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Kazakhastan Energy Sector Review Summary

The International Energy Agency (IEA) review highlights Kazakhstan's significant role in energy production, with a heavy reliance on coal (accounting for approximately 50% of total energy supply) and substantial reserves of oil and gas. The country aims to transition toward renewable energy and energy efficiency but faces challenges stemming from its dependence on fossil fuels and low energy prices. Below is a structured summary of key findings and recommendations.

1. General Energy Policy

• Energy Mix: Coal dominates (50% of energy supply, >70% of electricity generation), supported by oil (18%) and natural gas (31%). Renewables account for just 2% of energy and 11% of electricity.
• Government Goals: Ambitious targets include generating 15% of electricity from renewables by 2030 and achieving carbon neutrality by 2060.
• Policy Framework: The Green Economy Concept (2013) and updated NDC aim to reduce emissions, but implementation has been inconsistent. Energy prices remain artificially low due to subsidies and administrative controls.

2. Oil and Natural Gas

• Production and Exports: Kazakhstan is Central Asia's largest oil producer, with ~80% of oil exports routed through Russia, raising diversification concerns.
• Challenges: High production costs, price distortions, and OPEC+ quotas hinder investment. Gas reinjection for oil production boosts output but constrains domestic consumption growth.
• Recommendations: Diversify export routes, reform energy pricing to reflect marginal costs, and align fiscal terms with international competitiveness.

3. Coal

• Dependency: The energy backbone, with vast reserves (230 years at current rates), but high emissions and inefficiency (e.g., outdated power plants).
• Issues: Low prices discourage efficiency investments and renewable adoption. Climate commitments conflict with economic reliance on coal.
• Recommendations: Accelerate coal phase-out by 2050, adopt BAT for emissions reduction, and develop carbon pricing mechanisms.

4. Electricity

• Generation: Coal-based (70%), with insufficient flexible capacity. Grid stability is threatened by renewable integration and aging infrastructure.
• Challenges: Despite auctions for renewables and flexibility, market mechanisms (e.g., capacity market) lack effectiveness. High household electricity consumption grows.
• Recommendations: Expand flexible capacity auctions, deploy energy storage, and integrate a balancing market.

5. Renewable Energy

• Potential: Solar, wind, and hydropower resources are substantial, with RES capacity reaching >2 GW.
• Progress: Auctions have reduced costs, but insufficient transmission infrastructure and low tariffs hinder parity with coal.
• Recommendations: Mandate storage in RES projects, reform subsidies, and increase balancing capacity.

6. Energy, Environment, and Climate Change

• Emissions: Coal-dominated (81% of GHG emissions), falling short of NDC targets. ETS is underperforming due to generous free quotas.
• Actions: Carbon budget and BAT implementation aim to reduce pollution, but enforcement is weak.
• Recommendations: Tighten ETS benchmarks, reduce non-ETS emissions, and ensure BAT standards align with international best practices.

7. Energy Efficiency

• Performance: High energy intensity (11% of GDP), despite modest savings goals. Buildings, industry, and transport lag in efficiency.
• Barriers: Low tariffs disincentivize efficiency investments. MEPS exist but lack enforcement.
• Recommendations: Reform energy pricing, enforce building codes, and create incentives for ESCOs.

Key Recommendations

1. Reform Energy Pricing: Reflect full costs of energy to drive efficiency and fair competition for renewables.
2. Diversify Energy Mix: Prioritize renewables and flexible capacity to meet climate goals.
3. Strengthen ETS: Reduce free quotas and align benchmarks to accelerate decarbonization.
4. Invest in Grid Modernization: Enhance transmission, storage, and flexibility to support renewables.

These measures are crucial for balancing Kazakhstan's economic interests with environmental sustainability amid global energy transitions.