In recent years, China has pivoted its investment strategy in Central Asia, particularly in Kazakhstan and Uzbekistan, towards renewable energy projects. Traditionally known for its substantial investments in fossil fuel infrastructure, such as the China–Central Asia gas pipelines and large-scale hydropower projects, China's focus has now expanded to include solar and wind power initiatives. This shift reflects both regional countries' growing interest in clean energy and China's evolving global investment framework under its Belt and Road Initiative (BRI).
Historically reliant on fossil fuels, Kazakhstan and Uzbekistan have turned towards renewable energy sources to mitigate environmental impact and address energy security concerns. Kazakhstan, for instance, successfully met its interim target of generating 3% of electricity from renewables by 2020 and aims for 15% by 2030 and 50% by 2050. Meanwhile, Uzbekistan, where solar and wind power currently constitute a small fraction of total renewable energy capacity, plans substantial increases—5 GW of solar and 3 GW of wind power capacity by 2030.
Drivers of China's Involvement
China's increased involvement in Central Asia's renewable energy sector can be attributed to several key factors:
Diplomatic Agendas and Bilateral Agreements: Since the signing of intergovernmental framework agreements with Kazakhstan and Uzbekistan, China has integrated renewable energy cooperation into its diplomatic and economic engagements. These agreements have paved the way for joint projects and investments in green energy infrastructure.
Regulatory Framework and Investment Opportunities: Kazakhstan initiated renewable energy auctions in 2018, while Uzbekistan began allowing public-private partnerships in 2019. These frameworks offer incentives such as tax exemptions and subsidies, attracting Chinese companies keen on project development, engineering, procurement, and construction (EPC) contracts, and supplying renewable energy technologies.
Strategic Shift towards Green Investments: Responding to global concerns about sustainability and environmental impact, China has reoriented its BRI strategy towards smaller-scale, sustainable projects like solar and wind energy. This shift aligns with Kazakhstan and Uzbekistan's priorities and enhances the bankability of renewable energy projects.
China's Role in Kazakhstan
The increasing demand for renewable energy projects in Kazakhstan has become the primary driving force for Chinese firms. The 2015 bilateral framework agreement between China and Kazakhstan has facilitated the participation of Chinese companies in various renewable energy initiatives. In Kazakhstan, these companies have predominantly acted as developers and constructors for renewable energy projects. Financing for these ventures primarily originates from local or international development banks, supplemented by equity investments from Chinese companies.
Illustrating this cooperation are projects like the Zhanatas and Shelek wind farms, established under intergovernmental agreements and financed by Kazakh banks and international institutions. Zhanatas Wind Farm, for instance, is being developed and operated by Zhanatas Wind Power, a foreign-owned entity jointly owned by China Power International Holding (80%) and UAE's Visor International. Funding for Zhanatas largely stems from a loan consortium involving institutions such as the EBRD and AIIB. Similarly, the Shelek Wind Farm, co-owned by PowerChina and Kazakh's Samuk-Energy Joint Stock Company, secured financing from CDB and Kazakhstan's Development Bank.
From 2018 to 2022, Chinese firms have contributed to five wind and three solar projects through bilateral industrial and investment cooperation programs. These initiatives reflect China's adaptation to local practices, including participation in auctions aimed at aligning with Kazakhstan's strategic capacity and investment goals.
In contrast, Universal Energy, a private Chinese company, has actively engaged in Kazakhstan's renewable energy auctions since 2018. Through this approach, Universal Energy has secured contracts for constructing multiple solar and wind power plants across the country. For instance, they have completed solar plants like Kaskelen, Kapchagay, and Zhangiztobe, alongside wind farms such as Abay 1, Abay 2, and Ybrai. Financing for most of these projects came from the Development Bank of Kazakhstan and Universal Energy's equity, with additional support from the EBRD for the Zhangiztobe solar plant.
China's Role in Uzbekistan
Kazakhstan has predominantly relied on government-to-government relationships to advance renewable energy projects, whereas a formal green diplomatic agenda between China and Uzbekistan only emerged after 2021. Nevertheless, Chinese involvement in Uzbekistan's renewable energy sector began earlier, driven by the initiation of renewable energy tenders in 2019 that captured Chinese companies' interest. Despite active participation in tender processes, Chinese firms have struggled to secure contracts due to competitive tariff proposals from competitors like Masdar from the UAE and ACWA Power from Saudi Arabia.
In 2022, GD Power-PowerChina became the sole Chinese company to win a bid for a 150 MW photovoltaic plant in Namangan, but the project was canceled due to its perceived high tariff. Despite these setbacks, Chinese companies remain committed to the Uzbek market, adopting two primary strategies to engage in major projects.
Firstly, while winning companies take on roles as developers, investors, and operators, Chinese firms typically engage through EPC contracts or as suppliers. For example, Masdar developed Uzbekistan's first large-scale photovoltaic plant, with SEPCOIII (a PowerChina subsidiary) providing EPC services. This pattern extends to wind projects, like ACWA Power's Bash and Dzhankeldy wind farms, where China Energy Engineering Corporation (CEEC) signed the EPC contract.
Chinese companies also play significant roles as suppliers, with agreements between Masdar and Goldwind for turbine supply in Tomdi, and Envision Energy supplying turbines for ACWA Power's wind farms. Additionally, JA Solar, a Chinese company, supplied n-type modules for ACWA Power's solar project in Tashkent, known for its efficient sunlight conversion.
The second strategy involves direct negotiations for project development in Uzbekistan, gaining momentum in 2022 amidst increased green energy cooperation. Notably, agreements were signed in 2023 for Chinese companies to build substantial solar photovoltaic plants in multiple Uzbek regions, representing a total of $4 bn in investment. Unlike previous international tenders, these projects were directly awarded to Chinese companies.
For instance, CEEC Energy China, Huaneng Renewables Corporation, and Poly Technologies secured agreements with the Uzbek Ministry of Energy to develop solar plants in Kashkadarya, Bukhara, Samarkand, Jizzakh, and Tashkent. Additionally, a memorandum of understanding was signed with China Huadian Overseas Investments, China National Electric Engineering Company, and SANY Renewable Energy to explore wind farm construction in Jizzakh.
Similar to Kazakhstan, China demonstrates alignment with Uzbekistan's localization requirements for renewable energy. Notably, preliminary agreements with Liaoning Lide Investment Holdings Group aim to produce renewable energy equipment in Karakalpakstan, an autonomous region within Uzbekistan, highlighting China's responsiveness to local demands.
Opportunities and Risks
While China's involvement presents opportunities for accelerating the green transition and bolstering energy security in Kazakhstan and Uzbekistan, it also poses risks. The dominance of Chinese firms could potentially limit competition and influence local regulations, standardizing technology choices and subcontracting requirements. This scenario raises concerns about long-term dependency on Chinese resources and technology standards, potentially reshaping Central Asia's renewable energy landscape.
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