Reformed energy sector attracts investors

9 July 2020

Uzbekistan is proving a potentially attractive place to do business for developers of PV, wind and combined cycle power plant projects.

A further important milestone in Uzbekistan’s ambitious plans for much needed modernisation of its power generation and transmission infrastructure was achieved at a virtual ceremony on 9 June with the signing of an agreement under which Masdar of Abu Dhabi will develop, build and operate a 500 MW wind farm in the Navoi region, Zarafshon district, with commercial operation scheduled for 2024.

The agreement, signed by Masdar together with the Uzbekistan’s Ministry of Investments and Foreign Trade and JSC National Electric Grid, is seen as a further illustration of Uzbekistan’s commitment to increasing private sector participation and expanding renewables.

It is Masdar’s second utility scale renewables project in Uzbekistan, the first being a 100 MW PV project, also located in Navoi, for which a PPA (power purchase agreement) and government support agreement was signed with the government of Uzbekistan in November 2019. This covered the design, finance, build and operation of what will be the country’s first public–private partnership (PPP) solar power plant, tendered under the World Bank Group’s Scaling Solar programme. Masdar was announced as the winning bidder for this project after tendering the lowest tariff, 2.679 US c/kWh (the other bidders were Acwa Power (Saudi Arabia), TBEA (China), Jinko (China) and Masdar. In September 2019, Total Eren signed a PPA for a 100 MW PV solar project in Samarkand. Remarkably this was the first significant PV project in Uzbekistan – despite the country’s huge solar potential – and the first project to be developed by an IPP.

Energy strategy

On 28 May, the Ministry of Energy of Uzbekistan announced it was developing a national low- carbon energy strategy with assistance from the European Bank for Reconstruction and Development and consulting company Corporate Solutions, which will model “Uzbekistan’s energy system against the experiences of Germany, Japan and Spain to learn from their respective low-carbon transitions” and “help shape Uzbekistan’s own strategy and the process of attracting international investment.”

The strategy announcement came three weeks after publication of what was described as a “Concept Note” (to be “regularly amended and adjusted as necessary”) setting out a ten- year plan for electricity provision in Uzbekistan, developed with the ADB and the World Bank.

This basic aim is to increase generating capacity from 12.9 GW today to around 30 GW (net of 5.9 GW of obsolete assets to be commissioned by 2030), with the additional capacity to include about 5 GW of solar energy, 3.8 GW of new hydro, 3 GW of wind and 2.4 GW of nuclear energy (with an agreement in place with Rosatom envisaging construction of two VVER-1200 PWRs). There will also be additional fossil fired capacity: 3.8 GW of new combined cycle projects; 4.1 GW coming from adding capacity at existing gas plant sites, mainly CCGT but also simple cycle GT; a new 150 MW coal unit at the existing Novo Angren coal fired plant; and an upgrade of units 1-5 at Novo-Angren (additional 330 MW).

It is hoped that the development of renewables will contribute to affordable electricity supplies in regions with current shortages. It is also expected that by 2030, whilst the state will remain the owner of hydro, nuclear and some fossil fuelled plants, most of the country’s electricity generation plants will be concentrated in the private sector.

Combined cycle plans and plants

Some 8.5 GW of Uzbekistan’s current installed generating capacity is gas fuelled. Around 25% of this (2825 GW) is in the form of “modern efficient generating units”, employing F class CCGT technology, but much of the rest of the gas fired fleet is elderly and low efficiency (25-35%), employing Soviet era steam cycle units consisting of gas fired boilers with steam turbines.

Combined cycle plans include two new modern plants, each consisting of two units of 650-750 MW, to be constructed in Syrdarya, in the vicinity of Shirin, close to the existing Syrdarya gas fuelled power plant, with commissioning anticipated in 2023-24.

One of these is currently undergoing a tendering process. It is being developed as a PPP, with the Uzbekistan government entering into a design, build, finance, operate and maintain agreement with a private partner. The International Finance Corporation is lead advisor.

No less than 45 expressions of interest were received by the closing date of 5 March 2020.

Acwa Power is developing the other one and has signed a 25-year PPA and investment agreement – with a total investment value of US$1.2 billion – for the development/ construction/operation of a 1500 MW CCGT power plant in Syrdarya (plus “an implementation agreement worth US$550 million-US$1.1 billion for the building of wind power plants with a capacity of 500-1000 MW”).

As well as the Syrdarya CCGT units, other fossil fuelled projects mentioned in the Concept Note include:

  • Expansion of the Navoi combined cycle plant with construction of a third 650 MW CCGT unit to be commissioned in 2023-2024, and a fourth CCGT plant of the same capacity to be commissioned in 2024-2025.
  • Expansion of the Talimarjan CCGT plant with construction of a third and fourth CCGT unit, adding at least 900 MW by 2023-2024.
  • Construction of a 1300 MW CCGT plant in Kashkadarya or Surkhandarya, to be commissioned in 2025-2026.
  • Construction of peaking plants, with a total capacity of around 1200 MW, employing simple cycle gas turbines (50-100 MW) and gas fuelled piston engines. It is expected that “investors will be identified in 2020” for construction of two of these peakers with capacity amounting to 200-300 MW, for commissioning in 2021-2023.
  • Deployment of gas turbines for cogen units supplying heat and hot water to cities, in particular, a 17 MW GT for the Ferghana CHP plant to be commissioned in 2020 and two GTs with a total capacity of 54 MW for the Tashkent CHP plant, to be delivered in 2022.

Renewables development

Renewables priorities mentioned in the Concept Note include development of large scale wind farms with single site capacities ranging from 100 to 500 MW, mostly in the north-west (Republic of Karakalpakstan and Navoi region), and PV plants with capacities ranging from 100 to 500 MW mainly in central and southern regions (Jizzakh, Samarkand, Bukhara, Kashkadarya and Surkhandarya).

It is also envisaged that PV plants over 300 MW will be equipped with energy storage.

Recent renewables development tenders issued by Uzbekistan have attracted considerable investor interest worldwide. Examples form the first half of 2020 include the following:

  • 100 MW wind farm, Qorao’zak, Karakalpakstan. 70 expressions of interest received from 30 countries. Project to be developed with support from EBRD and government of Japan. A second wind farm, 200 MW, on an adjacent site is planned, for which a similar tender will be organised shortly. Part of an EBRD programme to support 1 GW of wind capacity development in Uzbekistan.
  • Samarkand and Jizzakh PV IPP projects, 200 MW each, in co-operation with IFC. Private sector partners to develop, finance, construct, own and operate. 84 expressions of interest received.
  • 200 MW Sherabad PV plant, Surkhandarya. 54 expressions of interest received. This is the initial pilot project of a 1 GW PV programme being jointly developed by the Uzbekistan government and the Asian Development Bank.

Ageing assets

As well as developing renewables, another key goal for Uzbekistan identified in the May 2020 Concept Note is addressing the inadequacies of the country’s ageing T&D assets, with 66% of the transmission grid, 62% of the distribution network, 74% of substations and over 50% of transformers having been in service for over 30 years, resulting in high and growing system loss levels, lower power quality, and insufficient capacity.

It is hoped, among other things, that by 2025, with a view to increasing power supply reliability, “all power networks of the integrated power system will be connected into a single 500 kV grid.” There are also aspirations to improve interconnections with adjoining countries. A recent tender, for example, is for a new 500 kV line to Tajikistan, part financed by the ADB.

The need for power sector reform

Uzbekistan has the potential to become the largest economy in Central Asia given its natural resources (with an abundance of mineral deposits and significant hydrocarbon reserves, notably natural gas). But per capita electricity consumption – 1903 kWh (in 2018) rising to about 2665 kWh in 2030 – is relatively low by international standards (for example compared with 2018 figures for Korea (9711), PRC (4292), Russia (6257), Kazakhstan (5133) and Turkey (2637)).

Uzbekistan is one of only two “double-landlocked” countries in the world (the other being Liechtenstein) – double-landlocked meaning that all the neighbouring countries (Kazakhstan, Kyrgyzstan, Tajikistan, and Turkmenistan, Afghanistan) are also landlocked.

Its land area is about 448 000 km2 – about the same as Spain and twice that of the UK, while the population is about 33 million (a third of whom are under 14) and expected to be around 37.4 million by 2030.

Uzbekistan’s economy has been developing rapidly recently (GDP annual growth rate for the last ten years averaging about 6.84%) leading to a significant increase in energy consumption and necessitating major improvement in the power infrastructure.

Power generation grew by about 2.6% per annum over the period 2012-2019 but was not fully met, with shortages averaging about 9.4% of demand, and power consumption projected to grow by about 6-7% per annum up to 2030.

During 2019 the government implemented an ambitious power industry reform plan, which envisions unbundling, tariff reform and bringing private sector investors into generation.

Some of the reforms have already been achieved by the newly established Ministry of Energy. A key step was taken in March 2019 with unbundling of the vertically integrated state-owned electricity utility, into separate generation, distribution and transmission entities.

Projected change in Uzbekistan’s power generation fuel mix, 2019 to 2030 (source: Ministry of Energy, March 2020 Concept Note)
Projected installed generating capacity growth in Uzbekistan, 2019-2030 (source: Ministry of Energy, March 2020 Concept Note)
Talimarjan combined cycle power plant, Uzbekistan (source POSCO DAEWOO)
Turakurgan combined cycle power plant, Uzbekistan (source Uzbekistan Ministry of Energy

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