About half-an-hour’s drive from the east of Navoi City in Uzbekistan lies a quiet and open stretch of grassland. The abandoned irrigation ditches testify to the many failed attempts at cultivation, and the place is quiet, except for the occasional noise of cars zipping by on the adjoining national highway. Very soon though, this unassuming site—in the central region of Navoi—will host a new solar plant, adding a spark to more than 31,000 households in the country.
This project couldn’t be more timely. With rapid urbanization, industrialization, and increase of household incomes along with population growth, Uzbekistan will need more power, especially once the economy recovers from the impact of COVID-19. This will require substantial investment in Uzbekistan’s energy sector needs.
One of the most energy-intensive economies in the world, the country is highly reliant on gas for electricity generation—85 percent of total electricity. In addition, with a rapidly aging supply infrastructure, the nation’s power system is burdened by low efficiency and unreliable supply. Despite investments in transmission and distribution networks, electricity losses remain relatively high, estimated at 20 percent of net generation.
The bright side to this grim scenario is that Uzbekistan is a treasure trove of renewable energy resources —solar, wind, and hydropower—that can fulfill the country’s growing energy needs and help the country transition to a clean energy economy. The government is aiming to significantly increase the share of renewables from 0.3 percent in 2016 in power production to up to 25 percent, while targeting to develop up to 5 gigawatts of solar power by 2030.
Adding new power generation is likely to cost $14.7 billion for Uzbekistan, requiring mobilization of all possible sources of funding. Public-private partnerships (PPPs) can be an effective approach to address this financing gap.
The World Bank Group has been working closely with the government on key policy issues in the energy sector, while also helping to establish a robust regulatory and PPP framework to attract investors. Successful implementation of PPP solar-power transactions will help free scarce public financial resources for other government priorities, which are particularly important for post COVID-19 recovery.
Power in Partnerships
In response, IFC stepped in to help the government of Uzbekistan structure a PPP project under the World Bank Group’s Scaling Solar program, helping the country implement its first-ever competitive energy PPP. With a winning bid of just under 2.7 U.S. cents per kilowatt hour (one of the lowest tariffs in emerging markets) the project was awarded in October of 2019 to Masdar Clean Energy of the United Arab Emirates.
An open, competitive and transparent approach, the Scaling Solar initiative is a “one-stop-shop” program for governments to rapidly mobilize privately funded grid-connected solar projects at competitive tariffs. Uzbekistan was the first state outside of Africa to join the program.
For the Masdar project, IFC also arranged a financing package including loans from IFC, Asian Development Bank and the Canada-IFC Blended Climate Finance Program, plus interest-rate swaps from IFC. The World Bank is providing a payment guarantee to support the National Electric Grid of Uzbekistan and the European Bank for Reconstruction and Development is providing an equity bridge loan to Masdar.
The solar project is expected to have a lifespan of 25 years, and the electricity generated will be sold to the newly established state-owned power utility, National Electric Grid of Uzbekistan. The project will increase the installed power generation capacity by 100 MW, supplying 270 GWh per year of renewable electricity to the grid, preventing the release of greenhouse-gas emissions of 156,000 metric tons per year on average, and mobilizing nearly $110 million private capital financing.
Setting a Precedent
The success of the PPP model serves as an example for future private sector participation in the country, while sending a positive message to the global investment community. The project improves competitiveness by supporting the first solar plant in the sector.
“We are convinced that this landmark project will be the first example of a successful public-private partnership in Uzbekistan. We are looking forward to the completion of the construction works and further successful commissioning of the power plant by August 2021,” said Sardor Umurzakov, Deputy Prime-Minister, Minister of Investment and Foreign Trade of Uzbekistan.
Given the success of the tender, in February 2020, the government of Uzbekistan with IFC’s support launched another tender for an additional PPP for 400 MW, to be followed by more PPPs for a total of 1,000 MW of solar power.
This project sets a precedent as a commercially viable model that can be successfully replicated to attract new private players to the market. Going forward, this will help boost the resilience of electricity supply through renewable energy projects, helping to power a bright future for Uzbekistan.
The Scaling Solar Program in Uzbekistan was implemented with support of the Federal Ministry of Finance of Austria, Government of the Netherlands and Switzerland’s State Secretariat for Economic Affairs SECO.
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Published in December 2020