Overview of the electricity and coal market in Kazakhstan

The power industry of the Republic of Kazakhstan operates under the conditions of the Unified Electric Power System (UES), which is a set of power plants, power transmission lines and substations providing reliable and quality power supply to consumers in the Republic.

The energy sector is regulated by an authorized state body represented by the Ministry of Energy of the Republic of Kazakhstan⁷, including in the field of RES⁸. The state policy in the sphere of natural monopolies in the part of regulated services for transmission of electric energy, production, transmission, distribution and supply of heat energy is implemented by the Committee for Regulation of Natural Monopolies under the Ministry of National Economy of the Republic of Kazakhstan⁹. The Ministry of Industry and Infrastructure Development of the Republic of Kazakhstan ma­nages the coal industry¹⁰.

⁷ Law of the Republic of Kazakhstan 'On Electric Power Industry' No. 588-II dated July 9, 2004.
⁸ Law of the Republic of Kazakhstan “On Supporting the Use of Renewable Energy Sources” No. 165-IV dated July 4, 2009.
⁹ Law of the Republic of Kazakhstan “On Natural Monopolies” No. 204-VI dated December 27, 2018.
¹⁰ The Code of the Republic of Kazakhstan “On Subsoil and Subsoil Use” No. 125-VI dated December 27, 2017.

In the Northern Zone, the location of the main coal deposits and hydropower resources, 74.8% (84.4 billion kWh) of the total electricity generated in the country in 2023 was produced. The Northern Surplus Zone covers electricity deficits in the Southern Zone and also provides Kazakhstan's export potential.

In 2023, electricity production in the Southern Zone amounted to 12.4% (14 billion kWh) of the total volume. Electricity deficit in the Southern Zone was covered by supplies from the Northern Zone.

In the reporting period, the Western Zone produced — 12.6% (14,3 billion kWh) of the total share of electricity produced. The peculiarity of this zone is the absence of connections between its power grids and those of the Northern and Southern zones of the UES of Kazakhstan.

According to the data of the System Operator, in January-December 2023, the power plants of the Republic of Kazakhstan generated 112,823.1 million kWh of electricity, which is 42.8 thousand kWh or 0.04% less than the same period in 2022. A decrease in ge­neration was observed in the western and southern zones of UES of Kazakhstan.

From January to December 2023, electricity gene­ration in Aktobe, Almaty, Abay, Zhetysu, Karaganda, Kostanay, Mangistau, North Kazakhstan and Turkestan regions increased significantly compared to the same period of 2022.

At the same time, a decrease in electricity production was observed in Akmola, Atyrau, East Kazakhstan, Zhambyl, West Kazakhstan, Pavlodar, Ulytau and ­Ky­zylorda regions.

Electricity generation for 2023 amounted to 35,330 million kWh, down 1.5% or 554 million kWh year-on-year. The main decrease occurred at EGRES-2 JSC by 344 million kWh (by 6%) due to a decrease in operating capacity due to failure of the circulation pump, at EGRES-1 LLP by 178 million kWh (by 1%) due to forced downtime of power unit No. 4, and at Moynak HPP JSC by 140 million kWh (by 14%) due to a decrease in water availability in the Charyn River basin.

The volume of heat production in 2023 amounted to 5,776 thousand Gcal. Compared to the same period last year, the increase is 5%, which is due to lower average monthly temperature during the heating period.

Forecast for the future period:

Heat production volumes in the plan for 2024 are projected to decrease by 3% compared to 2023, mainly due to reduced heat production by Almaty Power Plants JSC.

In 2023, the volume of electricity transmission through Alatau Zharyk Company’s grids amounted to 8,686 million kWh, which is an increase of 7% or 533 million kWh compared to 2022.

Forecast for the future period:

An increase of 1% in electricity transmission and distribution volumes is expected in 2024 compared to the 2023 actual figure, due to a projected increase in consumption in the Almaty region.

Renewable energy is one of the most promising areas of investment. Despite the fact that in recent years this market has shown significant growth results — since 2014, the installed capacity of RES facilities in the Republic of Kazakhstan has increased more than 14 times — the share of solar and wind generation in Kazakhstan, both in quantitative and share terms, is still far behind other developed and developing countries.

According to the Ministry of Energy of the Republic of Kazakhstan, as of January 1, 2024, 130 RES facilities with a total capacity of about 2,881 MW are in operation in Kazakhstan, producing 8.1% of the total volume of electricity. During reporting period, there was an increase in electricity generation by SPP, WPP and small HPPs. In total, in 2023, RES facilities (SPP, WPP, BGP, small HPPs) generated 6.7 billion kWh of electricity, which is 33.9% more than in 2022.

In 2023, 16 new RES facilities, with a capacity of 495.6 MW, were commissioned in Kazakhstan. In 2014, the installed capacity of RES facilities in operation in the country amounted to 177.52 MW, and in 2023 it exceeded 2,881 MW.

Electricity generation by RES facilities of Samruk-­Energy JSC (SPP, WPP and small HPPs) for January-December 2023 amounted to 554.4 million kWh representing 8.1% of the total RES-generated electricity in Kazakhstan.

Along with the electricity market, Kazakhstan has a capacity market, introduced in 2019, whose main purpose is to attract investment to maintain existing facilities and create new capacity, as well as to ensure a balance between supply and demand for electricity in the country. The capacity market also incentivizes the use of renewable energy sources and improves the efficiency of the energy system.

In 2023, we participated in electric capacity auctions held on the trading platform of KOREM JSC.

Based on the results of centralized bidding held on November 21, 2023, the power plants of Samruk-Energy JSC sold 2,707 MW of capacity at a price of KZT 590 thousand/MW*month, including:

• EGRES-1 LLP — 1,436 MW;
• EGRES-2 JSC — 820 MW;
• APP JSC — 450.8 MW.

In accordance with the legislation¹¹ , individual capacity tariffs were set for Moynak HPP JSC, Shardara HPP JSC and APP JSC in 2022. For Shardara HPP JSC, the volume of capacity amounted to 61 MW, for Moynak HPP JSC, 298 MW. These tariffs will allow enterprises to ensure repayment of borrowed funds used for the construction of the power plant (Moynak HPP JSC), modernization of equipment (Shardara HPP JSC), as well as for refinancing of previously obtained target loans for investment programs (APP JSC).

Also during reporting period, in order to balance electricity production-consumption, Samruk-Energy JSC exported 576.8 million kWh of electricity to the Kyrgyz Republic.

¹¹ Law of the Republic of Kazakhstan “On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on Special Economic and Industrial Zones, Attraction of Investments, Development and Promotion of Exports, and Social Security” No. 243-VІ dated April 3, 2019.

Operating activities of the subsidiaries of the Samruk-Energy JSC Group of Companies and its joint ventures, being natural monopoly subjects, subjects of competitive and publicly important markets, are regulated by the laws of the RK “On Electric Power Industry”, “On Natural Monopolies” and the Entrepreneurial Code of the RK. Tariff regulation, depending on the type of activity of energy companies, falls within the competence of the Committee for Regulation of Natural Monopolies and Protection of Competition of the Ministry of National Economy of the Republic of Kazakhstan (the Committee) or a sectoral ministry — the Ministry of Energy (MOE).

The order of the Minister of Energy of the Republic of Kazakhstan No. 205 dated May 22, 2020 approved a new “Methodology for determining the fixed profit taken into account when approving the marginal tariffs for electricity, as well as fixed profit for balancing, taken into account when approving the marginal tariffs for balancing electricity”.

Based on the Concept of Development of the Fuel and Energy Complex (FEC) of Kazakhstan until 2030 adopted in 2014, starting from 2019, the Capacity Market was introduced as an effective mechanism to provide the industry with a sufficient level of investment, which will favorably affect the market in the long term.

Starting from 2019, with the introduction of the capacity market for energy producing organizations, the following were established:

• marginal tariffs for capacity, including costs of investment projects and repayment of principal debt (for loan funds raised for investment projects);
• marginal tariffs for electricity, including the cost of electricity generation and the rate of profit. The order No. 76 of the Minister of Energy of the Republic of Kazakhstan dated March 11, 2021 amended Order No. 205 dated May 22, 2020 on approval of the “Methodology for determining the rate of profit taken into account when approving marginal tariffs for electricity, as well as fixed balancing profit taken into account when approving marginal tariffs for balancing electricity”.

Starting from July 1, 2021, in accordance with the Law of the RK “On support of RES use”, a mechanism of through surcharge was introduced as part of the sales tariff for electricity of EPO in order to recover the costs of purchased electricity of EPO. The pass-through surcharge is calculated by FSC for RES support LLP on the basis of the costs of RES support in the RK and volumes of electricity supply to EPOs, which are conditional consumers. Taking into account the introduction of the RES pass-through surcharge, the electricity tariffs of the country's energy producing organizations were revised.

Since July 1, 2023, the RK has launched the Single Purchaser model, which provides for centralized purchase of electricity and introduced a balancing electricity market in real time (until July 1, 2023, it functioned in simulation mode).

Electricity transmission and distribution tariffs for energy transmission companies, heat generation and energy supply tariffs (ESOs) are regulated by the Committee for Regulation of Natural Monopolies and Protection of Competition of the Ministry of Economy. Regulation and control by the Committee is carried out in strict compliance with legislative and regulatory acts.

Tariff decisions are significantly influenced by social and political issues. Economic, social and other policies of the Government of the Republic of Kazakhstan may have a significant impact on the operating activities of the Group of Companies of Samruk-Energy JSC.

The transition to a new model of the electricity market based on the mechanism of a single purchaser of electricity and the balancing electricity market is carried out in real time. With the introduction of the balancing electricity market, the entire volume of electricity purchases is made from a Single purchaser.

In 2023, the electricity tariff for end consumers was formed taking into account:

• purchase of electricity from a single purchaser;
• prices for transmission/use of electricity through the National Grid;
• the price for transmission and distribution on the REC grid;
• the cost of regulation, balancing and dispatch services;
• the cost of electric capacity availability services.

The structure of heat supply systems consists of three sectors: production, transmission (including distribution and sales of heat energy) and consumption of heat energy. The heat market of Kazakhstan is actually a retail sector, where the retail consumer has no practical opportunity to choose a heat supplier.

For Alatau Zharyk Company JSC, which is also a subject of natural monopoly, the Order of DCRNM dated 17.05.2021 approved the marginal tariff for the period 2021-2025, with the tariff coming into effect from June 1, 2021. Alatau Zharyk Company JSC submitted an application for change of the approved tariff on 09.06.2023 to DCRNM with the Draft Tariff Estimate.

The Draft Tariff Estimate was based on the following grounds (Article 22 of the Law “On Natural Monopolies”):

• Reduction of the tariff due to the increase in the volume of electricity transmission, adjustment of technologically related cost items, taking into account the increase in the cost of strategic commodity (tariff of APP JSC (item 5, item 1, p. 1);
• Change of the approved investment program in connection with the implementation of the state program “Tariff in exchange for investments” (item 4) para. 1);
• Increase in salary costs due to failure to achieve the average salary in Almaty city by economic activity, according to statistics for the 4th quarter of 2022 (item 9-2) p.1);
• Inclusion of operating costs on maintenance of networks and equipment transferred to the balance sheet from the municipal property by KZT 1.8 million. (item 9-1) p.1);
• Income (profit) is calculated taking into account the regulated base of the involved assets and the profit rate (acceptable profit level — APR) in the tariff.

According to the results of the consideration of the application, the authorized body approved the following tariffs for AZhK JSC, excluding VAT:

• from 01.01.2023 — 7.05 tenge/kWh;
• from 01.07.2023 — 8,31 tenge/kWh;
• for 2024 — 8.87 tenge/kWh;
• for 2025 — 9.95 tenge/kWh.