Modernization of thermal power plants in the Republic of Kazakhstan: how the “Tariff in exchange for investment” program will help
The current situation regarding the high wear and tear of the main and auxiliary equipment of thermal power plants and the active urbanization of cities with an increase in consumed thermal power demonstrates the need for modernization, reconstruction and renewal of existing generating capacities of thermal power plants, which require significant expenditures.
To achieve these goals, financing in the amount of 182 billion tenge is required. It is worth noting that currently, the income of power plants from the sale of electrical and thermal energy within the approved tariffs does not cover the costs of carrying out a full modernization.
In order to solve these problems, the Ministry of Energy, in accordance with the instructions of the Head of State, is working to implement the updated Tariff in Exchange for Investment program.
From June 1 of this year, marginal tariffs for the production of electrical energy were adjusted for 27 out of 47 energy producing organizations, the average increase in tariffs will be about 24%. These measures will make it possible to attract about 70 billion tenge of investment within the electric capacity market this year. It is expected that in the period 2024-2025, up to 180 billion tenge will be additionally attracted to the generation sector for renovation, modernization and repairs of existing plants through the implementation of the program.
The Tariff for Investment program contains short- and medium-term measures.
As part of short-term measures, it is proposed to conclude investment programs for overhauls of main and auxiliary equipment for a three-year period (2024–2026) for thermal power plants with a high level of wear and tear that are not subject to modernization and restoration. This will make it possible to maintain these combined heat and power plants in working condition until the commissioning of new capacities for the stable passage of the heating seasons.
It is planned to cover the missing funds by allocating annual funding in the amount of about 100 billion tenge within the annual limit (part of the limit of 428 billion tenge) of repayable funds in the electric power market by concluding short-term investment programs for major repairs of thermal power plant equipment.
The implementation of investment programs will be monitored at all stages of implementation through the Energy Supervision Committee with the involvement of the public in each region.
Medium-term measures involve a change in the approach to the selection of investment projects as part of the conclusion of Investment Agreements in terms of the responsibility of owners to develop a program for modernization, reconstruction and expansion of capacity at stations subject to further operation in the long term. The conclusion of Investment Agreements by the authorized body will be carried out as applications are received.
At the same time, practice has shown low interest of enterprises in concluding investment agreements due to the impossibility of attracting financing from second-tier banks. To solve this situation, the Ministry of Energy proposes to provide for the possibility of financing investment projects of thermal power plants during the period of their implementation.
The main criteria when concluding investment agreements will be the establishment of target indicators in terms of reducing wear and tear by 10–15% from the existing level, reducing the enterprise’s auxiliaries, bringing the specific consumption of fuel equivalent to the design value, and introducing the best available technologies (BAT).
Amendments to the legislation are also being developed in order to introduce additional obligations of market participants to ensure transparency of the intended use of funds received.