Tajikistan is offering tax incentives to investors and a lower cost of borrowing to consumers in an effort to promote the use of renewable energy and energy-efficient technologies. By the end of 2016, Tajikistan’s government approved a renewable energy program for 2016-2020. This includes over 63MW of small hydro projects and 4.3MW of solar to be built over the next five years. While there are currently 142MW of small hydro projects at various stages of development, the solar capacity additions will probably not take place due to low electricity tariffs and the absence of support mechanisms from the government.
The land-locked nation has historically focused on developing hydro plants and this trend is expected to continue. Out of 17.2TWh generated in 2016, 95% came from large hydro and none from other renewables, which are almost exclusively small hydro plants of up to 30MW capacity. Further, the share of fossil fuels in the generation increased from 3% in 2015 to 5% in 2016. Tajikistan’s power sector is dominated by the state-owned Barqi Tojik (BT), a vertically integrated monopoly that distributes electricity to 99% of grid-connected consumers in the country. The utility is in poor financial health due to low subsidized tariffs, losses on transmission and distribution services, and collection rates as low as 60%. Following the national energy strategy, BT is currently restructuring. However, the remaining issue of low electricity tariffs will not be resolved soon as tariffs are not expect to rise in the next two years. Work is being done to promote private-public partnerships, of which Pamir Energy is the country’s first and so far only example.
Tajikistan struggles with power shortages in winter, when the large hydro plants operate at reduced capacity, and with oversupply in the summer months. CASA 1000, a new transmission line connecting Kyrgyzstan, Tajikistan, Pakistan and Afghanistan will help reduce the oversupply in summer by selling excess generation to Pakistan and Afghanistan. However, the project has been repeatedly delayed. The diversity of energy sources is also on the agenda, with coal one of the favored options. New coal plant Dushanbe 2 was commissioned in two phases, 100MW in 2014 and 300MW in 2016.
On 25 June 2013, the Asian Development Bank approved a $10 million grant to Tajikistan for the promotion of smart green energy solutions (SGES) in households through soft loans. The Ministry of Finance has established a project management unit to channel the funds to micro-finance institutions (MFIs). The grant includes project implementation support of $1.2 million, and $8.8 million for five-year local currency credit lines to selected MFIs that will then channel funds to rural households. The interest rate on the credit lines will be the National Bank of Tajikistan refinancing rate, currently 9% but it will be reset annually. The MFIs will also tie up with NGOs, suppliers and manufacturers of SGES. The fund works well for energy-efficiency projects: rural residents have been making use of the credit line to install plastic windows and doors. However, for renewable technologies it has proved less effective: only eight solar PV installations of 2-3kW each have been supported by the scheme so far. This is due to the high cost of the equipment and still expensive credit of 24-26% APR.
Tajikistan also extends various tax benefits to hydro plant developers. Imported goods for the construction of hydropower stations are exempt from VAT and customs duty. For the period of construction of a hydropower station, the builders and construction contractors (including employees) that are not citizens of Tajikistan are exempt from VAT, profit tax, minimum income tax, as well as land, road, vehicle, real estate and social tax. Also, manufacturers, irrespective of the goods produced, are exempt from profit tax for a number of years after registration, based on the amount of investment they make.