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Towards sustainable energy in CA:
Scope for regional cooperation?
Erik Berglof
Chief Economist
European Bank for Reconstruction and
Development
23 October 2007
Sustainable Energy and Transition

Energy security - Growth - Climate change

Energy efficiency does not contradict growth

Institutional change key to low carbon growth

Is there a regional approach?
Energy (in)security despite large resources



Kazakhstan – production primarily in coalrich north of the country; south of the country
(Almaty area) imports electricity
Kyrgyz Republic/Tajikistan – high
dependency on hydro-electric power; face
shortages during winter peak
Uzbekistan – unable to meet growing peak
demand and resorts to rolling blackouts
during peak load period
Energy efficiency and carbon intensity
– both battles need to be won
ENERGY EFFICIENCY
FUEL SWITCHING
Data source: IEA (www.iea.org/Textbase/stats/index.asp)
Ref. year: 2002
Opportunities for savings



Substantial savings opportunity in large
industrial plants – need for tariff increases to
provide investment incentives
Large savings opportunities in housing –
coordination problem may require subsidies
to stimulate investment
Need to reduce losses in transmission and
distribution – investments may need to be
financed through higher tariffs
Low tariff levels key to inefficiency
Residential electricity tariffs
US cents/kWh
12
10
8
6
4
2
0
K
ak
az
n
ta
s
h
U
ek
b
z
ta
is
n
K
z
gy
r
y
p
Re
ic
b
u
Ta
n
ta
s
i
jik
T
e
m
k
ur
n
ta
s
ni
Source: IEA, ERRA and EBRD
Note: Data refer to average electricity tariff for 3Q 2006 for Kazakhstan, 2Q 2006 for the
Kyrgyz Republic, 2006 for Tajikistan and Uzbekistan and 2005 for Turkmenistan. For SEE
and CEB average tariffs are given based on the most recent observations reported by ERRA.
C
EB
E
SE
Kazakhstan: Sustainable energy requires
both efficiency and fuel switch

Economy is highly energy intensive, industry in
particular

The power sector is characterized by regional
imbalances

Public buildings and urban housing stock highly
energy inefficient

Power and energy sector, private enterprises,
industrial installations, public services and residential
buildings all require significant investment

Sector reforms and commercialization/private sector
participation quite advanced, but bad, low tariffs and
deficiencies of regulatory bodies.
Kazakh Draft Energy Efficiency Law

Economic instruments
– removal of subsidies; fiscal incentives, grants, low interest loans to
promote efficiency; energy efficiency fund targeting specific sectors

Regulations and standards
– building codes, appliance and equipment standards, motor vehicle
fuel economy standards, etc…

Information, technical assistance and labeling
– campaigns against energy wastage, training, awareness raising,
state monitoring, appliance and equipment labeling, energy audit,
technical assistance for Energy Management Systems

Creation of Energy Efficiency Agency

Voluntary agreements – e.g. with large industrial companies

Public infrastructure planning and construction
Energy efficiency fund

Boost economic competitiveness and enhance
energy security

Well designed/managed to target investments that
also stimulate private sector investments.

Focus on areas requiring budgetary support:
–
Residential housing stock
–
Public buildings

Support for private ESCOs start-ups

But higher tariffs most effective way to stimulate
energy efficiency investment by private enterprises
Industrial Energy Efficiency

Clear assessments of energy savings, and their
financial implications, essential for private sector

Free energy audits and energy management training
to large industrial clients + targeted investments

Examples in Kazakhstan: Karcement (2005 and
2007); Derbes Brewery (2006) and Efes (2007).

Increased demand aligned with tariff increases and
increased awareness
Energy Efficiency Credit Lines

Smaller projects in industry, public buildings and residential
sector

Technical assistance to participating banks and final
beneficiaries
– raise awareness and assist participating banks to market the
Facility;
– build capacity in participating banks
– prepare projects for financing, link technical potential to commercial
terms

Experience: large numbers of beneficiaries reached

Awareness raising needed notably in the residential sector

Launch in Kazakhstan in early 2008
Bakery in Bulgaria

Access to dedicated credit
line for energy efficiency

Energy efficiency investment
into bread production line

Cut energy consumption by
59 per cent

Slashed 85 per cent of
energy costs per annum
Municipal infrastructure

An integrated approach to municipal infrastructure
projects

Example: Astana New Transport System
– incorporate energy efficient best practice
– energy efficiency improvements in district heating, subject to
conditions on tariff reform and creditworthiness being met.

Finance through private sector Energy Service
Companies (ESCOs)
– design, install, finance and guarantee minimum performance
of energy savings measures, particularly in public buildings.
– Once private market developed, establish public ESCO
Regional cooperation

Difficult because no direct spillovers from
investments, but many challenges are similar

Energy security has regional dimension

“Common” financial system (Kazakh banks)

Demonstration impact - share experience
– CAREC Institute?

Establish regional fund (cf. Bota Fund)
Conclusion

Renewables important but expensive

Focusing on energy efficiency more effective

Improved regulation and increases in tariffs

Sharing knowledge and experience through
regional cooperation (e.g. CAREC Institute)

Exploiting “common” financial system
Bulgaria: Energy efficiency success
Energy intensity declined by around 30% from 1997 to 2004
0.6
0.5
0.4
0.3
89 990 991 992 993 994 995 996 997 998 999 000 001 002 003 004
9
1
1
1
1
1
1
1
1
1
1
1
2
2
2
2
2
Kg of oil equivalent per $ of GDP in constant 2000 prices
Source: WDI
High energy intensity: scope for
energy efficiency
Total primary energy supply per GDP (PPP) in
toe/thousand-2000 US$PPP, 2004
1.4
1.2
1
0.8
0.6
0.4
0.2
Source: IEA
EU-25
USA
PRC
Russia
Kyrgyz
Republic
Tajikistan
Kazakhstan
Turkmenistan
Uzbekistan
0
High losses in electricity
distribution/transmission
Distribution/transmission losses in per cent of total
production, 2004
35
30
25
Source: IEA
PRC
USA
EU-15
Russia
Uzbekistan
Turkmenistan
Tajikistan
Kazakhstan
0
Kyrgyz
Republic
20
15
10
5
Key challenges

Need to increase energy efficiency

Need to rehabilitate old generation and
transmission/distribution facilities

Need to bring new efficient generating
capacity

Require adequate incentives