Issues hindering energy transition toward renewable energy: retrospective analysis

Despite the potential and benefits of renewables, their use in Uzbekistan is currently insignificant. Obviously, many of the factors that hinder the development of RES in the country are not isolated instances of deficient public policy but relate to managerial, infrastructural, tariff, and other facets of governance in the country. There are 3 major groups of constraints that could be identified as hindering the development of renewable energy.

The first group includes factors related to a lack of core legislation and clear targets and strategy for RES deployment in Uzbekistan.

Until recently, the legislative framework mainly used a general definition of renewables, without providing any detailed instructions or guidance on specific types of power sources. On March 1, 2013, former

President I. Karimov initially signed the decree, which indicated the need to draft a law on alternative energy. It designated one month to do so and to present the draft to the parliament. Due to the unreasonably short period allocated for this process, the deadline has been amended and extended several times. After the death of President I. Karimov, the newly elected President Sh. Mirziyoyev signed the Decree “On the Program on Further RES Development, Increasing the Energy Efficiency in the Sectors of Economy and Social Sphere for 2017-202Г' on May 26, 2017 (Uza, 2017; Resolution of the President of the Republic of Uzbekistan PP-3012, 2017). This program set a new deadline for the law to be prepared by the end of 2017 and included incentives for all types of producers of electric power, ensuring them access to the national gtid and priority over power generated from fossil fuels (for comparison see Resolution of the President PP-2343, 2015). As a result, the law “On Deploying Renewable Energy Sources’’ was finally adopted on May 21, 2019, six years after its initiation.3

Another area needing further improvements is the lack of clear RES targets and the provision of legislative assurances to investors and stakeholders. In contrast to such a lack of targeting, international organizations present their own vision of how to define RES targets and improve the investment climate in this market. For instance, the United Nations Development Programme (UNDP, 2015) has chosen four targets to develop their own scenarios to analyze energy efficiency policy in Uzbekistan’s electricity sector: CO, emissions, energy consumption for electricity generation, system electricity losses, and share of RES in electricity generation. According to the UNDP’s optimistic scenario, the shares of RES in electricity production could reach 18% and 23% by 2030 and 2050, respectively, if the plans for generation and transmission capacity modernization are frilly accomplished. In this regard, the previously mentioned study emphasized that retroactive legislation changes significantly could affect the government-investor tmst relationship in the long term (UNDP, 2015).

Along with the need to establish a reasonable targeting system mentioned earlier and a comprehensive regulatory framework for renewable energy policy, another key prerequisite for the successfiil development of the renewable energy sector is a need for institutional restructuring, with a clearly defined set of responsibilities and transparent cooperation and interaction schemes of actors of the system. Some (Azizov, 2015) even emphasize the need to establish a Committee on Renewable Energy as a controlling and managing body, which would be in charge of the development and improvement of a system of incentives to further stimulate the RES sector by updating the Ministry of Finance on feed-in-tariff (FiT) calculations for specific projects.

The lack of authority primarily responsible for the task of facilitating the development of renewable resources led to continuous discussions on how FiTs would fit into the law on RES and caused multiple delays in preparing the draft.4 This study seconds the need to establish an authorized body with a narrow focus on renewable energy-sector development, and updating other government bodies on the progress of RETs to inform policy on FiTs is generally a good idea. However, it is important that this newly formed body does not become a subsidiaiy of the major ministries, with little autonomy, expertise, leverage, and capacity to develop renewable energy.5

The second group of factors hindering RES deployment in Uzbekistan includes a lack of economic incentives for investors and individual producers of electricity.

Thus, in addition to deficiencies of legislative and regulatory frameworks related to renewable energy deployment, the current regulation fails to provide essential economic incentives for individual and commercial investors. For instance, comparatively low prices of traditional energy sources in Uzbekistan, especially natural gas, made renewable energy economically unattractive. Typically, countries where renewables have succeeded in increasing their share of the energy mix have actively employed a comprehensive policy of tax breaks, investment preferences and subsidies for research, development, and production of renewable energy (UNDP, 2007a, 2015).

The renewable energy policy regulatory mechanism that existed in 2014 in Uzbekistan was indicated as immature and generally consisted only of direct instruments for RES development, such as loan guarantees. In addition to a lack of strategic RES development components and clear renewable targets, there were no proper policy de-risking instruments, which would decrease the risk for investors in the long term (UNDP, 2014a, 2014b).

While economic aspects are important factors for the adoption and development of new technologies, many issues pertinent to these technologies are not fully addressed by existing mechanisms (UNDP, 2007a, 2015). For instance, custom duties for importers of renewable energy system components and the lack of tax incentives for local producers of renewable energy provoke market distortion and undermine RES competitiveness against low-cost conventional energy sources (Yashina, 2016). The previous tax mechanisms created differentiated approaches for investors, and small and medium investors did not benefit from and were not provided with sufficient incentives for participation in RES development (UNDP et ah, 2013). The researchers of renewables in Uzbekistan also contributed their views and suggestions on the possible improvements in this sector. Thus, Azizov (2015) suggests applying technology- and region-specific generation-based

FiTs as a way to lessen the burden on state budget funds and to simultaneously support different types of RE S generation.

In addition to factors related to economic viability, there are factors related to technical aspects. Thus, recent research has highlighted other implementation-specific concerns in this area. Several local solar and wind power installation companies have noted that high costs, long payback periods, and the shoit lifetime of locally produced installations are key constraints on the wider distribution of RETs among individuals and small enterprises (Yashina, 2016). In their search to minimize the costs of renewable energy installation, local installation companies tried to replace some components with slightly cheaper imported ones; however, they ran into problems with a lack of maintenance and support by the producer of these foreign components (Yashina, 2016). Thus, the cost of RET installations remains significantly high and is thus generally limited to very isolated or remote areas through the use of substantial government subsidies or other funds (China- uz-friendship, News website, 2016).

Last but not least in this group of factors is the lack of national standards and proper certification for RETs in Uzbekistan. With regard to the possibility of individuals producing their own electricity, there was no licensing of any kind for electricity producers that were neither connected to the national giid nor established as a legal entity nor was there any other regulation on procedures for selling excess energy to the grid (UNDP, 2015). The “Program on Further RES Development, Increasing the Energy Efficiency in the Sectors of Economy and Social Sphere for 2017-2021” of 2017 makes several references to the local subsidiaries of the national grid company being authorized to purchase electricity from the individual producers of power generated from RES (Uza, 2017). Although the compensation scheme for the power provided by RES was mentioned in the program, it was still not clear how this scheme will ultimately function, and thus, it cannot be used by investors in feasibility analyses of projects.

The third, but equally important, group of factors obstructing the development of renewables in Uzbekistan is attributed to a lack of awareness among electricity consumers about alternative energy sources and the benefits they can provide (UNDP, 2007a; CER, 2011b; UNDP. 2014c, 2015). By surveying the perceptions of the Khorezmian people in Uzbekistan, Eshchanov et al. (2013) concluded that the most important potential incentives are (1) having sufficient knowledge regarding RES (i.e., the potential to replace fossil fuels) and (2) the “cheaper to make” (high-cost) factor for RES.

In the same manner, the task of information dissemination regarding the data collected on solar and wind power potential is overlooked, with the majority of data from the on-site measurements of various institutions defined as for internal use of individual projects (UzbekEnergo, the WB, the ADB). The lack of dissemination of such data limits the scope of discussions on the potential of the renewables in Uzbekistan, monopolizing the field by such agencies as UzbekEnergo and pushing private investors and researchers out of this sector. In this regard, accurate systematized and up- to-date data on solar irradiance and wind pattern measurements throughout the territory of Uzbekistan are urgently needed to facilitate discussions on the possible development of this field.

Currently, the share of expenses on research and development in Uzbekistan is equal to 0.2% of GDP, while the world average is approximately 2% to 3%. Additionally, the level of implementation of new technologies is significantly lower (0.34%) than the world’s average (40%). These disparities can be due to lack of effective mechanisms of financing the R&D sector in general (e.g., lack of business incubators, technology-transfer agencies, or techno parks; News of Uzbekistan, 2019d). The government’s intentions regarding the resolution of this issue are defined in the “Program on Further RES Development”, whereby one of the priority directions is introducing modem RETs and starting to produce RES components locally; technology transfer is another component of this program (Uza, 2017).

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