Economic sciences/2. Economics of Enterprise

Student, Dosbolova D.M., Associate Professor, Dzhumambaev S.K.

Al-Farabi Kazakh National University 

Energy costs reduction

The main goal of any manufacturer is to maximize his profit, but the opportunities to get this profit are limited. First of all, the cost of production takes part, and, secondly, the demand for manufactured products affects a lot. The cost reduction could be achieved by using different internal production factors, such as: raising the technical level of production; setting the organization of production and labor on foot.

A decrease in spendings on mastering and processing production plays an important role in the cost reduction process as well as reducing the cost of setting the product up and minimizing technological expenses. For example, the reduction of tariffs for energy is possible by reducing the specific fuel consumption for electricity and heat, or reducing the process flow for power transmission.

Another important aspect of cost reduction is an understanding of the essence of the cost starting point and its formation, that is used to form an added value. In world practice, this problem is always on the agenda list. For example, in foreign countries the permition to increase some tariffs is prohibited, the cause of cost formation there is a manufacturing company itself. So European reformers can easily call Scandinavian countries as their best standard, where they have a decentralized dispatching system, and all manufacturers compete to each other in a market system conditions. This system is based on the fact that manufacturers are required to maintain a balance between what they have to deliver in accordance with the schedule of the spot trading and bilateral contracts and what they actually deliver to the network. Any deviation from this balance must be paid regardless of the cost. Such a competitive market creates incentives for rational use of electricity, otherwise, the company will incur a loss [1]. Using this experience in our country would put an end to uncontrolled fuel consumption at all power plants and hydroelectric power stations.

Chart 1. – The dynamics of prices for 1 kWh of energy in the Republic of Kazakhstan

 

2011 y.

2012 y.

2013 y.

2014 y.

Price, KZT for kWh

9,15

9,32

13,56

14,36

Growth Index

100%

102%

148%

157%

Note: compiled by the author

An increase in tariff for electricity transmission over JSC «KEGOC» networks, as well as an increase in electricity selling price by power plants leads to an increase in tariffs for households and businesses.

For example, the average tariff on electricity sales in Astana in 2013 made up about 11.70 tenge per 1 kWh (excluding VAT), including tariffs:

·     for population - 9.97 tenge / kWh (excluding VAT);

·     for other consumers - 12.49 tenge / kWh (excluding VAT).

From February 1st, 2015 average sale price of electricity is set at 17.521 tenge without VAT or 19.62 tenge per 1 kWh including VAT, including following tariffs:

·     the average tariff for individuals - 15.32 tenge without VAT or 17.16 tenge with VAT;

·      for legal persons and other consumers - 19.428 tenge without VAT or 21.76 tenge with VAT;

In this regard, there is a question of how legal the increase of tariffs by JSC «KEGOC» from November 1st, 2014, which was the reason for the use of emergency regultaions. It happened because new tariffs should have been applied after the public offering, and it is possible that the monopolist has put expenses of the IPO share placement and the payment of dividends to its tariff by its own [2].

This industry has its own characteristics and specific problems. The cornerstone here is the depreciation of fixed assets, because the production base upgrade requires a lot of money, which you can easily extract by setting higher electricity tariffs. Many of the power stations are suitable for operations for 50 years only - that is the limit period of the equipment operated at thermal power plants and CHP stations (with cost distribution, repair and overhaul). If today the average selling price for electricity from tires stations is 3.5 tenge  per kWh, the distribution companies increase it two to three times. One of the main reasons of  it are enormous losses that are up to 40% of electricity in networks and 25% average in Kazakhstan.

If you compare them with numbers of Western countries it turns out to be very much. In Europe, the planned loss of  3%  are considered to be a disaster. The power generating companies are located not a hundred miles away from consumers. For example, in the US, where the distances between cities are comparable with Kazakhstan, the disaster rate of loss is only 5%. They do not apply the practice of transporting electricity across the country, like our line "North-South" do, the USA power generation facilities are located at regular intervals. Our electricity capacities in the South are insignificant, but the North power plants are in excess. With the Balkhash thermal power station and hydroelectric Moinak setting to work and also with a number of new small gas turbine power stations or cascade power plants this problem will be solved immediately.

There we have an another major problem - large losses in distribution networks. In particular, the spread of electricity thefts takes part and also it is substation equipment that is almost always out of date. In addition, the problem is in the electicity meters, which we have in every apartment, old induction meters measure it wrong at about 2.5% rate. New electronic meters have only 0.1% error. In the East Kazakhstan region of the country the government has prevented all electricity thefts by the installation of such meters. The result - a loss decreased in half. Same actions were done in South Kazakhstan and Zhambyl regions. They also greatly reduced all their electricity losses, and as a result, significantly increased the return on energy production [3].

Thus, the reduction in energy costs could not be realized by using only one method. This policy should be considered in combination with the accompanying activities and come from within the source of a problem.

 

List of References

1.                     Davydovskyi F.N. (2011). The liberalization of the global electric power industry and the problems of establishing competitive markets in terms of restructuring. Economy, Business and Law ¹7, 12-28. Retrieved from: http://www.creativeconomy.ru/articles/15450/  

2.                     Baturyn V. (2014). Deputies are interested in law of growth rate. Kapital.kz. Retrieved from: http://kapital.kz/economic/34196/deputaty-zainteresovalis-zakonnostyu-rosta-tarifa-kegoc.html

3.                     Hramkov A. (2013). In Kazakhstan, this year electricity prices raise twice. Liter. Retrieved from: http://meta.kz/novosti/kazakhstan/806587-v-kazahstane-vtoroy-raz-v-etom-godu-podnyalis-ceny-na-elektroenergiyu.html