(following the II International Business Festival on Renewable Energy Qazaq Green Fest, held on May 25-26, 2023 in Burabay area of Akmola region)

The business community of the renewable energy industry (RES) supports the initiatives of the President of the Republic of Kazakhstan K.K. Tokayev on the transition of the Republic of Kazakhstan to a green economy and sustainable development.

As it is known, the Republic of Kazakhstan has declared its commitment to the goal of achieving carbon neutrality by 2060. In February 2023, the President signed the Strategy for Achieving Carbon Neutrality of the Republic of Kazakhstan by 2060. Within the framework of the Paris Agreement, the country declared its contribution in the form of an unconditional reduction of greenhouse gas emissions by 15%, as well as a conditional (in the case of international support) reduction of 25% by 2030 from the 1990 level.

Today, more than ever before, the Kazakh society is aware of the great responsibility for ecological future of our country and the health of the nation. One of the tools to achieve all the set goals is the introduction of renewable energy technologies.

At the same time, currently there are constraints to the development of renewable energy in the market of Kazakhstan, which were discussed in detail
at the II International Business Festival on Renewable Energy Qazaq Green Fest, which brought together more than 300 business representatives in the field of "green" energy, according to the results of which the RES business community sent the following recommendations to authorized state bodies and the Government of the Republic of Kazakhstan for implementation these measures in order to improve the investment climate in the renewable energy industry.

 1.              Sustainable policy and investment climate for the development of the renewable energy sector

A stable and predictable policy, coupled with a clear vision for development of the renewable energy sector, is the most important factor in attracting investment in green energy.

As it is known, in 2022, the authorized state body adopted a Forecast balance until 2035, according to which it is planned to introduce 6 GW of installed renewable energy capacity.

As a result of recent visits, agreements were signed with a number of leading foreign companies Total, Masdar, AcwaPower, China Power for construction of 4 wind parks with a capacity of 1 GW each.

 At the same time, since 2018, an auction mechanism for selection of renewable energy projects has been operating in Kazakhstan, in which 232 companies from 13 countries have participated over the past 5 years. This project selection mechanism is recognized by international organizations and has proven itself as a transparent tool for determining the winner who will implement a renewable energy project based on the lowest submitted price.

In this regard, questions arise as to how the Government of the Republic of Kazakhstan sees the further implementation of the tasks for development of renewable energy: what volumes will be implemented through direct contracts with foreign partners, what volumes will be implemented through the auction mechanism for the selection of projects, what volumes will be provided for segment of bilateral renewable energy contracts (B2B), what volume can be implemented through the development of small-scale renewable energy projects?

One of the tools to resolve the conflict may be the development of 5-year auction schedule, which would allow companies to plan investments for several years ahead. In this regard, the RES business community welcomes in general the adoption of the Order of the Minister of Energy of the Republic of Kazakhstan No. 187 dated May 23, 2023. "On approval of auction schedule for 2023 and the auction plan for 2024-2027". However, further implementation of large-scale renewable energy projects (more than 100 MW) should be carried out through an auction system with prequalification of potential participants.

The issue of qualification selection at auction is important and debatable. Its implementation will reduce the risks of non-implementation of renewable energy projects for the state and open access for companies with the necessary experience and access to technology. In this regard, for its part, the RES business community declared its readiness to participate in the discussion.

In order to get answers to the above questions, we ask the Government of the Republic of Kazakhstan to form a further vision for development of renewable energy generation in terms of capacities, regions and technologies, as well as mechanisms for selection and implementation of such projects.

 2.              The impact of the new "Single Buyer" market model and the balancing electricity market in real time on renewable energy facilities.

In April 2023, The President signed the Law of the Republic of Kazakhstan adopted earlier by the Senate of the Parliament of the Republic of Kazakhstan "On Amendments and additions to some legislative acts of the Republic of Kazakhstan on administrative reform of the Republic of Kazakhstan", which involves amendments to the legislation of the Republic of Kazakhstan on heat and power engineering (hereinafter – the legislative draft).

This Law of the Republic of Kazakhstan provides for a radical reform of the country's electricity market through the introduction of a new market model – a "Single Buyer" and a balancing electricity market in real time (hereinafter – BEM). Conceptually, the introduction of new rules of the game for renewable energy facilities (RES) implies: the sale of generated electricity to a "Single Buyer" and the application of financial liability measures for imbalances in the energy system.

Qazaq Green sees significant risks for the development of the electric power industry and the renewable energy sector, which arose with the adoption of this Law of the Republic of Kazakhstan. In this regard, the RES business community asks the Government of the Republic of Kazakhstan to consider the following initiatives:

-      preserve a provision of long-term purchase and sale of electricity from renewable energy facilities of the previous operating modes for existing contracts (signed before July 1, 2023), on the terms of signed contracts;

-      ensuring the possibility of implementing renewable energy projects under bilateral contracts with settlement of imbalances through the services of System operator for organization of balancing the production /consumption of electric energy;

-      for projects for which contracts are signed after July 1, 2023, provide for an adjustment to decrease (down) and increase (up) the daily schedule of production-consumption of electric energy approved by the system operator, no later than two hours before the corresponding hour of actual production-consumption of electric energy;

-      for projects for which contracts are signed after July 1, 2023, determine the margin of error of 15% in case of positive and negative imbalances, under which renewable energy facilities will be exempt from financial responsibility in the balancing electricity market;

-      for projects for which contracts are signed after July 1, 2023, determine the minimum sizes of increasing and decreasing coefficients within the framework of responsibility for imbalances in the balancing electricity market.

These measures will contribute to the successful implementation of renewable energy projects and significantly reduce risks for investors.

 3.              Affordable long-term financing in national currency from financial institutions is a crucial factor for development of renewable energy industry and the financial sustainability of projects in the Republic of Kazakhstan.

Affordable long-term financing in national currency from financial institutions is a crucial factor for development of renewable energy industry and the financial sustainability of projects in the Republic of Kazakhstan. To date, second-tier banks do not lend to renewable energy facilities due to the fact that the projects are long-term, carry certain currency risks. In addition, the Monetary Policy Committee of the National Bank of the Republic of Kazakhstan decided to keep the base rate at 16.75% per annum with a range of +/- 1 p.p. In this regard, the issue of attracting affordable financing for renewable energy projects is crucial both for the successful implementation of such projects and for reducing the level of tariffs for RES electricity.

In order to achieve affordable financing conditions, it is necessary to consider the possibility of developing a targeted state program to support the financing of "green" investment projects, which provides for the possibility of reducing the interest rate by providing preferential funding to financial institutions for "green" projects. Examples of such preferential lending in Kazakhstan can be the financing of industry and mortgage loans for up to 25 years at low interest rates.

We ask the Government of the Republic of Kazakhstan to initiate a program of long-term repayment financing in national currency at low interest rates for implementation of renewable energy projects in Kazakhstan in order to achieve the strategic goals for development of "green" energy.

 4.              Development of market of bilateral renewable energy contracts.

It is necessary to provide a flexible approach to the development of renewable energy in the country, taking into account the interests of consumers and investors, in order to achieve strategic goals on carbon neutrality. The opportunity to implement renewable energy projects for their own needs and use the existing package of support measures for renewable energy should be provided to all enterprises, regardless of ownership forms. Thus, the development of renewable energy as a direct tool for decarbonizing the economy should become a nationwide task.

One of the instruments for development of the renewable energy market is the segment of bilateral renewable energy contracts, when an industrial enterprise enters into a direct contract with a renewable energy generator for the purchase of "green" electricity to reduce its carbon footprint. According to experts, this segment has great prospects due to the fact that most companies in the real sector of the economy have adopted strategies at the corporate level aimed at decarbonizing production processes. In general, the market of bilateral contracts can be much larger than the RES auction market and become a driver of further development of the sector and at the same time will not affect the growth of tariffs for population and business of the country.

Despite the fact that the legislation regulating the development of renewable energy sources does not exclude the development of the market of bilateral contracts, the key barriers to the development of this segment are:

-      uncertainty of prospects for bilateral renewable energy contracts in the light of the introduction of the "Single Buyer" model;

-      lack of "rules of the game" for market participants;

-      there is a problem of excessive requirements of the system operator for connecting such facilities, despite the fact that renewable energy facilities are not directly connected to the network;

-      the issues of balancing, free transportation and priority dispatching for such projects remain debatable;

-      the possibility of selling surplus electricity under bilateral contracts to a single buyer;

-      there is no understanding of how financial organizations can lend to such projects, given the absence of any mechanisms to reduce risks, in the event of termination of the purchase of electricity from a renewable energy facility by an industrial enterprise;

-      for the state and quasi-public sector that would like to implement renewable energy projects, access to a package of state support measures (investment, customs, tax preferences) is limited. The Entrepreneurial Code limits the shares and the period of participation of such organizations in investment priority projects and for them the implementation of renewable energy projects becomes problematic;

-      allocation of land plots for bilateral renewable energy projects.

In this regard, we ask the Government of the Republic of Kazakhstan, together with the RES business community, to develop and approve the Rules for implementation of bilateral RES projects.

 5.              Development of small-scale renewable energy sources for population and small and medium-sized businesses.

Currently, there is a global trend towards the decentralization of energy. The development of 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.

The development of distributed generation (microgeneration) based on small-scale renewable energy facilities, used primarily to meet the own needs of households and small and medium-sized businesses, not only contributes to achieving the country's energy security by reducing CO2 emissions within the framework of the commitments made under the Paris Agreement, but also to improving the level of comfort in citizens' homes.

According to the results of modeling, experts of the UNDP-GEF of the distribution grid of the Turkestan region, including Shymkent, on the integration of small renewable energy projects into the network: the potential of 5-10% of households is equivalent to the construction of a large thermal power plant with a capacity of 500 – 1000 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 improving the reliability of the network as a whole, unloading overloaded nodes and reducing electrical energy losses.

At the same time, at the moment there are several key barriers to the development of small-scale renewable energy projects: restrictions on the capacity of small-scale renewable energy (up to 100 kW), difficulties in connecting at the level of regional power grid companies, as well as the lack of measures to support the development of this segment from the state.

International experience shows that the most effective mechanism for supporting small-scale RES is the establishment of increased “green” tariffs for net consumers.

In this regard, one of the ways to stimulate net consumers is to establish an economically reasonable and attractive level of tariffs for the sale of excess electricity to the grid. In this regard, we propose that the authorized state body establish such tariffs, which will allow them to be adjusted in the future, taking into account the need for the development of small renewable energy generation and the interests of consumers and other energy market players.

We ask the Government of the Republic of Kazakhstan to support the issues of increasing the capacity of small-scale renewable energy sources, simplifying procedures and deadlines for connection, introducing a mechanism for selling surplus from net consumers in the network at an increased "green" tariff.

 6.          Low rates of development of the most reliable and predictable renewable energy source – small hydroelectric power plants.

According to the results of the past at least 2 years and auctions conducted for the selection of renewable energy projects, the system of selecting projects for concluding PPA contracts for HPP facilities characterized by exceptional individuality (geological, hydrological, geodetic features that determine the level of capital expenditures) has shown its complete failure. As a result, there are no new projects being implemented and the HPP sector is characterized by "complete calm". At the same time, it should be noted that mainly the owners of small HPP projects are domestic investors and representatives of SMEs in Kazakhstan.

In order to optimize the structure of generating capacities and involve maneuverable hydropower facilities, the energy system needs a large-scale start of the construction of hydroelectric power plants through the creation of attractive conditions.

The first step in this regard has been taken – a fairly attractive level of the marginal tariff for hydropower has been approved, but the auction system, which limits the total volume of HPP projects, requires revision.

For hydropower, which has enough technical problems and permissive restrictions in the literal sense of the word, a "GREEN" light is needed for a surge and rapid development of hydropower construction. It is necessary to abandon the barrier in the form of an auction for the selection of projects.

In this regard, we ask the Government of the Republic of Kazakhstan to consider the following proposals. It is proposed to withdraw HPP facilities from the auction selection mechanism, which limits the total volume of projects. To enable the implementation of HPP projects at a fixed tariff within the approved marginal price, while determining the term of a long-term electricity purchase agreement. We also ask you to provide an opportunity for existing small hydroelectric power plants that want to modernize and reconstruct their stations to participate in the auction and in the system of fixed tariffs. This measure will increase the volume of electricity generation from the most stable source of renewable energy – small hydroelectric power plants.

 7.              Development of energy storage systems.

As is known, renewable energy facilities, due to their dependence on natural and climatic factors, are a source of imbalances in the energy system. According to analytical data for 2022, it was revealed that the total imbalances from renewable energy facilities, both positive and negative, amounted to 1,867.8 million kWh with an actual generation of 4,561.6 million kWh.

These imbalances lead to dependence on flows from the Russian Federation for balancing in the energy system. With an acceptable level of overflows in the amount of 150 MW, the volumes in the power system reached the level of 1500 MW. According to the Ministry of Energy of the Republic of Kazakhstan, the share of renewable energy facilities in deviations on the border of the Republic of Kazakhstan and the Russian Federation was 23% by the end of 2022.

One of the tools for leveling the daily schedule of renewable energy stations is the introduction of energy storage systems. We note that at the moment there are no implemented projects on energy storage systems in the National Grid of the Republic of Kazakhstan. At the same time, there are also no norms regulating technical requirements for such systems, as well as mechanisms for the implementation of such projects. At the same time, energy storage systems can become effective tools for ensuring the energy security of the country.

However, it should be noted that the use of energy storage systems for balancing purposes in the system is an expensive, costly and, accordingly, technically (short service life, rapid degradation, losses) and economically inefficient solution for the renewable energy market. Therefore, such energy storage systems can only be used to smooth out the daily schedules of the renewable energy facilities themselves. At the same time, the System operator must create 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.

In addition, it is necessary to separate RES auctions and auctions for energy storage systems. The presence of two components in one lot is not justified and reduces the transparency of auctions. It is advisable to model the necessary parameters of EES for the power system and hold separate tenders for this equipment without reference to specific renewable energy facilities and their volumes.

Taking into account the trend towards the development of energy storage systems in the world, the availability of these technologies, and the reduction of their cost, we propose to the Government of the Republic of Kazakhstan to conduct pilot auctions for renewable energy projects, including hybrid ones, with EES in the amount (10-20% of the installed capacity of renewable energy sources), allowing to align the daily schedules of generation of a renewable energy facility. For implementation of such a pilot project, additional calculations are also needed on marginal tariffs for bidding, regulatory regimes and financial responsibility for deviations. Market mechanisms for implementation of ESS projects also need to be discussed with the participation of the business community

Based on the results of implementation of this pilot project, the authorized state body and the System Operator, together with the business community and interested parties, conduct practical studies and calculations necessary for the further implementation of ESS in the National Grid of the Republic of Kazakhstan.

 8.              Development of local content for renewable energy sector.

The issue of development of local content for the renewable energy sector is one of the most urgent. At the meeting on development of the electric power industry and renewable energy sources on May 26, 2021, the President instructed the Government of the Republic of Kazakhstan to make proposals for localization of production of components and other components of technical structures of renewable energy and energy in general.

Today, large foreign manufacturers and suppliers of equipment supplying solar panels, inverters, generating equipment for wind and hydropower are working in the renewable energy sector in Kazakhstan. However, domestic manufacturers also supply metal structures, cable products, transformers, for example, for solar energy. Domestic entrepreneurs are also trying to establish the production of solar panels.

At the same time, the development of local content directly depends on the annual volume of auctions and the commissioning of renewable energy capacities. For example, in 2021, the trading volume for solar power plants amounted to 20 MW, and in 2022 – 40 MW. However, according to the Order of the Minister of Energy of the Republic of Kazakhstan No. 187 dated May 23, 2023, "On approval of auction schedule for 2023 and the auction plan for 2024-2027." significant volumes are planned for selection of renewable energy projects. Thus, in the medium term, it is possible to plan the volume of commissioning of renewable energy capacities.

In addition, according to information from open sources, direct agreements have been concluded at a high level for implementation of large-scale renewable energy projects with an installed capacity of 1 GW each with companies such as TotalEnergies, Masdar, AcwaPower, China Power. Thus, in the near future, in addition to the projects selected by auctions, 4 GW of wind energy capacity should appear in the country's energy system. These volumes provide the basis for planning the domestic production of components. The RES business community believes that in order to implement such large-scale RES projects, contracts with companies should prescribe requirements for local maintenance and use of locally produced equipment and components.

In this regard, we ask the Government of the Republic of Kazakhstan to consider the development of local content in the renewable energy sector, taking into account the planned volumes of implementation of renewable energy projects in the coming years and to make concrete proposals of a non-discriminatory nature, having discussed with the business community.

 9.              Development of domestic market of voluntary carbon standards.

In our country, more and more companies in the corporate sector are setting themselves the task of reducing the carbon footprint and expressing interest in both the implementation of low-carbon projects and consumption of "clean" energy. At the same time, one of the tools for reducing emissions is carbon offset – activities aimed at reducing greenhouse gas emissions and (or) increasing the absorption of greenhouse gases.

It should be noted that in the business environment of the country, after the announcement of commitment to the goals of achieving carbon neutrality, there is a great demand for projects that reduce the carbon footprint. Today, telecommunications and IT companies, the banking sector, and medium-sized businesses from the service sector are applying, which are interested in using ESG principles in their corporate policy. In this regard, the development of a voluntary market of carbon units will allow private companies that are not part of the trade system of the Republic of Kazakhstan to confirm their commitment to the principles of ESG and cover the carbon footprint with carbon units.

At the same time, there are currently no domestic voluntary carbon standards in Kazakhstan. Companies are forced to turn to foreign standards, while the country loses the financial incentive for "green" investments. It is important to note that the voluntary carbon market does not affect the existing mechanism at the legislative level – the Emissions Trading System and does not affect the carbon budget.

To this end, the Renewable Energy Association "Qazaq Green" has taken the initiative to launch the first voluntary domestic carbon standard – Qazaq Green Certificate, which aims to assist companies in achieving carbon neutrality.

We ask the Government of the Republic of Kazakhstan to support the development of the domestic voluntary carbon market and the corresponding standard.

 10.          Information support for the development of renewable energy sources.

In the Message of the President of the Republic of Kazakhstan to the people of Kazakhstan "Kazakhstan in a new reality: time for action" dated September 1, 2020, The President defined the task of "greening" the economy and environmental protection as one of the seven basic principles of the new economic course of our country.

In December 2020, Kazakhstan, before the entire international community, has announced its commitment to achieving carbon neutrality by 2060.

Speaking at a meeting on the development of the electric power industry and RES, May 26, 2021, President of the Republic of Kazakhstan K.K. Tokayev instructed to identify the main priorities of energy development as a systematic and consistent increase in clean energy sources, primarily hydropower, renewable energy sources and maneuverable capacities on gas, as well as a phased transition to new technologies "clean coal" with the use of modern combustion and filtration systems. The President also instructed the Government of the Republic of Kazakhstan to ensure broad explanatory work among the population on the development of nuclear energy by the end of 2022.

To date, one of the few printed industry information and analytical journals on the development of "green" energy and renewable energy is the magazine "Qazaq Green", which has been published by the Association of Renewable Energy "Qazaq Green" for more than 3 years (Certificate of registration of the periodical publication No. KZ57VPY00033826 dated March 29, 2021). The magazine covers the development of the "green" economy, renewable energy sources, environmental protection, ecology. The magazine is published in 1500 copies in State, Russian and English languages and is distributed on the territory of Kazakhstan and Central Asian countries. To date, the issue of the journal is funded by the support of international organizations.

The issue of the magazine "Qazaq Green" was highly appreciated by the President of the Republic of Kazakhstan K.K. Tokayev, who sent a letter to Renewable Energy Association "Qazaq Green", in which he considered the publication's activities very useful for covering environmental issues and "green" technologies in the country and Central Asia and expressed hope that the magazine will contribute to the implementation of the strategy of Kazakhstan on the development of the "green" economy.

In this regard, we ask the Government of the Republic of Kazakhstan to consider the possibility of allocating a state order for implementation of the state information policy at the republican level for placement of materials on development of the "green" economy, development of clean energy sources, decarbonization, achieving the goals of carbon neutrality and ecology for the magazine "Qazaq Green".

 11.          Professional holiday "RES Worker's Day"

An additional measure stimulating the development of RES not only from the point of view of economic instruments, but also from the point of view of encouraging employees of the entire sector can be the initiation of creation of a professional holiday – the RES Worker's Day.

As it is known, "cadres are the key to everything" and the renewable energy sector is no exception to these rules. Thousands of specialists work in the sector today: power engineers, engineers, builders, economists, civil servants, investors, scientists, analysts. Thanks to their work, a completely new sector of the economy has appeared in the country in a short period of time, and 130 renewable energy facilities with a total installed capacity of about 2.4 GW generate renewable energy.

In the period from 2018 to 2022, 232 companies from 13 countries of the world took part in the auction for the selection of renewable energy projects. More than 1 trillion tenge of investments have been attracted to the sector.

International organizations such as UNDP, USAID, as well as international financial institutions (EBRD, ADB, EDB, Clean Technologies Fund, Green Climate Fund, etc.) work in the Republic of Kazakhstan on renewable energy, all of them have implemented or ongoing projects in their portfolios. A separate division of Astana International Financial Center deals with the topic of "green financing". Global oil and gas companies ENI, Shell, Total are engaged in the implementation of renewable energy projects in different parts of our country.

In the universities of the country, energy students are taught courses on renewable energy, a renewable energy landfill is successfully operating at Nazarbayev University, a full-fledged master's program "Strategic Management of Renewable Energy and energy efficiency" has been launched at the Kazakh-German University, specialists defend doctoral dissertations on renewable energy.

We ask the Government of the Republic of Kazakhstan to establish a professional holiday "RES Worker's Day" as a measure to stimulate the influx of young professionals into the industry.