Currently, Kazakhstan is actively developing the renewable energy sector. It is important to note that thanks to introduction of fixed tariff mechanism and creation of the Financial Settlement Center of Renewable Energy LLP, Kazakhstan received the first large-scale projects in its portfolio. The next stage in industry's development was development and implementation of a new tool-auctions for selection of renewable energy projects. This helped the country to receive new investment projects in the field of renewable energy with market tariffs and new investors.

Corporate PPA Refers to a contract between corporate buyer and producer of electricity from renewable energy sources for purchase of electricity at pre-agreed price for certain period. In case of corporate PPA, the long-term buyer of electricity from res (off-taker) is a corporate buyer.

WORLD EXPERIENCE

According to BloombergNEF, the growth of corporate PPAs is gaining momentum and this mechanism is becoming popular among corporate buyers. In 2021, the volume of signed corporate PPAs amounted to 31.1 GW (increase of 24% compared to 2020).

Corporate PPAs were signed by 137 companies in 32 countries by the end of 2021.

North and South America are the leaders in corporate PPAs with a reported capacity of 20.3 GW, where the United States of America has made a major contribution to development of PPAs with capacity of 17 GW. The American market is followed by the countries of Europe, the Middle East and Africa with a capacity of 8.7 GW.

The countries of the Asia-Pacific region announced implementation of2GW, but at the same time, new legislative initiatives are being introduced in the region to support the development of corporate PPAs. For example, South Korea introduced new legislation on corporate PPA in October 2021.

Technological IT companies have become the largest corporate buyers ofclean energy in 2021. For the second year in a row, Amazon is the largest buyer of clean electricity in the world, announcing 44 PPA deals in nine countries for a total capacity of 6.2 GW. This enabled increase in total capacity of renewable energy projects based on PPA to 13.9 GW.

What will be the next step for development of renewable energy industry?

Yernar Bilyalov, Partner and Director of the Consulting division of CARER Group, consultant to UNDP in Kazakhstan, will tell about this in our interview

Development of corporate PPAs would be potentially correct answer to this question. Within the framework of “Derisking investments into renewable Energy” implemented by UNDP in partnership with the Ministry of Energy of the Republic of Kazakhstan, with financial support of the Global Environment Facility, a study was conducted to analyze possibilities and advantages of corporate PPA mechanism, taking into account world experience in this field.

The growth of corporate PPA is primarily caused by desire of corporate buyers to meet the sustainable development goals. Also, it should be noted that energy security is an important element in development of large companies, accordingly, corporate buyers are trying to diversify their sources of electricity and corporate PPAs have become an effective method of solving this issue.

AUSTRALIA'S IMPLEMENTATION EXPERIENCE

Australian energy market is somewhat similar to the market of Kazakhstan, so experience of this country should be considered as an example. Australia has one of the largest proved coal reserves in the world (8.57% of world reserves), that allowed creating coal-generation based country's energy system (66% of the country's electricity is produced by coal-fired thermal power plants). At the same time, the volume of electricity generation from renewable energy sources is 13% of total electricity production (wind and solar power plants).

Currently, Australian energy sector is undergoing transformation, where traditional coal-fired generation is being replaced by renewable sources of electricity. In the next two decades, Australia will decommission 16 GW of coal-fired thermal power plants, putting into operation 26-50 GW of large solar and wind power plants, according to the forecast of Australian Energy Regulator.

The RES market and corporate PPA market are actively developing thanks to the created legislative system. This system is based on the Renewable Energy Target (RET) program, which focuses on development of large and small RES in Australia.

Every year, Australian government determines a list of players (mainly electricity retailers) who are obliged to buy LGCand provide a report on them. One of the ways to obtain an LGC is to sign a corporate PPA with renewable energy producer.

One of the most striking examples of using LGC for development of corporate PPA is Shell Energy. Shell Energy is a major retailer in Australian market and the company's main role is to supply electricity from producer to the buyer.

LGC (Large-scale generation certificate, 1 LGC = 1 MW) are certificates that retailers who sell electricity from producers to end customers, as well as other organizations that consume electricity, are required to buy and hand over annually.

In connection with the introduction of LGC, the company began to offer new services to its customers, including a corporate PPA, Shell Energy can play different roles in the structure of a corporate PPA. In case of a request from a corporate buyer, Shell Energy can build new renewable energy facility in the immediate vicinity of buyer's facilities. Also, Shell Energy can play the role of a retailer and include conditions for provision of a certain amount of electricity from renewable energy sources into current electricity sale-purchase contract, in this case, electricity is not physically delivered. The most popular mechanism is the so-called Wholesale PPA (virtual corporate PPA).

Operating principles of virtual corporate PPA:

1.     Shell Energy acts as a retailer under contract with electricity buyer, buys and provides electricity from common grid based on wholesale prices determined at the wholesale market.

2.     Producer of energy from renewable energy assets sells electricity to common grid based on wholesale prices determined at the wholesale market, signs a corporate PPA with the buyer of electricity, receives

a fixed tariff from the buyer of electricity, issues and transfers LGC to the buyer of electricity.

3.     The buyer of electricity pays to Shell Energy for supply of electricity from the common grid, pays to renewable energy facility on the basis of fixed tariff, receives LGC from renewable energy facility and can receive the difference between the wholesale tariffs and the fixed tariff of PPA from the renewable energy facility, in case of increase in wholesale prices.

Virtual corporate PPAs are becoming more common mechanism for development of renewable energy in Australia, where the state allows businesses to decide for themselves which scheme to choose and does not set any special requirements for template of a PPA contract.

In general, the following main drivers of corporate PPA development in Australia can be identified:

1.     Development of companies taking into account Sustainable Development Goals;

2.     Hedging tool against growth of wholesale electricity prices for electricity buyers;

3.     No connection requirements, no CAPEX costs for buyers, possibility to purchase renewable energy for each individual buyer's facility (geographical flexibility);

4.     Obtaining LGC on a permanent basis with minimal financial costs.

RECOMMENDATIONS FOR KAZAKHSTAN

Despite the fact that the Australian energy market has a number of similar elements to the energy market of Kazakhstan, we need to work out schemes and mechanisms for development of corporate PPAs. According to our proposals, we have presented two main schemes for organic growth of corporate PPAs:

1.     Direct bilateral Corporate PPA

Direct corporate PPA (bilateral agreement) will allow implementing renewable energy projects between two legal entities, in which one party will build renewable energy facility and subsequently sell electricity, and the other party will be the buyerof electricity (off-taker), and it should be borne in mind that the seller and buyer may be affiliated and within the same group of companies.

This scheme assumes that the national operator or regional grid companies cannot establish additional requirements for balancing electricity, since electricity transmission is carried out through internal grid and does not have a negative impacton the energy system of Kazakhstan.

2.     Virtual corporate PPA through Energy Supply Organizations

Under this scheme, electricity producer (RES facility) does not physically transfer electricity to the buyer.

The entire volume of electricity is supplied to the national operator's grid or regional networks. With that, the ESO enters into contract for purchase of electricity with renewable energy facility and enters into contract for sale of electricity with electricity buyer.

It is important to note that currently in Kazakhstan, ESOs have an active role in transmission of electricity from producers to buyers, electricity is purchased from existing energy-producing organizations, including large hydroelectric power plants.

Also, this scheme may provide for issuing l-REC certificates, which confirm that electricity is produced from alternative source. Electricity consumers can use certificates to meet the requirements of the international sustainable development standards, such as GHGP, CDP, RE100, ISO, as well as to achieve their goals in the field of corporate social responsibility.

In our opinion, these schemes and mechanisms will create conditions where private business will be able to solve problems of obtaining electricity independently, with minimal intervention of authorized bodies. However, this requires amendments to the current legislation of the Republic of Kazakhstan. In turn, corporate PPAs can become a new link not only for development of renewable energy, but also for development of the energy industry as a whole.