November 16, 2020

Renewable energy in Kazakhstan

Renewable energy is an integral part of the energy sector developing in Kazakhstan in the context of the general national policy. Namely, by 2020, Kazakhstan intends to bring the share of renewable energy sources (RES) in the total volume of electricity production to 3%, by 2030 – to 10%, and by 2050, according to analysts’ forecasts, the share of renewable energy sources may reach half of the country’s energy balance. Thus, the state is taking active measures to implement promising projects in this industry. We’ll consider:

1. SPECTRUM OF CONDUCTED AND PLANNED PROJECTS IN THE FIELD OF RES

2. PECULIARITIES OF THE RENEWABLE ENERGY INDUSTRY

3. ADVANTAGES OF THE RENEWABLE ENERGY INDUSTRY IN KAZAKHSTAN AND THE BUSINESS INTEREST OF A POTENTIAL INVESTOR

1. SPECTRUM OF CONDUCTED AND PLANNED PROJECTS IN THE FIELD OF RES

  1. Solar energy

Potentially possible solar energy production is estimated at 2.5 billion kWh per year.

Despite the fact that Kazakhstan is located in northern latitudes, the potential of solar energy on the territory of the republic is quite significant (amounting to 1.3-1.8 thousand kW / h per 1 sq. M per year, the number of hours of sunshine per year is 2.2 -3 thousand). At the same time, solar energy can be used not only for generating electricity, but also for heat, which makes it possible to introduce point solar installations, including in areas remote from central electricity and heat supply.[1].

At that, the south of Kazakhstan has a significant potential due to the number of sunny days per year. Thus, according to various estimates, the launch of alternative energy facilities will cover 30% of the needs of the Turkestan region in electricity and partially reduce its deficit.

Solar power plants are being built in Saryagash (20 MW), Maktaaral (4.95 MW) and Suzak (50 MW) districts of the Turkestan region, as well as in the cities of Arys (14 MW) and Kentau (50 MW). The total capacity of five solar projects and two small hydroelectric projects, which are now also under construction, is 95 MW. Renewable energy facilities already launched in the Turkestan region, according to the regional department of energy and housing and communal services, give only about 6.5 MW. By 2025, the region should have 13 renewable energy projects with a total capacity of 148.8 MW[2].

In the north and east of Kazakhstan, in 2019, about six solar power plants of various capacities from 30 to 100 MW were commissioned.

The Russian group of companies Hevel, following the results of the auction, received the right to build and in 2019-2020 intends to build solar generation facilities with a capacity of 70 MW in South Kazakhstan. The group includes well-known Renova and Rusnano, which act not only as installers of imported batteries, but are themselves manufacturers of solar modules, build and operate solar power plants, conduct research activities in the field of solar energy[3].

In the city of Saran, Karaganda region, Solamet / GoldbekSolar is building the largest solar power plant in Central Asia with a capacity of 100 MW.

The Eurasian Development Bank (EDB) and KV Enterprises LLP (a subsidiary of the Hevel group of companies) signed an agreement to open a long-term multicurrency credit line in the amount of EUR 65.2 million to finance the construction of a solar power plant (SPP) with an installed capacity of 100 MW in Akmola region, this was reported to the Kapital.kz business information center in the bank’s press service.

The SPP is scheduled for commissioning in 2020. The power plant will be able to generate and supply to the energy system of Kazakhstan about 150 million kWh of “green” energy per year, which will improve the structure of the region’s power supply[4].

  1. Wind power

In the republic, the most significant of all RES is the potential of wind energy. The theoretical potential is estimated from 0.929 to 1.82 billion kWh per year. Economically feasible – 3 billion kWh per year.

Comparing the estimates of the wind potential with the volume of energy consumption in the republic, one can see that wind generation alone can provide 10 to 20 times more electricity than Kazakhstan needs. At present, a tiny part of this potential has been realized.

Promising areas for the development of wind energy are the Almaty region: these are the Dzhungarskie gates, Shelek corridor, Akmola (Ereimentau), Zhambyl (Kordai) regions and other regions. Studies carried out within the framework of the UNDP project on wind energy show the presence in a number of regions of Kazakhstan with a total area of ​​about 50 thousand square meters. km of average annual wind speed over 6 m / s. This makes them attractive for the development of wind energy. The most significant are the wind energy resources of the Dzungar corridor (17 thousand kW / h per sq. M)[5].

On March 26, 2020, the Eni company, through its subsidiary operating in the development of renewable energy sources, ArmWind LLP, began commercial operation of the Badamsha wind farm, located in the north-west of Kazakhstan in the Aktobe region. The 48 MW Badamsha wind farm will supply the region with 198 GWh of electricity annually, while avoiding 172,000 tonnes of carbon dioxide emissions [6].

In general, by 2020, Kazakhstan plans to build 33 wind farms with a capacity of 1,737 MW. Four wind farms will be commissioned in the Almaty region, including two in the Chilik corridor and two in the Dzhungar gate area.

  1. Hydropower

Currently, it is planned to implement several major HPP projects in the coming years: Moinak HPP with an installed capacity of 300 MW, Kerbulak HPP – 49.5 MW, Bulak HPP – 68.25 MW.

2. PECULIARITIES OF THE RENEWABLE ENERGY INDUSTRY

  1. Pubic administration in the use of RES

According to the Law of the Republic of Kazakhstan dated 04.07.09 No. 165-IV “On Supporting the Use of Renewable Energy Sources” public administration in the use of renewable energy sources is carried out by the Government of the Republic of Kazakhstan, the Ministry of Energy of the Republic of Kazakhstan, as well as local government bodies.

Namely, the powers of the Government include:

  • development of the main directions of state policy in the field of the use of renewable energy sources;
  • approval of the rules for determining fixed tariffs and ceiling auction prices;
  • approval of fixed tariffs.

In turn, the Ministry of Energy in the field of RES carries out:

  • state policy in the field of supporting the use of renewable energy sources;
  • develops and approves technical regulations in the field of the use of renewable energy sources and makes proposals for improving national standards in the field of design, construction, operation and safety of facilities for the use of renewable energy sources for the production of electrical and (or) thermal energy;
  • develops and approves regulatory legal acts in the field of the use of renewable energy sources;
  • approves the plan for the placement of facilities for the use of renewable energy sources, taking into account the target indicators for the development of the renewable energy sector;
  • develops and approves the rules for the formation of a plan for the placement of facilities for the use of renewable energy sources;
  • approves targets for the development of the renewable energy sector;
  • develops and approves the procedure for recalculation and redistribution by the settlement by the financial center of the corresponding share of electric energy to a qualified conventional consumer based on the results of the calendar year;
  • approves to qualified conventional consumers the type of renewable energy sources, the volume of capacity and the location of the facility for the use of renewable energy sources in accordance with the plan for the location of facilities for the use of renewable energy sources and the technical capabilities of the unified electric power system of the Republic of Kazakhstan;
  • develops and approves the rules for organizing and conducting auction tenders, including qualification requirements for auction participants, the content and procedure for filing an application, types of financial support for an application for participation in the auction and the conditions for their entry and return, the procedure for summing up the results and determining the winners;
  • determines the organizer of the auction;
  • determines the timing of the auction, the planned capacity values ​​by type of renewable energy sources, the expected zones (areas) of the location of facilities for the use of renewable energy sources in accordance with the plan for the placement of facilities for the use of renewable energy sources;
  • approves the maximum auction prices;
  • approves the procedure and monitors the use of renewable energy sources;
  • develops and approves the procedure and terms for determining the nearest point of connection to electric or heating networks and connection of facilities for the use of renewable energy sources;
  • develops and approves a standard agreement on the connection of facilities for the use of renewable energy sources, as well as the procedure and terms for its conclusion;
  • develops and approves the rules for the formation and use of the reserve fund;
  • develops and approves the rules for the centralized purchase and sale by the settlement by financial center of electrical energy produced by facilities for the use of renewable energy sources, the corresponding standard forms of contracts of the settlement by financial center with energy producing organizations using renewable energy sources, conventional consumers and qualified conventional consumers;
  • develops the rules for determining fixed tariffs, develops and approves the rules for determining the tariff for the support of renewable energy sources;
  • develops and approves the rules for the formation of a list of energy producing organizations that use renewable energy sources, and places it on its Internet resource;
  • determines the settlement and financial center;
  • approves the rules for the functioning of the balancing electricity market;
  • develops and approves the rules for providing targeted assistance to individual consumers;
  • coordinates the interaction of state bodies, private entrepreneurship and subjects of scientific and scientific and technical activities for the development and use of renewable energy sources;
  • carries out international cooperation in the field of the use of renewable energy sources.

Moreover, the Ministry of Energy:

  • implements state policy in the field of supporting the use of renewable energy sources;
  • exercises control over the connection of facilities for the use of renewable energy sources to the electric or heat networks of power transmission organizations in accordance with the legislation of the Republic of Kazakhstan on the electric power industry.

In turn, local authorities in the field of RES:

  • approve projects for the construction of facilities for the use of renewable energy sources for the production of heat supplied to the district heating system placed in the subordinate territory;
  • reserve and provide land plots for the construction of facilities for the use of renewable energy sources in accordance with the land legislation of the Republic of Kazakhstan and the plan for the placement of facilities for the use of renewable energy sources;
  • provide targeted assistance to individual consumers.

 b) Obligations of participants in the production, transmission and purchase of electrical energy produced by facilities for the use of renewable energy sources

Power transmission organizations, to the networks of which the facilities for the use of renewable energy sources are connected, are obliged to submit to the settlement and financial center on a monthly basis information on the volumes of electrical energy supplied by facilities for the use of renewable energy sources in their networks, determined on the basis of the readings of commercial metering devices for electric energy.

Conditional consumers are under obligation to[7]:

  • annually conclude contracts with the settlement and financial center for the purchase of electrical energy produced by energy producing organizations using renewable energy sources, in accordance with the standard form and pay no later than thirty calendar days after the end of the delivery month;
  • monthly provide the settlement and financial center with information on the forecast volumes of production, supply in the network, at rates to power transmission organizations or receipt of electricity from outside the Republic of Kazakhstan ten calendar days prior to the month of delivery;
  • qualified conventional consumers are obliged to annually conclude contracts with the settlement and financial center for the purchase of electricity produced by energy producing organizations using renewable energy sources, in accordance with the standard form;
  • annually, by December 20, send to the settlement and financial center information on the forecasted volumes of generation, supply to the grid, supply of electricity to energy transmission organizations for the coming year.

Settlement and financial center [8] must:

  • to buy, in the manner prescribed by this Law, from energy producing organizations using renewable energy sources, electric energy produced by facilities for the use of renewable energy sources and supplied by them to the unified electric power system of the Republic of Kazakhstan, at a fixed rate in effect on the date of the conclusion of the purchase and sale agreement between the settlement and financial center and an energy producing organization that uses renewable energy sources, taking into account the indexation provided for by the Law, and pay no later than fifteen working days after the end of the payment period established for conditional consumers;
  • buy, in the manner established by this Law, from energy producing organizations using renewable energy sources, electric energy produced by facilities for the use of renewable energy sources and supplied by them to the unified electric power system of the Republic of Kazakhstan, at auction prices determined based on the results of the auction held, with taking into account the indexation provided for in paragraph 2 of Article 8-1 of this Law, and pay no later than fifteen working days after the end of the payment term established for conditional consumers;
  • sell, in the manner prescribed by this Law, electrical energy purchased from energy producing organizations using renewable energy sources, to conditional consumers at the tariff for supporting renewable energy sources in accordance with the zone of consumption of electrical energy;
  • determine the projected annual costs of supporting the use of renewable energy sources per one kilowatt-hour of electric energy produced from all types of renewable energy sources and supplied to the unified electric power system of the Republic of Kazakhstan, and publish the relevant information on its Internet resource no later than fifteenth January of the forecasted year;
  • conclude contracts for the sale and purchase of electrical energy with energy producing organizations using renewable energy sources, the support of which is carried out in accordance with this Law, and included by the authorized body in the list of energy producing organizations using renewable energy sources for a period of fifteen years.

Obligations of energy producing organizations

  • on a monthly basis provide the settlement and financial center with information on the projected volumes of generation, supply of electricity to the network ten calendar days prior to the month of delivery;
  • on a monthly basis provide the settlement and financial center with information on the actual daily volumes of production, supply of electricity to the network no later than the fifth day of the month following the month of delivery;
  • annually, by December 20, send to the settlement and financial center information on the forecast volumes of generation, supply of electricity to the grid for the coming year, broken down by months;
  • submit to the regional power grid company and (or) the system operator daily and monthly (ten calendar days before the beginning of the month) electricity supply schedules;
  • ensure compliance with daily schedules of electricity production in accordance with the legislation of the Republic of Kazakhstan.
  • Energy producing organizations using renewable energy sources with an installed capacity of at least one megawatt are obliged to comply with the operating modes of the generating units of the power plant specified by the system operator in accordance with the legislation of the Republic of Kazakhstan.
  • Hydroelectric power plants equipped with reservoirs are obliged to carry out intraday regulation of electricity generation in accordance with the orders of the system operator in the implementation of centralized operational dispatch control of the unified electric power system of the Republic of Kazakhstan within the framework of the water regime approved by the authorized body in the field of use and protection of the water fund.
  • All energy producing organizations using renewable energy sources, including energy-producing organizations that are part of a qualified conventional consumer, must have an automated commercial accounting system at their facility for the use of renewable energy sources. The automated commercial accounting system should be able to remotely transmit data to regional dispatch centers.

3. ADVANTAGES OF THE RENEWABLE ENERGY INDUSTRY IN KAZAKHSTAN AND THE BUSINESS INTEREST OF A POTENTIAL INVESTOR

  1. Benefits and preferences

Investment preferences: general information

The production, transmission and distribution of electricity are included in the list of priority types of activities under investment legislation both for the implementation of “ordinary” investment projects and for investment priority projects.

The condition for the provision of tax and customs preferences upon an application within the framework of the production of renewable energy sources will be the submission of an application for an investment project that provides for investments in the creation of new, expansion and renewal of existing production facilities, and the conclusion of an investment contract with the Investment Committee of the Ministry of Foreign Affairs of the Republic of Kazakhstan in the prescribed manner.

In this area for the production, transmission and distribution of RES electricity, an investor can claim the following benefits for an investment project and an investment priority project:

– exemption from customs duties;

– state in-kind grants.

The following preferences are provided for the so-called investment priority project:

– tax preferences;

– investment subsidy.

Investment preferences are discussed in more detail below.

Settlement and financial center

To attract investments in the green economy sector, the RES Law provides for measures of state support for the purchase of electricity by a single purchaser represented by the Settlement and Financial Center (RFC), created under the Kazakhstan Electricity Grid Management Company KEGOC JSC.

Upon concluding a purchase agreement with the RFC, investors are guaranteed with respect to the purchase of the entire volume of renewable energy at auction prices for fifteen years. At the same time, starting from the second year of electricity generation, auction prices are annually indexed at a rate of 70% for the change in the exchange rate of the tenge to convertible currencies and 30% for the consumer price index.

The profitability of concluding an agreement with the RFC is explained by the independence of the regulatory authorities, the stability of contractual relations, the provision of an extension option in case of a delay in the commissioning of renewable energy sources by one year, provided that the construction of a renewable energy facility is completed at least 70% and the possibility of transferring disputes of the parties to the International the arbitration center of the Astana International Financial Center (AIFC) under the law of Kazakhstan. The provisions on the conditions for concluding a contract for the purchase of electricity and its standard form are regulated by Order of the Minister of Energy of the Republic of Kazakhstan No. 164 dated March 2, 2015.

Auction trades

The mechanism of state support for the RES sector until February 2018 was based on the application of the practice of fixed tariffs for the purchase of electricity generated by RES. The introduction of fixed tariffs was a necessary measure for the formation of the renewable energy sector in the country, attracting investments in the industry and served as a guarantee of the return of invested financial resources in the implementation of renewable energy projects.

Starting in 2018, the so-called fixed tariffs that were in effect earlier were replaced by an auction procedure for the selection of effective projects for the construction of new facilities for the use of renewable energy sources.

The attractiveness of the auctions lies in the formation of competitive market prices for electricity produced by renewable energy facilities, and the transparency of the process of purchasing alternative energy on the electronic site.

Other support measures

In addition, the state provides the following support measures [9]:

  • RES producers are exempt from payment for services for the transmission of electricity from RES;
  • financial settlement of imbalances from RES is carried out by RFC;
  • renewable energy producers are provided with priority dispatching in the transmission of electrical energy;
  • the power transmission organization has no right to refuse to connect the RES facility due to the unavailability of the network;
  • the costs of reconstruction and expansion of the network are borne by the power transmission organization;
  • land plots and network connection points are reserved for holding auctions for the selection of renewable energy projects.

Also:

  • No license required for renewable energy production. However, buying electricity for resale requires a license.
  • New and reconstructed facilities using renewable energy sources have the right to unhindered and non-discriminatory access to the nearest point of connection to the electric or heat networks of power transmission organizations

Detailed information on investment preferences

Exemption from customs duties is provided to Kazakh legal entities carrying out investment projects under an investment contract with the MID:

– when importing technological equipment and components for it, it is provided for the duration of the investment contract, but not more than 5 years from the date of registration of the investment contract;

– when importing spare parts for technological equipment, raw materials and / or materials, it is provided for a period of up to 5 years, depending on the volume of investments in fixed assets and if the investment project complies with the list of priority activities approved by the Government of the Republic of Kazakhstan.

The customs authority must be notified of the MIR’s decision to grant the exemption from customs duties within 5 working days.

State in-kind grants

The government may provide the investor with the following in-kind grants: land plots, buildings, structures, machinery and equipment, computers, measuring and regulating devices and devices, vehicles (except for cars), production and household equipment.

Such grants are provided for temporary gratuitous use or temporary gratuitous land use with subsequent gratuitous transfer of ownership or land use.

The maximum size of a state in-kind grant, estimated at its market value, should not exceed 30% of the volume of investments in fixed assets of a Kazakhstani legal entity. If this threshold is exceeded, the grantee has the right to receive the requested property with payment of the difference between its assessed value and the maximum size of the state in-kind grant.

MID provides state in-kind grants in agreement with the relevant authorized body for state property and / or land administration and local authorities.

Tax preferences

Tax preferences are provided to Kazakhstani legal entities implementing investment priority projects. Types of tax preferences:

– reduction of the amount of the calculated corporate income tax by 100%;

– applying a coefficient of 0 to land tax rates;

– calculation of property tax at a rate of 0 percent to the tax base.

The investment contract establishes the validity period for each type of tax preferences, but no more than the deadline for their application in accordance with the Tax Code.

Investment subsidy

The investment subsidy is provided in the form of reimbursement of up to 30% of the actual costs of construction and installation work and the purchase of equipment, excluding VAT and excise taxes, but not exceeding the cost of costs provided for in the project documentation, which has a state expert opinion.

The schedule and annual payments of the investment subsidy are established within the framework of the investment contract by distributing the investment subsidy in equal shares for a period depending on the volume of investment and the profitability of the investment priority project, but not less than three years after the production is put into operation and until the termination of the investment contract.

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[1] https://www.unece.org/fileadmin/DAM/energy/se/pdfs/gee21/projects/Study_KZ.pdf

[2] https://kursiv.kz/news/otraslevye-temy/2019-05/kak-v-turkestanskoy-oblasti-razvivaetsya-solnechnaya-energetika

[3] https://express-k.kz/news/resursy/kazakhstanskaya_energetika_uspeshno_zeleneet-131307

[4] https://kapital.kz/finance/82480/yeabr-vydelil-65-mln-yevro-na-stroitel-stvo-solnechnoy-elektrostantsii.html

[5] https://www.unece.org/fileadmin/DAM/energy/se/pdfs/gee21/projects/Study_KZ.pdf

[6] https://spaq.kz/images/April_2020_compressed.pdf

[7] -energy producing organizations using coal, gas, oil products and nuclear fuel;

  • participants in the electric energy market purchasing electric energy from outside the Republic of Kazakhstan;
  • HPPs with installations located in one hydroelectric complex, with a total capacity of over 35 megawatts.

[8] Limited Liability Partnership «Settlement and Financial Center for the Support of Renewable Energy Sources».

[9] https://rfc.kegoc.kz/media/docs/709/5da6e44957b79.pdf