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Uzbekistan 2022 Energy Policy Review Summary

Core Content

This document is the first comprehensive energy policy review of Uzbekistan by the International Energy Agency (IEA), conducted within the framework of the EU4Energy programme. It provides an in-depth analysis of Uzbekistan's energy sector, highlighting its reform efforts, challenges, and recommendations for a more efficient, dynamic, and sustainable energy system.

Main Energy Policy Overview

Energy Reform Context

• Uzbekistan initiated broad-based energy sector reform in 2019, transitioning from a state-owned and subsidised model to competitive markets with private-sector participation and cost-covering energy prices.
• The reform aims to increase efficiency, attract investments, and reduce subsidies, which are seen as regressive and unsustainable.
• The reform is part of a larger structural and institutional reform package under President Shavkat Mirziyoyev, targeting long-term economic growth and modernisation.

Key Objectives

• Efficiency: Improve the use of energy resources and reduce waste.
• Diversification: Expand renewable energy sources (solar, wind) and explore nuclear power.
• Sustainability: Reduce greenhouse gas (GHG) emissions and local air pollution.
• Market Development: Establish competitive electricity and gas markets, with gradual price liberalisation and tariff reform.

Energy Sector Structure

Natural Gas and Oil

• Natural gas dominates Uzbekistan's energy supply, accounting for ~85% of total energy supply and electricity supply.
• The government plans to stop natural gas exports by 2025 and focus on domestic use and petrochemicals production.
• Gas reserves are expected to be depleted within 20 years, and demand is projected to rise by 30% to 65 billion cubic metres (bcm) by 2030.
• Legislative incentives have been introduced to attract foreign investment in oil and gas.
• Natural gas tariffs are being gradually raised to cost-recovery levels, with full price deregulation planned for 2026.
• The state-owned Uzbekneftegaz has been unbundled, and partial privatisation of the sector is being considered.

Electricity Market Reform

• Electricity demand is expected to double by 2030.
• The sector is transitioning from a vertically integrated state monopoly (Uzbekenergo) to a competitive market.
• A three-stage reform plan exists, but implementation is still in its early stages.
• The government has proposed revised tariffs in May 2022, which are a step towards full cost recovery.
• A market regulator should be established to ensure fair competition and efficient market operations.
• The focus is on improving generation, transmission, and distribution efficiency, and increasing the share of renewable energy in electricity supply.

Energy Security and Sustainability

Electricity Security

• Ensuring an uninterrupted electricity supply is critical for a modern society.
• Cross-border blackouts have highlighted the need for improved electricity security in Uzbekistan and the broader Central Asian region.
• A comprehensive electricity security framework is recommended, including clear targets for fuel security, resource adequacy, and governance.
• The government should prepare long-term network development plans and ensure sufficient expertise for infrastructure management.

Energy Efficiency

• Energy consumption per capita is low, but the economy remains highly energy-intensive, with energy use per unit of GDP 50% above the world average.
• Subsidies and pricing mechanisms, especially for natural gas, are limiting incentives for energy efficiency improvements.
• The IEA recommends targeted social support for vulnerable groups rather than broad subsidies.
• Minimum Energy Performance Standards (MEPS) for appliances and equipment have been introduced, but should be intensified and expanded to other sectors.
• Energy efficiency audits are needed to support the implementation of MEPS.

Renewable Energy

• Uzbekistan has significant solar and wind energy potential, which is being developed through international tenders and power purchase agreements (PPAs).
• The government aims to increase the share of renewable energy in electricity supply from 7.5% in 2020 to 25% in 2030.
• Solar and wind power projects are under way, and the government is considering the construction of its first nuclear power units with Rosatom, though the timeline is unclear.

Climate and Environmental Impact

• Energy-related GHG emissions in Uzbekistan are high, with CO₂ emissions from fuel combustion increasing over the years.
• The government should focus on more efficient use of gas, coal, and oil to reduce emissions and local air pollution.
• Energy efficiency and renewable energy development are key to meeting climate targets under the Paris Agreement.

Key Recommendations

• Finalise and implement draft laws and plans for competitive energy markets as quickly as possible.
• Reform energy tariffs to reflect the full cost of supply and provide support only to vulnerable customers.
• Establish an independent and well-resourced energy regulator to ensure fair competition.
• Phase out gas subsidies and introduce support mechanisms for vulnerable groups.
• Intensify energy efficiency measures, including MEPS and energy audits.
• Develop a comprehensive electricity security framework with clear targets and indicators.
• Expand renewable energy capacity, especially solar and wind, and explore nuclear power options.
• Improve energy data collection and monitoring to support better policy decisions.
• Invest in modernising and expanding electricity networks, including transmission and distribution systems.
• Enhance public awareness of energy policy changes and their benefits.
• Promote energy innovation to support economic competitiveness and reduce reliance on fossil fuels.

Conclusion

Uzbekistan's energy reform is ambitious and necessary for long-term sustainability and economic development. The IEA supports the government's efforts and encourages a gradual, well-managed transition to competitive markets, with a focus on efficiency, renewable energy, and social equity. The success of this reform will depend on effective policy implementation, strong institutional support, and public engagement.