Will wind take off in crash-hit central Asia?

The Covid-19 pandemic has been a powerful reminder of how global the wind industry now is. But some regions are still largely mysterious to westerners.

One of the most mysterious is the bloc of five central Asian ex-Soviet states: Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. The area has long relied on oil and gas sales, but its largest nations Uzbekistan (population: 32million) and Kazakhstan (18million) are looking to grow in renewables.

This is a trend that could be exacerbated by the oil price war between Saudi Arabia and Russia, which has driven crude oil down to $25 a barrel. This crash is set to bring about a major downturn in central Asian economies in much the same way as the 2014 oil price crash did. And Covid-19 will worsen this pain.

Growth in Kazakhstan

Kazakhstan has some of the world’s largest oil and gas reserves but has also made the most progress on wind energy investment in central Asia.

Exact figures are tough to find, but the International Renewable Energy Agency has reported that there was 130MW of wind farms in operation at the end of 2018; and a further 500MW of wind and solar capacity was added in 2019.

The Kazakh government has given support for 1.1GW of wind and solar projects in three auctions over the last two years and is aiming to reach 1.6GW of installed renewables capacity by the end of 2020.

The country has also been boosting its economic prospects with privatisation, and last year came 28th in the World Bank’s Doing Business 2019 report. This could open the way for its neighbouring ‘stans’ in central Asia to do likewise.

For example, its growing business-friendliness opened the way for investments in projects including in a 100MW wind farm that is poised to be the largest in central Asia, which gained funds from the Asian Infrastructure Investment Bank in December. But western investors shouldn’t get too excited as infrastructure investments in the region are still dominated by China.

The other promising central Asian market for renewables firms is Uzbekistan. This is partly due to its size: its population is 11million more than Kyrgyzstan, Tajikistan and Turkmenistan combined. But the country has recently opened up to investment from foreign countries – and the wind sector is already seeing a sizeable share of this.

Unlocking the other 'stans'

At present, there is less than 1MW of installed wind capacity in Uzbekistan. But this month, Saudi Arabian developer ACWA Power announced that it has signed a deal with the energy ministry to develop 500MW-1GW of wind farms worth up to $1.1bn.

This follows the enactment of a law in mid-2019 that commits the government to get 21% of the country’s energy needs from renewables by 2031.

The three smaller ‘stans’ have wind potential too, although Kyrgyzstan and Tajikistan also have large mountainous areas that work best for hydro. GE won a deal last March to refurbish Tajikistan’s Qairokkum hydro plant, for example.

There is no doubt that the proximity of these countries to China will ensure any western firms looking to enter will face tough competition from Chinese rivals. China’s Belt & Road Initiative shows how it sees central Asia as a key region for future strategic investment. But the ACWA and GE deals show this isn’t a closed market, and the region may look to be less reliant on China.

The oil price war may also increase their need for investment.

These countries have undergone significant economic changes in recent years, although the oil price war will likely slow that. This means that there should be opportunities for private firms to help them to improve their ageing energy infrastructure and improve grid reliability.

These countries’ budgets will come under huge strain if oil and gas prices stay low. But Kazakhstan and Uzbekistan are leading the way, and trying to show investors that central Asia can offer a stable investment environment.

One of their biggest obstacles may be their ‘difficult’ neighbours: Afghanistan, Iran and Russia. But wind has moved into most parts of the world, including regions with political and economic upheaval. It can in central Asia too.

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