To create a joint working group to develop proposals for the improvement of the capacity market

To this conclusion came the participants of the joint meeting of the Committee of Mining and Metallurgical Industry and the Energy Committee of the Presidium of the National Chamber of Entrepreneurs of RK "Atameken".

Along with the introduction of the electric power market, on the agenda was the question of the Rules of the distribution of quotas for greenhouse gas emissions.

Opening the meeting, the chairman of the Committee of the mining and metallurgical industry of the Presidium of NCE Nikolay Radostovets recalled that the share of the mining and metallurgical sector accounts for one-third of the country's energy market. Therefore, representatives of the two sectors should to develop a consolidated position on key issues.

Presenting the position of the heads of large companies, the head of the Committee said that the model of the capacity market requires an adjustment so that it does not just stimulate the flow of investment, but also takes into account today's realities, which have changed substantially since the amendments to the Law "On Electric Power Industry".

"Back then the shortage of electricity was marked in the country, and now - a surplus. Excess capacity, according to some estimates, is 3 to 5 thousand megawatts", - said N.V. Radostovets, citing data from large companies. For example, excess power from ERG now stands at 722 MW, "Kazakhmys" - 251 MW and "Kazzinc" - 136 MW.

With the introduction of the power market in 2019, industrial companies will have to sell power at cheap rates, and to buy - expensive. This situation occurs due to the fact that, in accordance with the legislation on the electric power the Single buyer without competition, without bidding will buy power from new power plants (Balkhash HPP) and power plants that have entered into individual agreements with the Ministry of Energy to repay earlier loans and for modernization of assets (Ekibastuz Condenser-Type Thermal Power Plant -2 and Condenser-Type Thermal Power Plant -1).

In connection with the surplus of power, the single purchaser will buy at the auction from other power plants, which are non-priority, not more than 50% of their capacity. Obviously, this will lead to lower prices of non-priority power plants. Thus, in the "common pot" very expensive priority power will be mixed with cheap.

How will acting capacity market model will affect the industrial groups? Enterprises producing cheap electricity today and having a surplus, will suffer losses that, for example, ERG they will have it in the amount of about 43 billion tenge, "Kazakhmys" - 2.9 billion tenge and "Kazzinc" - 2.3 billion tenge.

As it was noted by the head of the Committee, the introduction of power market operating model will lead to a significant increase in electricity costs and negatively affect the competitiveness of products of industrial enterprises, as energy costs take up a high proportion of the cost of production. For example, the cost of aluminum at a price of 3.3 tenge per 1 kWh the proportion of the cost of electricity is 17%, in ferroalloys - up to 35%.

The expert of the Eurasian Industrial Association Galym Alniyazov presented at the meeting the updated capacity market model with amendments and based on international experience. The proposed model provides for the separation of the power market in the short-term (less than 1 year) and long term (5 years or more).

At the short-term market the wholesale consumer is obliged to purchase services for the maintenance of readiness of power in the existing EPO at centralized trading and through bilateral contracts in the amount of peak load. It determines the period for which power is purchased (1 month, 1 quarter, 1 year). EPO sells services to maintain readiness of the power to wholesale customers. The single buyer is not involved in this market.

And on the long-term capacity market the wholesale consumer is obliged to purchase from a single purchaser of services to provide backup power in the fixed amount based on the peak load, with the exception of consumers, participating in the long-term capacity market by an alternative option. A single buyer accumulates money, buys power from the winner of the tender in the amount, timing and price prevailing on trading results since the start of operation of the new capacity. Market Council shall have jurisdiction to establish the size of the backup power, depending on the situation (deficit or surplus capacity) and the definition of the need to build a new facility and its placement.

According to the Chairman of the Committee of Mining and Metallurgical Industry Nikolai Radostovets, the proposed scheme gives more flexibility, more choices for consumers to connect. The introduction of alternative options, participation in the long-term capacity market creates incentives for consumers to invest independently in the construction of new facilities, it allows to choose the most efficient projects, including through benchmarking with existing projects, contributes to the preservation of competitiveness of production of industrial enterprises.

The proposed model, in terms of the Deputy Chairman of the Board on the development of NES and corporate governance of JSC “KEGOC” Askerbek Kuanyshbayev, is designed, taking into account two plants under construction. But the model, he said, should not be developed, based on the particular situation, with the point approach, otherwise the next year due to changes in the situation , we will have to change the laws, model and so on.

He does not agree with the introduction of bilateral contracts, which  leads to the fact that no one goes to the centralized trading at the electricity market, taking into account that the market of the republic is small.

"We want to, especially in the conditions of surplus to the electricity, to sell power through transparent centralized biddings. The market price also will be determined there. It is very important in the context of surplus", - said Askerbek Kuanyshbayev.

In turn, the chairman of the Energy Committee of the Presidium of NCE Almasadam Satkaliyev focused on the fact that, along with surplus capacity, it is necessary to take into account other facts. This is purchase of power from neighboring power systems. Plus, the high wear and tear, which is more than 70% is at the stations.

"The program of maximum tariffs allowed to reduce the time of disposal of facilities. However global deterioration remains. And the capacity market will contribute to the exclusion of inefficient capacity. In other words, there will be an element of a healthy market competition", - he said.

According to him, the commissioning of the third unit of Condenser-Type Thermal Power Plant -2, Balkhash thermal power plant is postponed to a later date and in this period there is no reason for the influence of these objects on the power market.

"The introduction of capacity market is a more progressive mechanism. And it is not done for the sake of certain projects. It provides advantages for all market participants, including obtaining additional revenue", - he said.

Referring to the current market model, Almasadam Satkaliyev reminded that 17 different capacity markets of diverse countries have been analyzed three years ago. And the one that was adopted includes adjustments, expert discussions. It takes into account all aspects related to the administration, the forecast balance, balancing market, power system management, including inter-state flows, the legislative framework within the EAEU, creation of a model of the single market, the development issues of reliability.

Head of Energy Committee Almasadam Satkaliyev supported the proposal of the chairman of the Committee of mining and metallurgical industry Nikolai Radostovets about creation of a working group within the framework of NCE and agreed to propose to the Government a model that will be a compromise, taking into account the interests of all participants, including consumers.

The second issue at the meeting was the rules of distribution of quotas for greenhouse gas emissions.

According to the draft Decree of the Government of the Republic of Kazakhstan "On Approval of greenhouse gas emission allowances and the allocation of rights to the reserves of the assigned amount and scope of the quotas of the National Plan for allocation of greenhouse gas emission quotas ", the Ministry of Energy of Kazakhstan suggested to issue quotas for enterprises of the republic according to the proposed distribution coefficient  of production.

However, this mechanism of quotas will lead to negative consequences for major mining companies as a result of not getting the required number of quotas and penalizing. In calculating the specific factors not taken into account the production technology and raw material base.

In this connection, given the short period of time for further consideration of the proposed specific factors, it was proposed to postpone the adoption of the Governmental Decree up to the second quarter of 2017.