A concordant policy by the Bank's member countries could be a solution to the excesses and ineffective use of the existing power generation facilities

Moscow, 21 September 2016. Eurasian Development Bank’s (EDB) Department for Strategic and Sector Research has prepared a review titled Power Generation in EDB Countries. The Bank’s experts emphasise the following tendencies in the power generation sectors of its member states:

Power consumption is not growing. Over the recent three years, the demand for electricity has not grown and has even gone down in all EDB countries, except Armenia. This was primarily due to macroeconomic difficulties resulting, in particular, from a fall in the global prices of raw materials, which are Russia and Kazakhstan’s main exports. Other EDB countries remain dependent on the situation in the EAEU’s two largest economies.

The plans for commissioning new facilities have been shrunk to a certain extent, but do remain on the agenda in most EDB countries. Capacity expansion plans are usually underpinned by the expectations that the domestic demand will recover or that the export opportunities will be enhanced. However, there are still no serious preconditions for improvements in the macroeconomic situation, or a recovery in electricity consumption. The main directions for exports, which are accessible technologically, are other EDB member countries, each facing a similar situation where supply exceeds demand.

Most EDB countries (except for the Kyrgyz Republic) have formed an excess supply of electricity by having commissioned new generation facilities while consumption has stagnated. The excessive capacity has already become obvious in most EDB countries and, most probably, will continue to grow in the nearest future.

The need for upgrades continues to persist. The wear and tear of power generation equipment in all EDB countries remains high, with over half of power plants operating beyond their design life. In Russia, for example, obsolete balance-of-plant equipment (generators, boilers, turbines) makes up 53-58% of all the respective assets. In Kazakhstan, the wear and tear of power plants approximates 70%. That said, 57% of the facilities have worked for over thirty years. The current investments in the sector are insufficient to reduce the average wear and tear.

The countries lack mechanisms to attract investment in the conventional power sector. They also lack (except for Russia) effective power markets and formalised and systemic instruments that would guarantee payback on investment. Russia, after the programme for power supply agreements has finished, also faces uncertainties as to paybacks on investments in upgrades.

A concordant policy by the Bank’s member countries could be a solution to the excesses and ineffective use of the existing power generation facilities.

The new renewable energy sources are being developed to a certain extent in most EDB countries. The governments have adopted to this end respective support measures, including special higher rates compared to conventional generation facilities. However, according to the regulators’ commissioning plans, in the foreseeable future, renewable energy sources such as solar and wind power plants will account for not more than 5-6% in the EDB member countries’ structure of power generation. In the U.S., for example, the share of solar and wind plants in power generation has already reached 6% and is expected to rise to 15% by 2030, according to EIA estimates. The German Federal Ministry for Economic Affairs and Energy intends to increase the share of renewable sources in generation from 27% in 2014 to 50% in 2030. China plans to increase the capacity of its wind power plants by 2.6 times to 200 GW (from 77 GW in 2013) and solar plants by 6.7 times to 100 GW (from 15 GW in 2013) by 2020.

The power sector is a strategic priority for EDB. 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 renewable energy, and distributed and heat generation.

Additional Information:

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.

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