

Although oil prices are low at the time of writing, we argue that they do not reflect the true costs of fossil fuels, since they do not take into account the full range of negative impacts associated with their use. Emissions from the burning of fossil fuels cause air pollution, which has a profoundly negative impact on the health and productivity of millions of people across the world. According to World Health Organization (WHO) estimates, around seven million premature deaths are annually linked to air pollution (WHO, 2014). In the current situation of lower fossil-fuel prices, there is an opportunity to adjust prices with the aim of taking into account the harmful local and regional impacts of such energy use, in particular on human health.

The sharp decline in oil prices in 2014 has raised the question of whether the change in energy mix of resource-rich countries will be stalled by cheaper and more affordable oil and gas or, despite all odds, they will continue their quest towards a more integrated energy mix with potential growth of the renewables sector. In the past it has been a concern that the use of renewables is an unreliable option (e.g. Nogee et al., 1999). The main argument focuses on the recurrent patterns of some types of renewable energy: the wind blows only intermittently and the sun does not shine all of the time. However, this becoming less of an issue, since the role of gas in the electricity market is increasing and this provides an ideal complement to the generation profile of renewable energy technologies (RETs). In addition, there is a growing trend towards the development of energy storage technologies. So, hopefully, in the years ahead utility-scale solutions will be implemented that should minimise concerns regarding the uptake of renewable energy generation.

On the other hand, the last decade has been characterised by a number of studies that clearly make a case for large-scale renewable energy plans (Jacobson and Masters, 2001; Hoffert et al., 2002; Czisch and Schmid, 2004, etc.). There are a number of drivers towards renewable energy sources (RES), which are all related to the long-term future. One of them is clearly related to the desire of governments to establish secure local supplies and to protect their economies from the volatility of world oil prices, and to form policy frameworks worldwide that aim to decarbonise the economy in response to climate change and pollution concerns. The other drivers include the problems of managing hard-to-reach or absent resources (in the case of resource-poor countries), and finite resources (in the case of resource-rich countries). The requirement for increased electricity generation could also be added to the list of the drivers for renewables, since the emerging gap in supply and demand that needs to be closed continues to grow.

Although, at the time of writing, oil prices are low, there is a good rationale to expand investments in renewable energy sources for electricity production (RES-E). Sustainable development of a country in the long term requires a reduction of dependence on fossil fuels, which ultimately will lead to a reduction in greenhouse gas (GHG) emissions. In this respect, governments need to produce robust plans and have the political determination to make such changes. However, for resource-rich countries this might not be an easy option, since the temptation to use fossil fuels will be always there. There is a notion that cheaper oil competes directly with renewable energy for electricity production. This is not true; cheaper oil can bring lower natural gas and coal prices with wider impacts.

Oil itself barely features in electricity production globally, and technologies such as solar photovoltaics and wind energy are therefore not affected by the oil price itself. However, lower natural gas prices associated with cheaper oil can change electricity choices: strengthening the near-term case to switch from coal to gas and reducing electricity prices, while making renewable energy source less cost-competitive in the short run. In the long term, however, a shift to gas cannot depend on the indirect impact of lower oil prices, but would require lower fundamental costs and improved availability of natural gas itself.

(Klevnäs et al., 2015: 2)

The attractiveness of RES is also related to their falling costs, which make these costs less volatile than the fluctuation of world oil prices. Oil can contribute to lower natural gas and coal prices, which will have wider implications. Consumers would significantly benefit from oil prices in low-carbon scenarios, since the energy mix would be more balanced.

Finally, there is a problem with reducing petroleum subsidies, especially in the oil-exporting countries. In terms of both the micro- and macro-economic effects, Kosmo (1987) shows that the assumed benefits of such subsidies, which may include economic stimulation, inflation control and enhanced trade performance, are in reality not the true effects. On the one hand, there is a danger that subsidies could increase unemployment since energy might be substituted for labour, and this would create over-investment in energy-intensive industries at the expense of other sectors. In addition, energy subsidies also translate into forgone revenues and the inefficient use of energy.

As Klevnäs et al. (2015) indicate, energy efficiency and alternatives to fossil fuels have already reduced the pressure on fossil-fuel markets. The current low oil prices provide a chance to escape ‘stranding’ of assets (this is a financial term which means that something is not performing as well as expected and must be indicated on a company’s balance sheet as a loss of profit), since the low oil prices might send a signal to the governments of resource-rich countries to seek alternative sources of revenues rather than the production of oil. Low oil prices since 2014 have led producers to reduce their investment in hydrocarbon adevelopment. There is less money for new projects, less money for exploration and more focus on reducing operating costs; some producers are reducing their returns to shareholders and major global projects are on hold. This creates an opportunity both to avoid future ‘stranding’ and to avoid the trap of commitment to future fossil fuel. Around five years ago, the concept of stranded assets in the sense of ‘unburnable carbon’ emerged. The idea that ‘some assets, specifically hydrocarbons, will inevitably be stranded and left undeveloped as the world reduces its hydrocarbon consumption in order to avoid the risks of climate change’ (Butler, 2015) is debatable and requires more analysis and reflection.

1.2 Building a green economy in an oil- and gas-producing country

For decades, scientists, policy-makers and economists have been discussing the idea of a more sustainable economy (Meadows et al., 1972). In the last few years sustainability has become a key part of the global agenda. This is because the latest scientific research results, and the realities of environmental devastation and climate change, have made it clear that the perception, concept and economic model of long-term development need to change. This is why, in 2012, the major United Nations Conference on Sustainable Development (Rio+20) had a central theme – the green economy (UNEP, 2011). The green economy project (GEP) was introduced and many scientists and environmentalists have aimed to help the political and economic actors ‘to acknowledge the value of environment, submitting nature to the logic of the market (and the financial industry)’ (Boehnert, 2015: 3). In preparation for Rio+20, the government of Kazakhstan aimed to integrate this programme into the mainstream economy and develop energy projects that would relate to both core business and green economy principles. So, the green economy concept was embedded in the government of Kazakhstan’s Green Bridge programme, which stresses the importance of low-carbon development and the ‘greening’ of industry and technologies. The Kazakhstani government sees this programme as a mechanism to unlock the benefits of collaborative action on the green economy (Yessekin, 2012).

Throughout the 2000s, Kazakhstan’s resource-dependent development strategy enabled significant poverty reduction and employment growth across a range of services and low ...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• List of figures
• List of tables
• List of contributors
• Acknowledgements
• List of abbreviations
• Introduction
• Part I Setting the scene
• Part II Evolution and future scenarios for Kazakhstan’s energy sector
• Part III Learning from global practice
• Part IV Looking forward
• Index