On the 12th of December 2020 at the UN Climate Ambition Summit, Kazakhstan President Kassym-Jomart Tokayev announced that Kazakhstan will reach carbon neutrality by 2060. The country’s energy sector will require a big transformation coming with plenty of opportunities. We asked Nandita Parshad, Managing Director for Sustainable Infrastructure Group, at London headquartered European Bank for Reconstruction and Development (EBRD) to share her thoughts on what needs to be done to successfully reach the “net-zero”.

– Kassym-Jomart Tokayev last year announced that Kazakhstan will reach carbon neutrality by 2060. As we all know, the power sector contributes most of the GHG emissions in the country’s carbon footprint. What do you think are the key challenges and opportunities of the energy transition?

– The EBRD welcomes Kazakhstan’s pledge to reach net-zero by 2060, and we are ready to support the country on this journey. One of the critical elements for the decarbonization of the country is energy transition as in Kazakhstan 70 per cent of electricity is still generated by coal-fired power plants. As a result, the country is the sixth-largest greenhouse gas emitter among the EBRD’s countries of operations. A key challenge is that energy transition requires significant financial investments to diversify the coal-dependent economy at a pace required to meet the net-zero timetable. At the same time, it is important to support a just transition for affected workers and communities (e.g. in coal mining towns), to ensure that the benefits of a green economy transition are shared widely.

However, the good news is that Kazakhstan is currently developing a long-term Doctrine for Carbon Neutrality by 2060, which creates an enabling environment for the energy sector transition at the national level. We are grateful to have been able to participate in the preparation of the Doctrine over the last 18 months. At COP 26 conference, Prime Minister Askar Mamin announced that the country will adopt the document by April 2022, which is a strong signal for private sector investors and donors, including multilateral climate funds. Rapidly developing renewable power generation is becoming cheaper than traditional energy sources not to mention the environmental benefits it brings. A successful energy transition has the potential to create huge tangible benefits to society and the economy, including the introduction of economic stimulus, the creation of new professional roles, better air quality and many others. Kazakhstan is already taking advantage of its vast renewable energy resources and scaling up green investments. EBRD is proud to have supported renewables in Kazakhstan fr om day one and we look forward to continuing to support the country’s net-zero plans.

– Until very recently electricity from fossil fuels was considered far cheaper than electricity from renewables. When and why has this changed?

– Renewable energy sources have become far more affordable in recent years. Coal and other conventional energy sources are now struggling to compete with renewables in terms of price, even without factoring in the cost of carbon, local air pollution and public health. According to the recent report published by the International Renewable Energy Agency (IRENA), nearly two-thirds (62 per cent) of the wind, solar and other renewables that came on stream in 2020, were cheaper than the cheapest new fossil-fuelled facility.

There are many reasons as to why we are seeing this revolution in renewables. First of all, the technology is ripe and ready. Advances in the technologies themselves have increased efficiency and resulted in smaller capital expenditures per MW – and these advances are continuing to push the envelope and make renewable technologies more and more accessible. There have also been changes in the market and we are beginning to see the competitive process really take off. The combination of competitive bidding and increasing numbers of experienced developers competing for project opportunities are yielding low tariffs. In economies, which are able to create the right investment environments, we see prices as low as 1–2 US cents per kWh for solar or below 2.6 US cents for wind.

With cost becoming less and less of a barrier, Kazakhstan has a clear direction for its future activity – the country must continue to build renewable energy capacity and provide households and businesses with reliable, affordable and clean power.

– During the last meeting between the President of Kazakhstan Mr. Tokayev and President of EBRD Ms Renaud-Basso in October, it was mentioned that the EBRD in Kazakhstan is a key financial institution, which supports the renewable energy sector. What factors may have contributed to the EBRD leading in this sphere?

– Sustainable development is in the Bank’s DNA. The EBRD launched its climate action efforts in 2006 when the Bank adopted its initial Sustainable Energy Initiative (SEI), with priority investments in energy efficiency and renewable energy sources to decrease a very high-energy intensity of the economies in our countries of operation. Through the new Green Economy Transition approach approved last year, the EBRD will further increase green financing to more than 50 per cent of its annual business volume by 2025 in line with its strategic priorities. Responding to the increased urgency of the climate emergency, the EBRD will also from the end of 2022 align all its activities with the goals of the Paris Agreement, aiming to accelerate decarbonization across the regions wh ere it invests, supporting countries in reaching net-zero emissions by mid-century.

The EBRD was present at the very beginning of the renewables sector in Kazakhstan and is now contributing to the sector’s development through policy dialogue, donor-funded technical cooperation projects and investments. Since 2015, the Bank has invested in excess of US$500 million, to support 788 MW of renewable energy capacity through 14 projects in Kazakhstan, which represent about half of the country’s newly added 1.8 GW renewable energy generation. Most of these projects were financed under Kazakhstan Renewables Frameworks I&II, co-financed by international climate funds, which were developed to facilitate changes in the country’s power generation sector by promoting the development of private renewable energy projects and a more sustainable power market. A good example is a recent syndicated US$95.3 million deal, co-financed by Green Climate Fund (GCF), to build Zhanatas 100 MW wind farm in Southern Kazakhstan.

The EBRD also supports electricity distribution companies and is ready to extend our cooperation at the transmission grid level, as a key prerequisite for successful deployment of intermittent renewable energy sources is reliable grid infrastructure. In addition to grid strengthening, we are also ready to work with the government to support the introduction of storage technologies, including through auctions, as well as demand-side management and smart grids solutions.

– We understand that the policy dialogue is one of the EBRD’s major mechanisms to support the sector development. Could you please share a few recent examples?

– The EBRD has been involved in Kazakhstan’s renewable energy market since 2008, prioritising renewable energy projects and associated technical cooperation activities focused on regulatory support. In March 2021, EBRD President Odile Renaud-Basso and the Minister of Energy of Kazakhstan signed a memorandum of understanding, targeting the decarbonization of the power sector, fostering climate resilience, reducing greenhouse gas emissions, and eventually reaching carbon neutrality by 2060. As part of this agreement, the Bank together with USAID is helping the Ministry of Energy to develop a long-term decarbonization roadmap for the power sector, which will inform on the specific steps to undertake for phasing out coal and achieving carbon neutrality in the energy sector.

We are also working with the Ministry of Energy on another important aspect, which is using renewables development for building expertise and expanding local supply chains contributing to green energy. The energy transition offers growth opportunities not only in manufacturing but also in services such as O&M. This could lead to creating a new set of professional jobs in the country, which will require a trained skilled workforce. Our analysis shows that working with international partners, Kazakhstan could attract investments into specific components of the wind and solar value chain. Another policy dialogue area for us is the promotion of gender equality and youth inclusion in the relation to the green transition of the energy sector. On this note, I commend the Kazakh Government for removing the list of jobs banned for women in Kazakhstan. We are now working with relevant authorities on removing barriers to women and youth employment and on providing them with the market-relevant skills necessary to find good jobs in the energy sector. We are also working on developing new occupational skills standards in relation to energy efficiency, green and digital skills, which will help the Kazakh energy sector keep up with the green transition.

We are also pleased to report on our joint work with the Ministry of Energy on the implementation of site-specific wind auctions for three utility-scale wind power projects. This initiative builds on the positive results of the existing auctions scheme that Kazakhstan successfully introduced in 2018 and has already awarded 1,219 MW, at prices 29% below previous feed-in tariffs for solar and wind on average, demonstrating the true success of the competitive process. What the country needs now is auctioning larger sizeable capacity, potentially together with storage, to achieve economies of scale and low prices.

– What do you think are the key challenges facing Kazakhstan’s renewable sector right now?

– I think Kazakhstan faces two key challenges. First, there is a need to strengthen networks to successfully integrate significant larger volumes of intermittent renewable energy, needed to decarbonize the power sector. The country will have to make significant investments in modernising and strengthening electricity grid infrastructure and operations, as well as increasing flexible generation capacity. Second, there is a regulatory and financing aspect. In order to attract international investment in renewable energy on a large scale, it is important to ensure a predictable and enabling regulatory environment.

– As we know, besides working on the development of the renewable energy market, the Bank is also engaged in the development of the local carbon market. How do you view the effectiveness of introducing the carbon market to the decarbonization process in Kazakhstan?

– In 2013, Kazakhstan became the first country in the Commonwealth of Independent States (CIS) region to set up an Emissions Trading Scheme (ETS) and the Bank has been supporting Kazakhstan in this area fr om the very beginning. The EBRD started contributing in 2009 to carbon market developments in Kazakhstan as well as the country’s initial Nationally Determined Contribution (NDC). This was followed up by contributions from other parties such as the Partnership for Market Readiness (PMR).

In our continued engagement with the Kazakh government on this matter, we are assisting the Ministry of Ecology, Geology and Natural Resources and other relevant stakeholders (including Zhasyl Damu, the operator of the ETS in Kazakhstan) in the further strengthening of the domestic carbon market regulations, particularly focusing on the issue of environmental integrity. Subject to further improvements to its design and operations to enhance integrity, liquidity and price signal, the ETS in Kazakhstan has the potential to provide a key contribution to the achievement of the climate pledge defined by the country in its NDC under the Paris Agreement and further toward its long-term net-zero goal.

– What about other clean sources of energy, green hydrogen is gaining momentum in global discussions. Do you believe it is a viable option to help accelerate decarbonization?

– Certainly, the potential of clean hydrogen generated by renewable energy is a very exciting prospect. Hydrogen can serve as an energy carrier or as a feedstock, and what’s better is that it can be used to store seasonal renewable electricity. While it is still early, the industry is growing quickly.

In May 2021, the Bank launched a technical assistance project to assess the potential for a low carbon hydrogen economy across the EBRD economies including Kazakhstan. It explores a number of economic, commercial, institutional and technical dimensions in order to assess the most cost-effective and sustainable ways of developing a robust and resilient hydrogen economy.

Many countries wh ere we operate have a combination of energy-intensive industries in the process of decarbonization and industrial manufacturers using a mix of fossil-based hydrogen and/or having access to affordable natural gas. Often, these same countries have also favourable local conditions for the production of green hydrogen fr om cost-competitive local renewable sources. These factors may create favourable conditions for the wider use of green hydrogen.

– The EBRD was a pioneer working with municipalities under the Green Cities program. What role does the Green cities program play in decarbonization?

– Cities worldwide are the source of at least three-quarters of emissions, making them a vital starting-point in tackling climate change. This is particularly true of cities in the EBRD region – Central and Eastern Europe, Central Asia and the Southern and Eastern Mediterranean – wh ere obsolete urban infrastructure is often degrading the quality of life of citizens, by increasing greenhouse gas emissions and preventing communities from adapting to climate change. EBRD Green Cities, which has already grown to include 52 cities, is helping municipalities create a tailor-made list of priority environmental investments and policy actions to address their environmental challenges through Green City Action Plans (GCAP).

In 2020, Almaty became the first city in the country to join Green Cities and start developing its Green City Action Plan. It is focusing on addressing the issue of coal-fired heating plants, the reduction of energy consumption, the introduction of electric public transport as well as circular economy and smart city solutions. Oskemen and Semey have also joined Green Cities and started GCAP preparation in October 2021. Rapid greening of cities is critical for the success of a country’s climate policies and for improving the quality of people’s life.

Let me conclude by saying that we, at the EBRD, firmly believe in Kazakhstan’s energy transition potential. There are solid foundations for future investment and development, but challenges remain. It will be impossible to reach carbon neutrality overnight, and consistent efforts coupled with the necessary experience will be essential. I hope the country will be able to facilitate accelerated clean energy transition by capturing the abundance of sun and wind – the natural and abundant treasures Kazakhstan is blessed with.