In the previous publications on the Kazakhstani market development scenarios, highlighted in the proposed reform, I was telling mostly about what not to do – in the market design in the first place. A legitimate question arises – what would have to be done in this sense at least at a first glance, not going into details and minding that a deeper approach to this issue requires separate thorough research and systemic consideration. But if we would try to dwell on that in general, we may discern something which might be useful at least for the preliminary analysis, allowing to understand where and how to proceed. I was listening to the acknowledged economist and economics historian Andrey Movchan the other day, who has been presenting his narration on Kazakhstan in his last two programs "Movchanie" on You Tube, broadcasted by Jivoy Gvozd (Live Nail) channel every Monday. Sometimes he was likening the economy of the country with some other resourceful economies, similar by the territory and populace's density, such as, say, Canada. But if one is to seek analogue of Kazakhstan from the power system similarity's standpoint, its structure, length, topology, climate and even fuel mix, including primary energy resources, their role in export and related restrictions for the domestic use, as natural gas, for instance, then, to my view, the most resembling to Kazakhstan country appears to be Australia, taking into account, of course, a certain conditionality of such comparisons. If we look at the map of these two countries and their power systems, we will see a lot in common even visually, including an isolated functioning of the systems in the different parts of the countries and existing plans for their connection.
The difference is that in Australia in the most parts of the populated states and territories there are long ago established full-fledged competitive markets NEM (1998) and WEM (2012) managed by the independent system operator AEMO, while in Kazakhstan, after almost 20 years since the power industry reforms have started, yet there is no market based on the comprehensive competitive mechanisms.
And it is reflected on the energy balance too – in Australia with similar to Kazakhstani coal, gas and hydro balance percentages, a significant role is played by DER (Distributed Energy Resources) – the resources on the consumer's side, mostly rooftop solar behind-the- meter – almost 8% of the entire balance. This is the result of the market functioning – such volumes of PVs at consumers is their answer to distinct market signals – relatively high retail prices (including the high grid tariffs for long networks) and model solutions, allowing smooth integration of DERs into the market.
In the South and Eastern Australia where the most population lives (New South Wales, the Australian Capital Territory, Queensland, South Australia, Victoria, Tasmania),
the market is of the "one commodity" design (the energy- only market), the same like in Kazakhstan prior to 2019. But in Australia there is a centralized power exchange, where bids from generators and consumers encounter and as a result temporally variable prices are being borne, which time to time, when there is a scarcity at some point of the power system, soar very high, thus signifying for market participants that some measures need to be taken. Or, on the opposite, they fall down very low when sun is shining, wind is blowing, and consumption is relatively low. As the RES share in the production balance grows, such markets do not work well enough – RES are decreasing the system prices at their favorable times, squeezing out traditional generation with higher short term costs, but when RES become unavailable, scarcities pop up, expensive generation is called online, and sharp price surges occur. In other words, markets become very volatile, price signals get mixed and distorted, and the need for flexible resources rises steeply. A correctly designed market praises these resources adequately – the higher volatility on the market, the more expensive they are. But the thing is that high volatility creates problems for consumers, especially for those who buy electricity at the prices linked to the spot ones. Exactly this situation occurred in many European countries over passing year, when, following the sky rocketing gas prices, electricity prices went up in a blink of an eye, and now the European Commission presents its proposal on markets change, in particular introducing additional instruments and enhancing existing ones for hedging volatility risks – long term agreements, which Kazakhstan is going to get rid of today. Another measure proposed by the EC stimulates the wider implementation of capacity mechanisms on the national level by the EU Member States. Getting back to Australia we can see that there is a market of reserved capacity here too, called the Reserve Capacity Mechanism.
As for Kazakhstan resembling Australia, today it surely may use, in our opinion, both – an Australian and a European experience. The best option for Kazakhstan, considering its ambitious decarbonization goals, in the first approximation seems to be the basic Australian model of NEM market, having been operational since 1998, but with additional separate capacity market, for instance on the British scenario – the centralized auctioning platform with demand, set by the system operator, and differentiated by the length terms of capacity remuneration for incumbent, refurbished and new capacity, with wide use of peakers and Demand Side Response. Perhaps, it wouldn’t harm to have a look at the relatively small WEM market in Southwest Australia, having been functioning for 10 years by now. It is interesting that both markets as well as in Britain, and Europe do use bilateral contracts, which Kazakhstan is about to abolish, and, to the contrary of Kazakhstan's intentions, their role is being increased as very handy hedging instruments to counter consumers volatility exposure on the spot markets.
In any case, the first thing to begin with should be creation a real robust competitive spot market, capable to produce variable in time and space prices, reflecting the core of production and consumption of electricity, its main inherent attribute, related to difficulties of storing the power and transmitting it for long distances. But not the tariffs, which are used in Kazakhstan as of today and will be left intact for tomorrow in accordance with the plan of the Concept on power industry development till 2035, which is, for some reason, being called a reform. The reform, which, in fact, is leading to a next deadlock.