Kazakhstan Is Going to Buy Electricity from Russia

Perhaps for the next several years

Due to a shortage of electricity during peak-hours, Kazakhstan is going to import that lacking power from Russia starting from November. The country may purchase about 300-400 Megawatts at private rates. Given that it is unlikely Kazakhstan would be able to solve the problem soon, the imports of energy from the north may last three or even five years.

This winter Kazakhstan has come across with quite a big deficit of electricity. 

“During peak activity hours the power consumption in the country exceeds the same rate last year by 1000-1500 Megawatts,” said KEGOC, a company that runs a national power system. 

In August, another national company Samruk Energo, which generates about 31% of all power produced in the country warned the government that it won’t be able to provide enough energy during the cold season. 

KEGOC believes that the deficit has been caused by digital mining farms, which consume more than 1000 Megawatts. This power would be enough to provide energy to the entire Almaty region, the company said.

That is why KEGOC wants to cut the energy supply for those who run mining farms. Now the government is considering what can be done in terms of a legal framework to prevent miners from overconsumption of energy.

Moreover, on October 14, 2021, the national power system operator revealed a huge risk of a blackout because the current power stations struggle with a lack of capabilities to produce more energy. Two power stations in Ekibastuz reported an emergency shutdown that day. 

The vast majority of power stations in Kazakhstan have been working for more than 40 years and desperately need an overhaul. About 39% of thermal power stations reported they have worn out their equipment by 75%, according to the carbon neutrality doctrine’s data. In other words, there is no surprise that new emergency shutdowns or even a massive blackout are just a matter of time.

Expensive supply

The difference between the energy production and consumption during peak hours has been for long compensated by energy supply from Russia, which Kazakhstan pays for just after that. According to Ms. Alexandra Panina from Inter RAO, a Russian energy trader, the company supplies about 400 Megawatts into Kazakhstan. These supplies are based on a bilateral agreement on parallel work of energy systems in both Russia and Kazakhstan.

However, as Nikolay Shulginov, a minister of energy in Russia noted, unscheduled energy consumption by Kazakhstan at peaks may reached 1-1.5 Gigawatts. Given the Russian supplier is unprepared to these unexpected overflows of energy consumed by

Kazakhstan, Russian officials say it might pose a real threat to the power grid system in Russia. As a result, Russians are going to sell Kazakhstan these 300-400 Megawatts at a private rate.

In 2020 KEGOS paid $37.3 million to Inter RAO for that overflow of energy, up 8.2% compared to the 2019 figure. The payment rate is $0.035 per kilowatt-hour. Over the period from 2015 to 2019 this kind of expense by KEGOC has risen from $19.3 million to $34.5 million. When the level of consumption gets lower, Kazakhstan gives the rest of the energy back to Russia. But in this case, the rate is $0.011 per kilowatt-hour. 

As Inter RAO wants to ship energy at the private rate, it has got to be more than $0.035.

“We are talking about business agreement; therefore, energy supply pricing will be based on principles of a free market,” said Inter RAO. 

In turn, the Ministry of Energy of Kazakhstan told the Kursiv edition that Inter RAO and Samruk Energo are going through the negotiation process and aimed at establishing a new joint venture that will be able to sell electricity directly to consumers in Kazakhstan.

The potential platform for that trading might be Kazakhstan Electricity and Power Market Operator (KOREM). On October 15, KOREM had already carried a kind of test trading session for the future supply (from Oct. 18 to Nov. 18, 2021) but no results of the trading were released to the public. The Ministry of Energy, however, noted that the only participants of that trading were digital mining companies even though the electro energy association and association of blockchain and data center industry haven’t confirmed that these supplies are intended solely for mining farms.

Whose fault is that?

The government had been expecting that Kazakhstan may face a lack of power in 2023 but emergency shutdown on various power stations across the country as well as a high level of energy consumption by mining farms have already caused problems with a deficit during peak hours. Controllable energy production that can be turned on and off in just several minutes could be an excellent solution. Unfortunately, there are not enough controllable power sites in the country.

According to Kazakhstan’s energy association, the local energy system needs new controllable power stations with a capacity of at least 1-1.5 Gigawatts (3-4 Gigawatts would be optimal). Even a growing number of renewable energy-producing sites wouldn’t help because this type of energy source depends on weather and is quite unstable.

From the official point of view, mining farms are the main actors responsible for the energy deficit in the country. However, some independent experts blame the energy system operator and the Ministry of Energy for being responsible for letting things worsen.

“KEGOS has been well informed about the possible deficit of energy-producing capabilities but did nothing and continued issuing approvals for mining farms to be plugged into the power system,” said Aset Nauryzbayev, a former head of the company.

The tough situation with energy supply during peak hours may last several years from now until new energy-producing sites are established (with a capacity of 1.5 Gigawatts) in 2025-2026. Controllable energy production can add about 1.1 Gigawatts over 2-5 years (auctions for constructions of these stations have been scheduled for the end of this year). 

According to the energy outlook for 2021-2027, the deficit of power capacity in Kazakhstan is expected at 1.5 Gigawatts by the year 2027. Therefore, if aforementioned investment projects wouldn’t be implemented, the problem of an energy deficit and a threat of blackout will stay in place for years.
 

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