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Tariffing methodology in electricity supply sector of Kazakhstan and its implications for effectiveness in electricity supply sector

Ni, T. (2016) Tariffing methodology in electricity supply sector of Kazakhstan and its implications for effectiveness in electricity supply sector.

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Abstract:The background of this research was defined from the current situation in electrical energy supply sector in the Republic of Kazakhstan, where the major problem is a high level of depreciation of existing electric power capacities. According to the latest statistics published by the System Operator of the National power industry of Kazakhstan the depreciation rate of power plants is around 70%. Provided a growing trend in electricity consumption forecast, a significant amount of new power capacities is required to be built in a nearest future to meet an internal power demand. In order to solve the problem of aging electric power capacities and ensure that in a future there will be sufficient number of generating power plants to meet a growing demand, Kazakhstan needs to attract foreign investors today. Up to the current moment the power supply industry is highly dependent on external resources, since locally there is no sufficient financing, no available technologies and no qualified professionals who might carry out such complex projects as building modern power plants. Since the major factor that defines the attractiveness for foreign investors is a tariff, which will ultimately results in investor’s returns, it is very important to design and implement an adequate tariffing methodology in power supply sector to attract external investments. Currently electricity supply in Kazakhstan is a highly regulated industry where government plays a significant role in defining or limiting tariffs for power producing companies. After the collapse of Soviet Union, the government of Kazakhstan has been looking for the optimal tariffing methodology that will be attractive enough for investors and fair enough for electricity end consumers. Since 2009 the tariffing methodology in power supply switched from cost-plus approach to “marginal tariffs”. The idea behind application of marginal tariffs implied the following: all electricity suppliers have been divided into 13 groups and each group received its own tariff, fixed for the following 7 years and tariff for each group was independent from other groups’. The first seven years of application of marginal tariffs from 2009 to 2016 did not show expected results since no much investments have been made during this period. However, due to the lack of other alternatives, in 2016 the application of marginal tariffs in Kazakhstan was prolonged until the end of 2025. From 2016 till 2018 power suppliers will charge marginal tariffs for electricity (the same as it was during 2009 – 2015), and starting from 2019 marginal tariffs will be split into two groups, tariff for electricity and tariff for capacity, defined for 15 groups and valid until the end of 2025. This research is aimed to provide recommendations to the Ministry of Energy of the Republic of Kazakhstan on the most appropriate tariffing methodology to be applied in electricity supply sector of Kazakhstan, which will be high enough to attract investments and at the same time will not become unbearable burden for end-consumers. In addition, this research will elaborate on the conditions and prerequisites to be in place to ensure successful implementation of suggested recommendations. Master of Environmental and Energy Management | 2015-2016 University of Twente 7 The theoretical framework of the research will be based on a review of theories describing different tariffing methodologies used in electricity supply. Based on the review results, a comparative analysis of tariffing methodologies found in theory with those applied in Kazakhstan will be performed to elaborate on what the country can learn from theories. For this purposes secondary data will be collected from official websites, empirical studies documentation, legislative documentation and other appropriate literature.
Item Type:Essay (Master)
Faculty:BMS: Behavioural, Management and Social Sciences
Subject:43 environmental science
Programme:Environmental and Energy Management MSc (69319)
Link to this item:http://purl.utwente.nl/essays/77479
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