Advantages of RES development in Kazakhstan

Renewable energy has been among the most attractive investment niches in Kazakhstan in the last few years. The number of launched investment projects is close to a hundred, and the total investment in the green energy industry is growing by several hundred million dollars a year. The secret of the investment boom is the combination of several factors: the favorable climatic conditions, the state regulation that stimulates investments, and the willingness of institutional investors to support private investors' initiatives through various formats, including project financing.

The key player in this field is the Development Bank of Kazakhstan (DBK), which seeks to expand its portfolio of projects in re and is ready to co-finance the “green” capacity development of the Kazakhstan’s electric power industry.

DEVELOPMENT BANK OF KAZAKHSTAN

PARTNERSHIP WITH DEVELOPMENT INSTITUTIONS

The models of investment projects in renewable energy imply a fairly narrow range of funding sources. This is either the company's equity capital or a partnership mechanism with the development institute.

The main advantage of a partnership with a development institute is a cheap financing. Since the shareholders of such structures are governments, they can attract long cheap money, and, thus, their lending rates are lower. The mandate of most of them sets a goal: to support the «green» energy. Second- tier banks - an alternative lender - rarely support such projects, since they are quite complicated for the commercial banks. The funding base of second-tier banks is mainly represented by the deposits of individuals and legal entities - this is usually quite short and expensive money and, therefore, the end rates of commercial banks are higher.

The staff of development institutes has experienced specialists in various renewable energy projects financing who share their expertise when they structure transactions. Besides, partnership with development institutions has a positive effect on the reputation of the investor and the project itself.

Kazakhstan with its relatively young renewable energy segment is not an exception to the world practice. In 2018, the research group Expert Zertteu (analytical journal Expert Kazakhstan) formed a pool of investment projects in the green energy sector, which were launching in 2018 or were under construction by that time. 15 projects were included in the pool, 11 of which were supported by the development institutions - the DBK or the EBRD. The average value of the development institutions' co-financing share in the projects they participated turned out to be at the level of 55%.

RENEWABLE ENERGY EXPERT

Development institutions usually participate in RE projects using the project financing scheme. The model looks like this: investors lend to the project on the condition that the main source of payment of borrowed funds is the cash flow from the project implementation. This format allows, on the one hand, to create large financial leverage (the share of borrowed funds compared to equity), which allows the owner of a capital¬intensive project to implement it with a small amount of equity. On the other hand, the lender in this model receives more control over the implementation of the project.

"The active participation of foreign investors in the implementation of renewable energy projects was made possible thanks to the legal framework adopted by the government with the fixed tariff agreements, the availability of a loan instrument such as project financing and the availability of tenge liquidity for lending to these kind of projects, which reduces the requirements for providing securities and eliminates currency risks” - notes the chairman of the executive board of the DBK Abay Sarkulov.

The DBK actively uses this financing model, providing favorable conditions for project financing: the minimum loan amount is 7 billion tenge, the maximum loan term is up to 20 years, the size of the company's own participation is not less than 30% of the investment project cost as estimated. An important point - financing is provided in tenge, which is critical for a project cash flows in which are also denominated in tenge.

Up to date, the DBK has implemented four RE projects, but each of them is in a different segment. The first, in terms of installed capacity, is the Astana Expo-2017 WPP with a capacity of 50 MW and a cost of 44 billion tenge located in the Kostomar village, Akmola region. DBK funded 68% of the project cost. At the end of 2019, financing for the WPP's second start-up complex began, which will increase its capacity to 100 MW. The bank's participation in the second stage is 9.8 billion tenge. In addition, subsidiaries of the bank - DBK Leasing JSC and DBK Equity Fund, also participate in the project financing.

The presence of these projects in the DBK's portfolio is a positive signal for foreign investors in the green energy sector: the bank can become an experienced and reliable partner for them.

The international company Universal Energy, represented by its project company Eneverse Kunkuat, is already participating in the implementation of the above projects, such as a solar power plant in the Kapshagay district of Almaty region with a capacity of 100 MW, and the German company DERA GmbH was an

investor in the Zhylga SPP project in the Turkestan region (20 MW Zhylga SPP).