Edige Tagaev, Master's program, Kazakh-German University

As the Head of State, Kassym-JomartTokayev noted in his State-of-the-Nation Address "Unity of the people and systemic reforms are a solid foundation for the nation's prosperity" dated September 1,2021, our country cannot stay away from greening of industry and economy. By 2030, Kazakhstan is being predicted a shortage of electricity, and therefore there is an urgent need for reliable sources of basic energy 4 generation. Therefore, production of "green" hydrogen, as stated by the President, has a promising direction for many purposes, including the goal of carbon neutrality. In this article we will talk about the potential of “green" hydrogen in Kazakhstan.

SIGNIFICANCE OF USING ALTERNATIVE ENERGY SOURCES

Kazakhstan, being a party to various international agreements on climate change, makes a feasible contribution to reducing emissions of greenhouse gases to the atmosphere. Nevertheless, according to the data of EDGAR - Emissions Database for Global Atmospheric Research for 2020, sources of ~ 75% of greenhouse emissions are energy sector activities related to production of electricity and heat. To reduce these indicators, it is necessary to achieve zero carbon dioxide emissions by decarbonizing the energy sector. This can be achieved through transition to "green" alternative (hydrogen) economy.

Many experts believe that hydrogen is one of potentially significant sources of alternative energy, along with industrial gas, solid domestic waste, nuclear energy, coalbed methane, biofuels, solar collectors, geothermal energy, hydropower, use of which will make a feasible contribution to achieving greenhouse gas reduction indicators. However, it is worth noting the need to develop legislative regulation of alternative energy market.

DEVELOPMENT POTENTIAL OF "GREEN" HYDROGEN IN KAZAKHSTAN

One of the main conditions for production of "green" hydrogen is availability of water, land and energy produced from renewable sources forthe process of splitting water molecules into two different elements (hydrogen and oxygen). This process is called water electrolysis. Thus, in orderto obtain "green" hydrogen, it is necessary to have at least three of the following resources: 1) water; 2) an object that produces electricity using wind, solar, water and other renewable energy sources; and 3) land (territory) for construction of inextricably linked facilities, facility for production of electricity from renewable sources and industrial building in which the processes of producing "green" hydrogen will take place, as well as other auxiliary buildings and structures.

One of the main conditions for production of "green" hydrogen is availability of water, land and energy produced from renewable sources for the process of splitting water molecules into two different elements (hydrogen and oxygen). This process is called water electrolysis. Thus, in order to obtain "green" hydrogen, it is necessary to have  at least three of the following resources: 1) water; 2) an object that produces electricity using wind, solar, water and other renewable energy sources; and 3) land (territory) for construction of inextricably linked facilities, facility for production of electricity from renewable sources and industrial building in which the processes of producing "green" hydrogen will take place, as well as other auxiliary buildings and structures.

According to data from presentation "Hydrogen energy justification of sites in Kazakhstan for export production" by Doctor of Technical Sciences, member of the international association "World Energy Leader" M. N. Kambarovand doctoral student of DBA, A. B. Tuleuliev, Almaty MPN of KEGOS JSC, there are regions in the country that are most suitable for hydrogen production. Among them, scientists include Dzungarian Gate on the border with Chi na i n the east of the country, Mangystau Peninsula in the west and Yerementau wind corridor in the north of the country.

Each of these sites has its own advantages. For example, the Dzungarian Gate is famous for inexhaustible wind flow, which can produce seven times more energy compared to other countries of the world. The proximity of transport and infrastructure facilities that connect China and Russia is also useful. The advantages of the Mangystau region include, in addition to the large reserves of Caspian Sea water resources, possibility of using both solar and wind energy. As for Yerementau, which is located in Akmola region, wind power is one of the features of this region.

Accord i ng to data of “Targets for the Protocol on Water and Health Problems of the Convention on the Protection and Use of Transboundary Watercourses and International Lakes (Republic of Kazakhstan)” of 2017: "there are about 39 thousand rivers and temporary watercourses in the republic, of which more than 7 thousand have a length of more than 10 km. Most of the Kazakhstan rivers belong to internal closed basins of the Caspian and Aral Seas, lakes of Balkhash, Alakol and Teniz. Only Yertis River belongs to Arctic Ocean basin."

"The main amount of secondary water enters the rivers of the Syr Darya (47%) and Irtysh (34%) basins, the rest falls on Ili (8%) and Nura (11%) rivers."

Accord) ng to research of experts from the Institute of World Resources "Ranking of the world's countries with the greatest water shortage in 2040" dated August 26, 2015, Kazakhstan ranks 20th out of 33 identified countries in which the largest share of water scarcity is predicted.

At the same time, according to World Bank study, Kazakhstan's water resources are projected to decrease by 16% by 2030 (from 90 billion cubic meters to 76 billion cubic meters). To solve this problem, the State has taken a number of measures, including adoption of new Environmental Code with new term "adaptation" to climate change in order to avoid adverse effects and damage from climate change. However, fulfillment of tasks in this area requires collective conscious actions in order to conserve water resources.

Nevertheless, possible limited access to water has not become and is not a barrier for a number of large investors who are at the stage of implementing their projects for production of green hydrogen in Kazakhstan. Moreover, Kazakhstan, accord) ng to various independent studies, "is among the top ten countries in terms of export potential of green hydrogen...".

However, based on publicly available data, investors now prefer to explore the central western and western parts of the country for possible projects of producing "green" hydrogen, production of "green" ammonia from "green" hydrogen, and some investors have already signed certain framework agreements for these regions of Kazakhstan.

LEGISLATION/ INVESTMENT PROTECTION/ BENEFITS AND PREFERENCES

Kazakhstan has sufficiently developed legislation in the field of support for renewable energy sources. It has significantly improved in recent years, becoming attractive both for foreign investors and for domestic ones. Meanwhile, it should be noted that investors who are focused on production of "green" hydrogen in Kazakhstan rely on legislation for support of renewable energy sources in the absence of legislation that would regulate support of alternative energy sources or support of the production of "green" hydrogen.

According to the concept of transition of the Republic of Kazakhstan to a "green" economy, the share of renewable energy sources by 2030 should reach 10% of the total volume of energy produced, and by 2050 - 50%. The government has introduced the concept of auctions for renewable energy projects, and all the produced energy is being sold to the national grid.

However, such a concept of auctions and sale of energy to the national grid is unacceptable for enthusiasts of "green" hydrogen. In order to ensure that the energy produced by investors' renewable energy facilities will be directed only to hydrogen production, the concept of an "island network" should be established. The Government of Kazakhstan should create conditions so that all the renewable energy produced is directed only to production of hydrogen, and not for other needs. In the meanwhile, other norms are prescribed in the legislation.

To circumvent these requirements, it is necessary to conclude a bilateral international agreement between authorized representative of the Government of the Republic of Kazakhstan and the investor. At the same time, a prerequisite for such an agreement is its ratification by the Republic of Kazakhstan, since in accordance with the provisions of the Law of the Republic of Kazakhstan "On International Treaties of the Republic of Kazakhstan", the provisions of such an agreement will have priority over provisions established by Kazakh legislation.

In addition, in terms of investment protection, provision of benefits and preferences (tax benefits, customs benefits, monetary benefits, use of foreign currency, attraction of foreign labor workforce, etc.) can also be separately included in an international agreement. In terms of national regulation, the state guarantees the protection of investments, the right to free recourse to court, including arbitration. The Republic of Kazakhstan is a party to many international treaties, the provisions of which may apply to relations between parties to an international treaty.

Thus, based on the above, it can be concluded that the legislation of the Republic of Kazakhstan is quite flexible, and if there are national interests and political will, the state can agree to conditions other than those provided for by national legislation. This is undoubtedly a big advantage for investors, taking into account possible guarantees for protection of investments and appeals to international arbitration institutions in case of litigation.

The State has also adopted a number of other documents that directly or indirectly contribute to achieving planned strategic goals and objectives. It is worth noting that, despite economic and geopolitical challenges on the world stage, the state adheres to its plans. When choosing a country for investment, this direction of state policy appeals to investors.

INTERNATIONAL COMPANIES CHOOSE KAZAKHSTAN TO INVEST IN PRODUCTION OF "GREEN" HYDROGEN.

From November 6 to November 18, 2022, a conference of world leaders on climate change was held within the UN framework. One of significant events for Kazakhstan at the conference was conclusion of the Memorandum of Understanding on Strategic partnership in the field of sustainable raw materials, batteries and value chains of green hydrogen between Kazakhstan and the European Union (hereinafter the "Memorandum"). The signatories of the Memorandum were the Prime Minister of Kazakhstan (Alikhan Smailov) and the President of the European Commission (Ursula von der Leyen). The Prime Minister of Kazakhstan noted that "our country has all the necessary factors of attractiveness for European business, including diversified energy sources and high transit and transport potential." In accordance with paragraph 3 of Chapter 1 of the Memorandum, the parties agreed that cooperation will be carried out in full compliance with the provisions of Article 148 of the Agreement "On Enhanced Partnership and Cooperation between the Republic of Kazakhstan, on the one hand, and the European Union and its member States, on the other hand" dated December 21, 2015, that are aimed at developing and strengthening cooperation, respecting the principles of transparency and non-discrimination, creating the best environment for trade, "favorable for direct foreign investment in production and trade of raw materials and energy goods." It is expected that a Roadmap for strategic partnership will be developed until mid-2023, which should define specific actions for cooperation in all agreed areas of work. On the sidelines of the conference, the second significant event for Kazakhstan was the signing of a Framework Agreement "On implementation of green hydrogen production projects" with Fortescue Future Industries (hereinafter "FFT"). In this regard, it is believed that the previously signed Memorandum will serve as a kind of fulcrum, within which the issues of transportation (export) of green hydrogen to the European market by FFI and the Republic of Kazakhstan will also be regulated. At a meeting between the Foreign Ministers of Germany and Kazakhstan on November 1, 2022, representatives of Germany announced a plan to open a bureau (office) of "Hydrogen Diplomacy" in Astana. Kazakh side supported this initiative. The office will serve as a center for exchanging experience, supporting solution of issues, attracting experts and responsible persons to achieve the goal of reducing emissions to zero.

SVEVIND PROJECT

The delegation of the Government of the Republic of Kazakhstan and representatives of the Svevind Group met in Sweden in October 2021 to sign a roadmap for development of the green hydrogen project in Kazakhstan. Svevind plans to produce 2 million tons of "green" hydrogen per year in Kazakhstan for domestic consumption and export to the EU. Subsequently, the company will build renewable energy facilities with a capacity of 30 MW. The implementation of this project will allow Kazakhstan to become one of the largest producers of "green" hydrogen in the world by 2030. The project was named "Hyrasia One". Such projects will help our country to achieve carbon neutrality by 2060, as it was planned by the first resident of the country.

Resolution of the Government of the Republic of Kazakhstan dated November 24, 2021 No. 837 approved a Framework agreement on the basic principles for implementation of renewable energy projects and production of "green" hydrogen in the Mangystau region between the Government of the Republic of Kazakhstan and NEH Eurasia GmbH" [affiliate company of Svevind - author's note].

The delegation of the Government of the Republic of Kazakhstan and representatives of the Svevind Group met in Sweden in October 2021 to sign a roadmap for development of the green hydrogen project in Kazakhstan. Svevind plans to produce 2 million tons of "green" hydrogen per year in Kazakhstan for domestic consumption and export to the EU. Subsequently, the company will build renewable energy facilities with a capacity of 30 MW. The implementation of th is project will allow Kazakhstan to become one of the largest producers of "green" hydrogen in the world by 2030. The project was named "Hyrasia One". Such projects will help our country to achieve carbon neutrality by 2060, as it was planned by the first resident of the country.

In accordance with the terms of this agreement, the parties agreed that each party will make efforts to maximize project implementation, including regulation of legislation in the field of land relations, currency regulation, attracting external investment, co-investors and foreign labor, import and export issues, creation of legislation in the field of hydrogen energy and others issues. These provisions show that Kazakhstan is ready to promote and support the production of "green" hydrogen by creating legislative benefits for convenience of investors.

According to the international economic news portal Bloomberg, on October 27, 2022, as part of the official visit of the President of the European Council Charles Michel to Kazakhstan, an investment Agreement was signed on the project "Creation of a center for production and distribution of renewable energy and "green" hydrogen". This center is located in the Mangystau region. The agreement was signed by the Government of the Republic of Kazakhstan and the company "HYRASIAONE".

The head of Svevind Wolfgang Kropp noted that the choice of Kazakhstan as a platform for implementation of its project was conditioned by a number of factors. First of all, these are: ideal conditions for production of energy from renewable energy sources: constant year-round wind flowsand good conditions for production of solar energy, as well as a low cost threshold for production of one unit of "green" hydrogen.

In accordance with the project plan, the start of technological process for production of "green" hydrogen is scheduled for 2030.

HYDROGEN ALLIANCE

The agreement on creation of Alliance of "green" Hydrogen of Kazakhstan was signed on June 29, 2022 in Astana International Financial Center at the First Forum on "Green" Hydrogen. The alliance is designed to unite the efforts of parties by exchanging experience and finding common solutions in implementation of projects in this area. Among the founders of the Association were Linde (Germany), Svevind Energy Gmbh (Germany), Roedl & Partners (Germany), Qazaq Gaz (Kazakhstan), Atasu Group (Kazakhstan), Green Spark LTD (Italy), AIFC Green Finance Center (Kazakhstan), GCA Partners (Kazakhstan), Ajusa Hydrogen  Technologies (Spain) and other international companies from the EU.

In addition to the creation of Alliance, other agreements were signed at the forum, including "Cooperation Agreement between the French Association Hydrogen Task Force and Investment Task Force Kazakh Invest" and "Agreement on the development of technology for the first hydrogen refueling in Kazakhstan between Green Spark and GRAF Industries S.p.A.".

The meeting was attended by representatives of authorized and competent state bodies. This shows the country's high interest in development of hydrogen industry, its desire to reduce atmospheric pollution, improve investment environment, create a platform forexchange and cooperation between representatives of investing parties, and much more. Thus, it can be concluded that through joint efforts, both on the part of the state and on the part of representatives of investors, the attractiveness of the development potential of the "green" hydrogen industry in Kazakhstan will increase significantly.

EXPECTED ENERGY DEMAND/ REDUCTION OF HYDROCARBON EMISSIONS

The geopolitical situation in the world leads to a sharp and large demand for energy carriers, including alternative ones, due to voluntary refusals by various European countries from acquisition and use of natural resources (energy carriers) supplied directly from the Russian Federation. The report of the International Energy Agency notes a decrease in the consumption of Russian natural gas by more than 50 billion cubic meters. General increase in prices in economic environment of European countries is predicted due to rising energy prices. Expected increase in prices affects decisions of many countries' governments to the approach of choosing and using energy carriers. Due to its geographical location, Kazakhstan has a good opportunity in the near future to export relatively inexpensive energy resources, including "green" hydrogen and "green" ammonia. All this together makes the Kazakhstan market very attractive for foreign investors.

Preliminary report of the Asian Development Bank "Towards Hydrogen Economy in Kazakhstan" No. 1344, October 2022 (hereinafter referred to as "ADB Report", forecasts consumption of hydrogen energy carriers at the level of 660 million tons by 2050. At the same time, developed countries, including the People's Republic of China and the EU countries will consume up to 45% of hydrogen energy by this date {see Figure 1: Hydrogen Demand in 2050-2050 below). It is noteworthy that, together with the global policy to reduce emissions to zero and corresponding transition to alternative renewable energy sources, Kazakhstan can significantly cover the demand for hydrogen due to geographical location between the mentioned countries, and taking into account the issues of storage, transportation (logistics) of delivering energy to final consumers.

According to the data from ADB Report (Table 7 of the Report), the use of hydrogen technologies in such areas as metallurgy, chemical production, transport will lead to significant results in reducing hydrocarbon emissions, both in the short and long-term. ADB Report concludes that the use of hydrogen technologies is a priority for decarbonizing economy of Kazakhstan, however, the authors of the ADB Report suggest first creating a financial base for use of hydrogen technologies in Kazakhstan, through initial exports, and then focus on domestic market.

WHAT IS THE RESULT?

Of course, when discussing this kind of global things, an investor should take a comprehensive approach to his choice, studying in detail all the risks and barriers associated with the project of producing "green" hydrogen and further supply chains (exports). In general, legislation in the field of alternative energy, including hydrogen, needs to be developed separately. We need a clear concept on "green" hydrogen, we need our own research, so as not to rely only on conclusions and studies of investors. The Government is facing a huge and complex work in this direction, including preserving the balance of water resources used to produce hydrogen. Nevertheless, the clean hydrogen industry itself, its development and production are a necessary component of the energy industry, both for government officials and business community.

In this regard, based on the global directions of achieving hydrocarbon neutrality, we believe that Kazakhstan needs to develop itself in the field of "green" hydrogen, meeting all accepted standards for its production.

The government and investors should develop a strategy and make certain efforts to implement green hydrogen projects in Kazakhstan. In general, our country has a great potential to become a leader in the hydrogen market.