EDB: The issue of surplus power generation can be solved by the expansion of exports, but trans-boundary power grids need to be developed jointly to this end

ArmInfo. The Eurasian Development Bank (EDB) countries need to coordinate their strategies for the development of power grids (power grid facilities and trans-boundary transmission lines) in order to use effectively their capacity to export electricity to third countries. International trade and optimised load on power plants will help to improve the operation of the national power systems and, eventually, reduce the prime cost of electricity for consumers. These are the findings presented in Power Grids in EDB Countries, a report prepared byEurasian Development Bank's Department for Strategic and Sector Research, the official website of the EDB reports. 

EDB experts point out that the joint fulfilment by the EDB countries of trans-boundary transmission line projects may create new routes for electricity exports beyond the EAEU with maximum efficiency and achieve the lowest possible prime cost of electricity transmission due to economies of scale. 

The report states that the majority of the EAEU countries (except for the Kyrgyz Republic) have surplus electricity generation rates due to the commissioning of new generation facilities ahead of actual domestic demand. Therefore, additional grid infrastructure to export electricity beyond the EAEU needs to be created. 

EDB analysts report that several important interstate power grid projects are being implemented at present. The first, CASA-1000 project will help Tajikistan to smooth seasonal fluctuations in electricity generation and consumption by arranging power flows with Pakistan and Afghanistan of up to 1-1.3 GW, and enhance power interlinks between Tajikistan and the Kyrgyz Republic. Another project, the energy bridge between Russia and Iran via Georgia and Armenia is expected to create a new regional power market and improve Armenia and Russia's opportunities for electricity exports to the growing market of Iran. In addition, to export electricity from the new large power plants that are being constructed in Tajikistan and Belarus, additional trans-boundary power grid infrastructure will need to be created in the medium term. Kazakhstan needs to explore opportunities for the export of its surplus electricity in new directions, including China and South Asian countries. At a later stage, it is possible that projects could be arranged within the Asian Energy Ring - the energy bridges connecting the grids of Russia, Japan, China, the countries on the Korean Peninsula, Mongolia and, potentially, Kazakhstan and the Kyrgyz Republic. At present, the most active discussions evolve around the Russia-Japan energy bridge. 

"The development of national power grids will remain the key area for investments in the EAEU's energy facilities in the nearest years," EDB's energy experts believe.  At present, the main direction in the development of the EAEU's national power facilities is the improvement of power links within the countries, including the connection of isolated regions to the integrated national power grid (the Kyrgyz Republic, Tajikistan, Kazakhstan), the enhancement of the capacity of inter-regional transmission lines (Kazakhstan), and the expansion of power infrastructure in industrial areas (Russia).  Another important objective associated with the development of national grids is the connection of new generation facilities and consumers' power receivers to the grids. In particular, the projects associated with the integration into the power system of new nuclear power plants in Russia and Belarus, and major hydrpo power plants in Tajikistan will require significant work. They also may be relevant in Kazakhstan and the Kyrgyz Republic in the medium term. 

The authors of Power Grids in EAEU Countries also emphasise the following issues as important to the development of the energy sector. 

The high wear and tear of equipment requires colossal upgrades. In most EAEU countries the wear and tear of grid assets exceeds 50% and over half of equipment has been operated beyond its standard life.  The majority of power grids in the post-Soviet space were built in the 1960-1980s. Investments needed to upgrade plants are estimated to reach billions and dozens of billions US dollars. 

The issue of power losses in the grids remains important. Excessive power losses in the grids due to, in the first place, unaccounted for consumption are one of the most pressing problems of the power systems in the Kyrgyz Republic and Tajikistan, as well as, although to a lesser extent, in Armenia and Kazakhstan. Even Russia and Belarus - the EAEU's most efficient countries in terms of power losses - still have significant potential to reduce them. 

The new wave of technology in the power sector is approaching. The development of distributed energy resources (including renewable energy sources) and new technology that makes it possible for consumers to become active players in the energy system (such as electric vehicles, energy storages, etc.) poses fundamentally new process requirements for the grids. Among the EAEU countries, Russia is the most active promoter of new intellectual grid technologies. 

The weak regulation and state ownership are the main barriers to the development of power grids. All the EAEU countries still use inefficient models for the regulation of power grids, lacking incentives for investments and operational improvements. The attempts to promote rate-of-return regulation in Russia and Kazakhstan bumped up against the governments' prescriptive limitations on the growth of electricity prices. As a result, pricing in the sector has de facto returned to the outdated cost-plus or inflation-minus principles.  Tajikistan still lacks separate pricing for electricity transmission and distribution while in Belarus power grids have not been structurally detached from generation into a separate business. On the whole, the underdeveloped regulation and pricing are the main obstacles to investments in power transmission and distribution in the EAEU countries. In all the EAEU countries (except for Armenia) the overwhelming majority of power grids are state-owned and this is the reason for their inefficiency. 

Privatisation can foster reforms. Kazakhstan, Russia and Tajikistan have announced plans to privatise or reduce state ownership of power grids. If they are fulfilled, in addition to the positive effect of the private property on the operational efficiency of companies, it becomes more probable that favourable changes in regulation will take place, which are necessary to improve the attractiveness of the sector for potential investors. 

"The power sector is one of EDB's strategic sectors," Yekaterina Dmitriyeva, Head of the Department for Strategic and Sector Research, comments. "At the same time, the Bank focuses on projects aimed at deepening economic integration between its member states and having an express modernisation effect and positive environmental impact.  EDB plans to augment its investment portfolio in the power sector and does see project potential in it, including in the area of power transmission and distribution, and intellectual networks."

Eurasian Development Bank (EDB) is an international financial institution founded by Russia and Kazakhstan in January 2006 with the mission to facilitate the development of market economies, sustainable economic growth, and the expansion of mutual trade and other economic ties in its member states. EDB's charter capital totals US $7 billion. The member states of the Bank are the Republic of Armenia, the Republic of Belarus, the Republic of Kazakhstan, the Kyrgyz Republic, the Russian Federation, and the Republic of Tajikistan.