Independent tariff regulator in power industry may be created in Kazakhstan
The possible creation of an independent tariff regulator in Kazakhstan’s power industry became known during an online Green Webinar titled “Evolution of Incentive Based Tariff Regulation - Agenda for Sustainable Development” organized by the International Green Technologies & Investments Center (Kazakhstan) and SEEPX Energy (Britain). Co-founder and Director of SEEPX Energy, international expert in power industry: Russia, Ukraine, Central Asia – Ekaterina de Vere Walker was a key speaker and she shared her opinion on this issue that is so important for Kazakhstan.
This topic is relevant for Kazakhstan because the country is planning to introduce incentive regulation for all regional electricity companies (REC).
According to IGTIC, from 2013 to 2015 Kazakhstan’s power industry was in the process of being transferred from the cost-plus method to the comparative analysis method (benchmarking) of REC’s activities. After a trial period of establishing tariffs using benchmarking the tariff regulation for the electric distribution companies and the national electric grid operator KEGOC has undergone new changes and moved to the elements of incentive tariffs method, where tariffs were set for a 5-year period without any requirements for the quality of services or reduce losses. After the adoption in December 2018 of the Law “On Natural Monopolies” the incentive based tariff regulation was approved only for some electricity companies, for the rest, the cost-plus method was still in effect. However, these companies are currently being transferred to the incentive method.
According to Ekaterina de Vere Walker, as of early 2020, incentive tariffs for electricity companies are applied in 19 out of 25 European countries, in the US markets (New York, California, New England, etc.), in Canada, Australia, New Zealand, Russia and Ukraine.
“At one time, the transition to incentive tariffs, in addition to the possibility of increasing the efficiency and quality of activities, created conditions for such companies to reduce the impact of the power sector on the environment, including by stimulating and integrating distributed sources of production (including those based on renewable energy sources) and electricity consumption (price-dependent change in consumer load, electric vehicles, prosumers, energy storage devices). At the same time, against the background of the high wear and tear of power grid assets, power grid companies were simultaneously able to solve the tasks of updating fixed assets and attracting investments in new assets and technologies, while maintaining tariffs for the end user within the limits set by regulators”, she said.
At the moment there is no such independent regulator in Kazakhstan’s market. Regulatory functions are entrusted to the Committee for Regulation of Natural Monopolies of the Ministry of Economy of Kazakhstan. However, the “independent” status can play a decisive role in the further transformation of the power industry.
At the same time, Ekaterina de Vere Walker noted, first of all, the regulator needs to determine the goal setting for the medium and long-term development of the electricity transmission sector in Kazakhstan and harmonize these goals with the tasks of the power industry, economic and technological development of the country, as well as the tasks of climate policy.
“The methodology for calculating the incentive based tariff regulation and profit rates should take into account the requirements established by the regulator to improve the efficiency and quality of services. In addition, it is necessary to expand the application of the incentive method of tariff setting to all RECs”, said the Director of SEEPX Energy.