Bakytzhan Kazhiyev, Chairman of the Management Board of KEGOC JSC

In recent times, the global economy has seen a trend of large-scale transition to “green” energy. Lower prices for renewable energy and rapid technological progress have led to a reassessment of energy and investment priorities. There is an increased interest in the use of renewable energy sources (RES) in various sectors of the world economy.

This is due to ongoing changes in the energy policy of world powers, where

the transition to energy-saving and resource-saving technologies are getting the paramount importance.

As a result, the actual indicators and successes of alternative energy have surpassed all possible forecasts and expectations. This is evidenced by the fact that today in the world, more renewable energy capacities are installed per year than capacities for all types of traditional fuels. So, according to the International Renewable Energy Agency (IRENA), in 2019 the global renewable energy production capacity increased by 8% or 174 GW. The greatest growth was demonstrated by the capacities of solar photovoltaic (PV) panels (56% of the total increase in renewable energy), wind power (25% of the total) and hydropower (12% of the total).

Investments into the construction of new renewable energy capacities are also growing accordingly, and over the past six years, they have outstripped investments in traditional energy. There are still no finalized figures for the end of 2019, while for example, in 2018, according to IRENA, global investments in renewable energy amounted to $ 280 billion. The leaders include China, the USA and Japan.

This is primarily due to government support measures, such as preferential terms for the purchase of “green” electricity (fixed tariffs, “green” certificates, guaranteed purchase following the auctions results, etc.), priorities for renewable energy generating plants when connecting to the grid, as well as when transmitting and using the electricity generated by them.

Despite the significant natural energy resources reserves, Kazakhstan also intends to actively develop renewable energy sources.

Our country has set itself an ambitious task: the share of renewable energy sources in 2030 should be at 10% of the total electricity production, and in 2050 - 50%, including alternative energy.

The first step of the state policy on the renewable energy sector was the adoption of the Law of the Republic of Kazakhstan “On Supporting the Use of Renewable Energy Sources” in 2009. This law defined the basic conditions for supporting the use of RES to generate electric and thermal power, including economic and technical aspects. According to the Law, KEGOC JSC as a System Operator of the Unified Power System of the Republic of Kazakhstan (UPS RK), as well as all regional distribution companies were obliged to buy electricity from renewable energy facilities to compensate for technological losses in their networks at prices determined by the project feasibility study. At the same time, renewable energy facilities themselves were exempted from paying for electricity transmission services provided by energy transmission organizations. They were also given a priority status in dispatching services.

From 2009 to 2013, Kazakhstan continued to develop the institutional and legislative framework aimed at the systematic introduction of RES. The first steps were taken in attracting investors, determining the potential of solar and wind energy, providing support to reconstructed small hydropower plants, and setting development targets. Based on international best practices, the minimum technical requirements for grid connection of the renewable energy facilities were developed.

In 2013, significant amendments and additions to the current legislation were made to further stimulate the construction of “green” power plants. In particular, for the next 15 years, investors received a guarantee for the purchase of generated electricity at the fixed rates with an annual indexation of the fixed tariffs for inflation. Renewable energy power plants were exempt from paying for the organization of balancing of the generated electricity, for the imbalances created by them and were exempted from the need to fulfilling the electricity daily schedule. A mechanism was provided to support small, low-power installations development through the net consumption mechanism.

The practical application of the fixed tariffs in Kazakhstan started in 2014. The main goals of this mechanism were to attract investment in the construction of renewable energy facilities and to reduce the risks for investors in returning the invested funds through the guaranteed electricity purchase for 15 years. At the same time, the “Financial Settlement Center for the Support of Renewable Energy Sources” LLP (hereinafter referred to as “FSC on RES” LLP) was established as a subsidiary under KEGOC JSC, which was entrusted with the functions of guaranteed centralized purchase and sale of the renewable energy.

The regulation of relations in the renewable energy sector was implemented with amendments to the legislation, providing for the assigning the Ministry of Energy of the Republic of Kazakhstan the competencies to determine target indicators for the renewable energy sector development, approval and implementation of a plan for the location of renewable energy facilities taking into account indicators for the renewable energy sector development. The rules for the development of a plan for placing the renewable energy facilities provided for the inclusion of a methodology for determining the technical capabilities of networks in the zones of the UPS of Kazakhstan and the procedure for selecting projects for inclusion in the plan, and a number of other measures.

New standards have allowed the launch of the renewable energy market in Kazakhstan. Investors started coming to the industry, and by the end of 2014, a list of energy producing companies using renewable energy sources with a total capacity of 2,000 mw was formed."

As a result, the renewable energy sector in Kazakhstan has become one of the fastest growing energy segments in Kazakhstan. This is evidenced by the fact that when drawing up a plan for the deployment of renewable energy facilities, the Ministry of Energy of the Republic of Kazakhstan received hundreds of applications with a total capacity of more than 8000 MW. Of these, 128 projects with a total installed capacity of 2803 MW received state support by granting them the right to sell electricity at the fixed tariffs and auction prices.

It should be noted that, along with the positive results, the world experience has demonstrated that measures to support renewable energy in many countries have led to an uncontrolled increase in investment in the construction of renewable energy based power plants and, accordingly, to a significant increase in the share of electricity generated from renewable energy sources in the total amount of generated electricity. This led to the new problems caused by the need to create additional flexible and reserve capacities in the power system to balance the supply of electricity from unstable generation sources (which are renewable energy-based power plants). Also, in many cases, the strengthening and development of the electric grid infrastructure was required, which, in turn, required additional investments from the companies.

In this regard, many countries began to switch to a system of the renewable energy auctions. Achieving low prices and attracting competitive investors were recognized as one of the main advantages of the auctions and became the main motivation for their rapid distribution throughout the world. By the beginning of 2016, more than 65 countries started to apply the auction bidding mechanism for the selection of renewable energy projects.

In 2017, the Law of the Republic of Kazakhstan “On Supporting the Use of RES” was amended to provide for the transition in the selection of the RE projects from a fixed tariff mechanism to the auction trading.

The transition to the use of the auction tool in the selection of RE projects in Kazakhstan has several advantages. In particular, the winners of the projects are determined on the basis of non-discriminatory competitive selection.

The experience of holding such auctions in Kazakhstan also demonstrated their advantages. So, according to the results of the first auctions of 2018, the “FSC on RES” LLP concluded 30 contracts with a total installed capacity of 804 MW. At that time 113 Kazakhstan and foreign companies took part in the auction, and the geography of the auctions included nine countries - Kazakhstan, Russia, China, Turkey, France, Bulgaria, the United Arab Emirates, Italy, and the Netherlands.

As a result of the auctions, the average decrease in the auction price was: for wind generation - 11%, for solar generation - 30%, and for small hydropower projects - 14%.

As a result of the auctions in 2019, 11 contracts were concluded for a total installed capacity of 152 MW. The auction has attracted 32 Kazakhstani and foreign companies from seven countries: Kazakhstan, Russia, China, Germany, Malaysia, Italy, and Spain. Moreover, the average decrease in the auction price was: for wind generation - 13%, for solar generation - 40%.

Also, in November 2019, a pilot auction with documentation was conducted (solar power plant) with an installed capacity of 50 MW. The determined winner of the auction is a subsidiary of the ENI oil company with a price of 12.49 tenge/kWh, which will enter into an agreement in the near future.

According to the Ministry of Energy of the Republic of Kazakhstan, by the results of 2019, 90 renewable energy facilities with a total installed capacity of 1,050.1 MW are operating in the republic. At the end of 2019, the generation of electricity by renewable energy facilities amounted to 2.4 billion kWh, or 2.3% of the total electricity generation in the country.

Fifty RE power plants with a total installed capacity of more than 950.46 MW sell electricity through the “FSC on RES” LLP. Among them: the largest solar power station SES “SARAN” in the Karaganda region (100 MW), the largest wind farm “CATEK Green Energy” LLP in the city of Nur-Sultan (50 MW), and a hydroelectric power plant on the Kora River (Almaty region) with a capacity of 28,5 MW. Electricity generation from renewable energy facilities increased from 8 million kWh in 2014 to 1,348 million kWh in 2019.

It is predicted that the RE sector in 2020 will produce about 3.5 billion kWh.

It should be noted that, despite the adopted changes in the mechanism for supporting renewable energy in Kazakhstan and the reduction in the cost of renewable energy technology, renewable energy still remains expensive. So, while the wholesale price of electricity is 7-8 tenge/kWh, the average price of renewable energy is 34 tenge/kWh. Taking into account the high cost of renewable energy, a systematic development of renewable energy is necessary, taking into account the growing economic impact on consumers.

The problem of controlling the occurring imbalances in electricity, which is caused by the need to reserve the generation of solar and wind power plants with flexible reserve capacities that can quickly change their generation, remains relevant.

An appropriate amount of flexible reserve power should be provided at the traditional power plants, which implies significant additional costs for maintaining a hot power reserve.

Thus, the main challenge for the utility scale introduction of renewable energy sources in Kazakhstan under the conditions of the existing shortage of flexible generating capacities is ensuring the stability of the country's power system.

In this regard, in order to ensure reliable and stable operation of the unified power system of Kazakhstan and uninterrupted power supply to consumers, it is necessary to introduce effective mechanisms to ensure attractiveness for investors to build and modernize flexible generating capacities, including the improvement of the state support conditions for the construction of regulating hydropower plants and counter regulators.