Due to the President's policy and commitment to the green course in the last 3 years, the renewable energy sector has received a powerful boost for development: recognizing the greening of the economy as one of the key principles of the new national economic policy, increasing the target share of renewable energy in the energy balance until 2030 from 10 to 15%, extending the term of contract for purchase of renewable energy from 15 to 20 years,
classification of renewable energy projects as priority investment projects, adopting legislative norms for the construction of maneuverable generation (gas and hydroelectric power plants). However, at the moment, the RES business community sees a number of problems and challenges facing the RES industry.

DEVELOPMENT OF SMALL-SCALE RENEWABLE ENERGY PROJECTS

Currently, there is a global trend towards the decentralization of energy. This trend is facilitated by the improvement of technologies, the availability of financial opportunities and various incentive programs, as well as public awareness of environmental issues.

According to the International Energy Agency, the total installed capacity of domestic (rooftop solar installations, with a unit capacity of up to 10 kW) reached 58 GW* in 2018, and it is expected that by 2024 this figure will be increased by 2.5 times.

In Germany,the total capacity of distributed generation (SPP) was33 GW,whilethe installed capacity of home installations was 6.5 GW, and the capacity of commercial and industrial installations that small and medium­sized businesses install for their own needs was 26.5 GW (more than 60% of the total installed capacity of all solar stations in the country). In Japan, 34 GW, of which 9 GW are home installations, in Italy 16 GW, of which 4.2 GW are home installations. Moreover, these data apply only to the electricity supply sector.

In ordertostimulate the development ofthis area in Kazakhstan, the UNDP-GEF project "Reducing the risks of Investing in Renewable energy" (hereinafter- UNDP-GEF) has been working for several years. According to the UNDP-GEFstudy, 5,907installations with a capacity from 1 to 1,000 kW have been commissioned in the country by both households and small and medium­sized businesses tocover their own electricity needs. This trend is especially relevantforthe southern regions of the country with high solar potential and high tariffs for business for electricity (Turkestan region - 24.7 tg/kWh).

In addition, UNDP-GEF conducted a simulation of the distribution grid of the Turkestan region, including Shymkent, on the integration of small renewable energy projects into the network. The simulation showed quite interesting results:the potentialof 5-10%of households is equivalent to the construction of a large thermal power plant with a capacity of 500 -1,000 MW. Connection to the electric network of the so-called home installations of solar power plants on the scale of the region will contribute to improvingthe reliability of the network as a whole, unloading overloaded nodesand reducing electrical energy losses.

On May 26, 2021, at a meeting on the development of the electric power industry, you gave specific instructions to the Government of the Republic of Kazakhstan on the development ofthis segment of renewable energy with a deadline until June 2022:

•   toprepare and introduce legislative changes in terms of simplifying the list of permits for the generation ofclean energy by households and improving the mechanism forsubsidizing capital costs for low-power home installations;

tomake proposals to improve measures to stimulate the population (sale of excess generated energy to the grid, subsidizing the purchase of equipment with a revision of its maximum cost and the subsidy rate upward, simplification of procedures for obtaining permission to install RES) forthe use of renewable energy sources, to form a pool of pilot projects forthe operation of RES within the framework of the development of "smart" cities.

As partofsupportfordevelopment of small-scale RES, UNDP-GEF, based on international experience, developed specific measures of state support and amendments to legislative and regulatory acts that can give impetus to using the renewable energy technologies in the country:

•   targeted assistance toindividual and net consumers, in terms of state reimbursement of part of the costs for acquisition, installation and commissioning of small-scale projects;

•   mechanisms of connection to electric networks and commissioning of small-scale renewable energy facilities;

•   mechanisms for monitoring and controllingthe operation of small­scale renewable energy facilities;

•   free access tothe transmission of electricity through networks generated by small-scale renewable energy facilities and exemption from paymentforthe transmission of generated electricity;

•   mechanisms for offsetting excess electricity generated and supplied to the grid for offsetting generation and consumption in subsequent billing periods.

It should be noted that these measures have been repeatedly discussed during 2020-2022 at various venues with the participation of the business community, the authorized state body, the System Operator, development institutions, business. To implement the above measures, it is necessary to obtain the decision of Republican Budget Commission on allocation of targeted assistance to individual and net consumers, to make amendments to the legislation on support for use of renewable energy sources, on natural monopolies, and to develop subordinate legislation.

In addition, on December27, 2021 the Law of the Republic of Kazakhstan "On amendments and additions to certain legislative acts of the Republic of Kazakhstan on industrial policy" amended the Law of the Republic of Kazakhstan "On support for use of renewable energy sources", whereby only renewable energy producing organizations, for which contracts have been concluded with RFC RES LLP, as well as buyers and their energy producing organizations that are part of the same group of persons using renewable energy sources for their own needs, are exempt from paying for transmission of electric energy by energy transmission organizations.

Thus, households and net consumers who want to implement or have already implemented renewable energy technologies do not fall under these categories. Already, this has led to the fact that energy supply organizations refuse to buy renewable energy from small-scale installations, due to the fact that now they, as end users of this electricity, have an obligation to pay for its transmission.

In this regard, in the current situation, the development of the segment of small-scale RES has become almost impossible. A certain optimism was brought by the draft Law of the Republic of Kazakhstan "On amendments and additions to some legislative acts of the Republic of Kazakhstan on the implementation of certain instructions of the President", which was initiated by the Ministry of National Economy of the Republic of Kazakhstan in early March this year. This draft Law included important amendments to the Law of the Republic of Kazakhstan "On support for use of renewable energy sources" in terms of the development of small-scale renewable energy projects based on the developments of the UNDP-GEF project. It also includes corrections in the correction mode regarding the legislative conflict that arose at the end of last year and described above.

"Qazaq Green" hopes that the draft Law proposed by the Ministry of National Economy of the Republic of Kazakhstan will be adopted. It is necessary to take advantage of the result of many years of work of UNDP-GEF and in order to fulfill the instructions of the President, it is necessary to take the support measures proposed by international and domestic experts, aimed primarily at supporting decarbonization initiatives by the population and SMEs.

IMPLEMENTATION OF RENEWABLE ENERGY PROJECTS BY BUSINESSES FOR THEIROWNNEEDS

In December2020, our country joined the global climate movement to achieve carbon neutrality. Many businessmen, representatives of the real sector of the economy (metallurgy, oil and gas sector, telecommunications, etc.) took this news as an opportunity to diversify their electricity consumption and reduce the carbon footprint in the production of their final products. However, even here, despite the fact that companies want to build renewable energy facilities at their own expense to cover their own electricity needs under bilateral agreements in the B2Bformat without support from FSC of RE LLP, there are problems related to the requirements of the System Operator KEGOCJSC.

According to the requirements of regulatory legal acts, such facilities must coordinate the scheme of power delivery with KEGOC JSC. In particular, one of the companies plans to build a solar plant with a capacity of 17 MW without connecting it to the grid, that is, the plant will consume electricity both from the grid and directly from the solar station.

According to KEGOC JSC, in case of intention to implement the project, applicant should provide the project of regulating power with connection to the ALFC and the conclusion of a corresponding contract with KEGOC JSC for provision of services for regulating electric power in the National Grid of Kazakhstan. At the same time, maneuverable generating capacities that are not currently involved in the power balance of the National Grid of Kazakhstan should be presented as the regulating capacity.

As an alternative, it is possible to consider equipping the SPP with an energy storage device with a capacity of 50% of the installed capacity of the SPP and a capacity sufficient to issue the installed capacity of the storage device within four hours.

That is, on the one hand, it is not prohibited to implement such projects, but in order to implement it next to the solar station, it is necessary to put a gas station in the form of maneuverable generation, which will regulate the operation of the solar station, despite the fact that the solar station is not physically connected to the network. Or, in the second scenario, put energy storage devices (batteries) on the solar station, which will increase capital costs by at least 1.5 times.

At the end of this February KEGOC JSC initiated amendments to the Rules of Technical Operation of Power Plants and Networks, according to which the following requirements are put forward for wind power plants and SPP for integration into networks and the use of energy storage systems:

•          for a wind power plant, electric energy storage systems are installed with a capacity of at least 50% of the installed capacity of the wind power plant and

a capacity sufficient to release the full capacity of the storage devices within two hours;

•          fora solar power plant, electric energy storage systems are installed with a capacity of at least 50% of the installed capacity of a solar power plant and a capacity sufficient to release the full capacity of the storage devices within four hours.

As a result, businesses interested in electricity from renewable energy sources see real risks associated with the requirements for the integration of a renewable energy facility, even without a network connection. But such companies can help the National Grid of the Republic of Kazakhstan to solve current problems with electricity shortages, because part of their consumption volumes from the National Grid of the Republic of Kazakhstan will decrease.

On March 4 this year "Qazaq Green" Association held a discussion of these initiatives with the RES business community. According to investors and developers, it is unfair that the System Operator intends to regulate at the expense of energy storage systems. In a number of cases, it is possible and advisable to use alternative technological solutions (for example, gas turbine or gas reciprocating units). In addition, the participants noted that at the moment there are no calculations confirming the required capacity of energy storage systems, as well as a clear vision of how the introduction of ESS will affect tariffs at renewable energy auctions.

The business community notes that the use of energy storage systems for balancing purposes in the system is the most expensive, costly and, accordingly, technically (short service life, rapid degradation, losses) and economically inefficient solution for the renewable energy market. From international experience, it can be said that such systems are used at renewable energy stations only to smooth out the daily production schedules of the stations themselves. At the same time, the System Operator creates conditions in the energy system for the safe integration of renewable energy into the network, while using such tools as: maneuverable generation, available capacity reserves, automated control systems, market mechanisms (for example, demand management, differentiated tariff, balancing market), effectively built transnational flows with neighboring states, and ESS are only one of the above tools.

The experts also noted that in order to solve systemic problems, it is necessary to use mechanisms that do not require high costs and can be adopted within the framework of standard-setting activities:

•     improvingthe quality of forecasting electricity generation by renewable energy facilities;

•     introduction of financial responsibility to cover deviations between the projected and actual capacity of the renewable energy facility, as one of the incentives for the installation of ESS;

•     transition from daily to hourly generation planningschedules;

•     to use the geospatial distribution of RES through the RES Placement Plan as a tool forthe System Operatorto modernize networks;

•     launch of the balancing electricity market;

•     returning topractice of tariffs differentiated by hours of the day for wholesale and retail consumers, as the initial stage ofthe implementation of the demand management program (tariff increases during peak hours and decreases duringfailure hours);

•     development ofthe auxiliary system services market.

It is also necessary to use infrastructure solutions to increase the system’s capacity reserves with connection to existing and previously unavailable generation. And if the System Operator is focused on acceptingsuch conditions for energy storage systems - this type of activity should form the basis of system services from renewable energy facilities (a separate business segment).At the same time, the System Operator must conclude separate contracts with renewable energy facilities in order for the ESS to participate in regulation at a separate tariff (different from the generation of electricity by renewable energy facilities) as a separate service.

Expressing the above position,the members of "Qazaq Green" noted the relevance and importance of the issue under consideration, as well as their willingness to further discuss and develop the necessary solutions.

DEVELOPMENTOF LARGE-SCALE RENEWABLE ENERGY FACILITIES

To date,the most transparent mechanism forthe implementation of large-scale renewable energy projects is auctions launched by the Ministry of Energy of the Republic of Kazakhstan in 2018. Over the past 4 years, 196 companies from 12 countries have participated in the auction, 1,705 MW of solar, wind, hydro-and bio-energy capacities have been announced at the auction.

However, it should be noted that due to the problems in the National Grid of the Republic of Kazakhstan, the volume of RES is decreasing from year to year. Thus, for example, in 2018 the volume of capacities at the auction amounted to 1,000 MW, of which for solar power plants - 290 MW, in 2019 the total volume - 255 MW, for solar stations - 80 MW,in 2020 the total volume - 250 MW, for solar stations - 55 MW,in 2021 - 200 MW,for solar stations - 20 MW.

In addition, the RES business community expressed the opinion that for the development of the sector it is necessary to have approved volumes of installed capacities for bidding for 2-3 years ahead. This is primarily necessary for budget planning in companies investing in the renewable energy industry. It’s a known fact that large companies form the budget forthe next year at the end ofthe previous year,there are regulations for its amendment. Currently, based on the current practice, the auction schedule is published several months before the auction with indication of terms and volumes of the auction.

In addition,the maximum prices for auctions are formed based on the results ofthe maximum prices ofthe winner of the previous auction. This practice, at the time, made it possible to reduce tariffs at renewable energy auctions for solar energy by 64% (34.61 tg/kWh to 12.49 tg/kWh), for wind energy by 38% (from 22.68 tg/kWh to 14.08tg/kWh). Taking into account the fact that pricing at auctions is carried out in the national currency (for example, in Uzbekistan in US dollars), investors see large currency risks for participating in auctions in our country. At the same time, it should be noted that the existing tariff indexing mechanism is not viable.

Taking into account the low volumes at auctions, significant currency risks, it should be noted that recently there has been an outflow of business activity in the renewable energy sector, let alone the fact that our renewable energy market is not interesting for large global companies-investors in the renewable energy industry.

Today, in a situation
where any generation of electricity is expensive forthe country’s energy
system, and also, taking into account all our internationally declared goals
and commitments, we believe that new incentives are needed for the development
ofthe renewable energy sector, newsignalsare needed thatare understandable to
investors, and the elimination of accumulated problems that were discussed
above.