Bilateral (corporate) RES contracts are agreements governing the sale and purchase of electric power between a renewable energy producer and a consumer at a pre-agreed price and for a certain period of time. In this case, the long-term buyer of electric power from renewable energy sources is the consumer.  

The main goal of developing bilateral RES contracts is to create an opportunity for buyers to independently choose the source of production of electric power consumed, while the electric power RES producer gets the opportunity to plan financing for its activities. It should also be noted that bilateral RES contracts allow us to solve the following tasks:

‒  No dependence on a single electric power purchaser;

‒  Determination of the fair value of electric power;

‒   The ability to hedge risks from changes in legislation to support RES and international requirements to reduce the carbon footprint;

‒  Fulfillment of environmental obligations by the buyer of electric power;

‒  Organization of long-term planning for the purchase and sale of electric power for the buyer and seller, respectively;

‒  One of the solutions to reduce the negative impact of RES on the energy system.   

According to a report by BloombergNEF, corporations have publicly announced 46 GW of [1]solar and wind power purchase agreements (PPAs) in 2023, up 12% from the previous year. 

Between 2022 and 2023, the volumes of corporate PPAs in Europe increased by 74% up to 15.4 GW. It was the largest increase among all regions. BloombergNEF reported that as "supply chain issues have softened and gas balances have returned to normal following the region's energy crisis in 2022, corporate PPAs prices in the region have been falling, often faster than electric power prices."

The United States remains the largest market for electric power purchase agreements (PPAs), with 17.3 GW of announced transactions, but year-on-year volume decreased by 16% compared to the record 20.6 GW achieved in 2022.

In order to promote renewable energy sources, large corporations and companies around the world have joined together in the RE-100 initiative. The RE100 is a global corporate renewable energy sources initiative that brings together hundreds of large and ambitious companies committed to the principle of 100% renewable energy use. The RE100 member companies are already providing enough demand for renewable electric energy to power a medium-sized country.

The RE100 unites more than 420 large companies, including Apple, Airbnb, Samsung, Adobe and others. At the moment, RE100 companies have purchased 440 TWh of clean electric power and are striving to achieve 100% carbon-free electric power consumption by 2040.

By the end of 2022, 31% of RE100 companies purchased renewable electric energy through the mechanism of bilateral PPA contracts. The reporting distinguishes between physical and virtual PPAs, as well as between retail and project contracts with electric power suppliers.

About 41% of the transactions for the purchase of electric power by members of the RE-100 initiative were carried out through the purchase of Energy Attribute Certificates. They are usually sold by third-party retailers that do not supply physical electricity. However, in all these cases, EAC customers consume electricity from the grid and use certificates to substantiate claims about renewable energy consumption and emission reduction.

Amazon has become the world's largest corporate buyer of clean energy for the fourth year in a row. It announced 8.8 GW of PPAs in 16 countries, including 5.6 GW of solar PPAs. The company's clean energy portfolio is 33.6 GW, which is larger than the electricity generation parks in markets such as Belgium and Chile. Amazon is followed by Meta, which announced 3.1GW of PPA in solar power.

According to BloombergNEF, companies aiming for 100% clean energy through the RE100 initiative will need an additional 105 GW of solar and wind power by 2030.

According to the forecast of the International Energy Agency, by 2030, corporate PPAs will be the second most important factor in the development of the RES after competitive auctions. To date, about 20% of the increase in the RES capacity in Spain, Italy, Poland, Sweden, Germany, France, Great Britain and Denmark belongs to the corporate sector. Such corporate PPAs in European countries are attractive mainly because they provide long-term visibility of electric power prices for large industrial consumers seeking to insure themselves against fluctuations in retail tariffs.

The implementation of corporate PPAs is also facilitated by the electric power market reform carried out in April 2024[3]. The main amendments adopted by the European Parliament include encouraging long-term contracts for the supply of non-fossil energy, the introduction of cleaner and more flexible solutions and increased market transparency. Thus, one of the innovations is bilateral contracts for difference (CFDs) for new investments in low-carbon energy production, where government financing is needed. This means that national authorities coordinate with electricity producers pre-determined ranges of energy prices. This is beneficial to everyone: the manufacturer can be sure that he will be able to sell energy at a predictable price, while providing his consumers with the necessary amount of energy. In areas where bilateral contracts for difference are irrelevant, electric power purchase agreements (PPAs) are promoted. They also have the effect of creating long-term stability.

Additional demand for corporate PPAs is expected from existing energy-producing organizations using renewable energy sources, whose support periods expire in the coming years.

Development of corporate PPA contracts in Kazakhstan

In accordance with the legislation of the Republic of Kazakhstan, the following standards are fixed:

1. "On support for the use of renewable energy sources" Law of the Republic of Kazakhstan dated July 4, 2009 No. 165-IV (subparagraph 2 of Article 9 of the Law) – "1. An energy producing organization using renewable energy sources has the right, at its discretion, to sell the produced electric power according to one of the following options:

1) to a single buyer of electric power at a fixed tariff effective on the date of conclusion of the purchase and sale agreement between the energy producing organization and the settlement and financial center, or at an auction price determined based on the results of the auction, taking into account the indexation provided for in paragraph 2 of Article 8-1 of this Law;

2) to consumers at contractual prices according to concluded bilateral agreements in accordance with the requirements of the legislation of the Republic of Kazakhstan on the electric power industry."

The first example of the implementation of a corporate PPA contract is the hybrid project of NC KazMunayGas JSC and the Italian Energy Company Eni S.p.A. (Eni).

The hybrid project involves combined generation of electric power from renewable energy sources (wind and solar) developed by the subsidiary Eni Plenitude, as well as a gas-fired power plant to balance and stabilize electric power production using Eni's international industrial experience.

The capacity of the solar power plant will be 50 MW, wind power plant – 77 MW and gas power plant – 120 MW. The hybrid power plant will provide stable and reliable electricity supply to KMG subsidiaries in the region, including Ozenmunaygas JSC and KazGPP LLP. This will eliminate the risks of emergency shutdowns in production due to frequent power outages.

In order to implement the project of NC KazMunayGas JSC, the Ministry of Energy of the Republic of Kazakhstan has developed Rules for the formation and management of hybrid groups for the regulatory and legal consolidation of the relationship between the project participants: the RES producing organization, the administrator of the hybrid group and consumers of the hybrid group, as well as with the balancing electric power market. Thus, according to the definition, a hybrid group is a group of subjects of the wholesale electric power market with a combined share of the use of renewable energy sources in the production of electric power of at least twenty-five percent located in one energy hub and included in the list of hybrid groups in accordance with the procedure approved by the authorized body. The administrator of a hybrid group is a legal entity belonging to a hybrid group that acquires (purchases) electric power from energy-producing organizations belonging to the hybrid group for the purpose of its subsequent sale to consumers within this hybrid group and(or) on the balancing electric power market, as well as being a balance provider for energy-producing organizations and consumers of electric power included in the hybrid group. A consumer of a hybrid group is a consumer who is a subject of the wholesale electric power market and is included in the list of hybrid groups.

In addition, in accordance with the legislation of the Republic of Kazakhstan, one of the mechanisms for supporting the implementation of RES projects is the so-called "qualified consumer".

The qualified consumers (hereinafter referred to as QC) is an entity or a group of entities that includes energy-producing organizations that use fossil fuels for the production of electric power, and (or) energy-producing organizations that own or legally own existing (commissioned after January 1, 2018 and not included by the authorized body in the list of energy-producing organizations using renewable energy sources) facilities for the use of renewable energy sources and(or) operating (commissioned after January 1, 2021) facilities for the use of secondary energy resources, which generated electric power is fully consumed by this entity or group of entities or sold to a single buyer of electric power at centralized auctions.

Historically, the Qualified Consumer mechanism assumed that such organizations pay monthly to the SFC for the amount of electric power proportional to the share of their own electric power supply to the grid, with a reduction from the RES volume in this QC and distribute electric power to end users, taking into account the costs in the selling tariff through a pass-through surcharge.

According to this mechanism, in 2022, as part of the strategy of the Fuel and energy complex of Kazakhmys Holding LLP, the 1st stage of construction of the Balkhash 50 MW SPP station was implemented. Kazakhmys Group is a vertically integrated holding with key assets concentrated in the mining industry and non-ferrous metallurgy. Kazakhmys ranks 20th in the world in the production of copper in concentrate (271 thousand tons) and 12th in the production of rough and cathode copper (377 and 365 thousand tons, respectively, taking into account the customer-supplied raw materials).

In 2020, the contribution of the Kazakhmys Group allowed the Republic of Kazakhstan to take the 11th place in the world ranking of silver-producing countries (279 tons, 51% of the total production in the country).

Kazakhmys Energy LLP includes two stations – Zhezkazgan TPP and Balkhash TPP, thereby providing the production facilities of Kazakhmys Corporation and the population of the cities of Zhezkazgan, Satpayev, Balkhash, and other areas with heat and electric power.

The SPP Balkhash occupies 140 hectares of land, of which 70 hectares of land are equipped. The remaining 70 hectares of land have been prepared for the construction of the 2nd stage of 50 MW. In the volume of stage 1, 94,150 double-sided photovoltaic modules, 8 inverter and transformer stations, each with a capacity of 6250 kV, a 220/20 kV substation, a 220 kV overhead line with a length of 2.5 km, were installed to generate a capacity of 50 MW, and the existing 220/110/10 kV Konyrat substation, owned by Kazakhmys Distribution LLP, was expanded." The 50 MW solar power plant is designed to generate over 80 million kWh of electric power per year.

However, as a result of the market reform and the introduction of a Single Buyer mechanism from July 1, 2023, the qualified consumer mechanism requires further improvement in the legislative framework.

Another industrial-scale RES project for the company's own needs, which is being implemented outside of auctions, is the solar power plant project of Solidcore Resources Plc. The project provides for the construction of 2 solar power plants with a total installed capacity of 39.6 MW in Abay and Kostanay regions within five years. As a regulating capacity, it is planned to build one gas piston maneuvering station with an installed capacity of 40 MW to cover the unstable generation of solar stations. The total investment will amount to more than $90 million.

It should be noted that today there are a number of significant barriers affecting the further development of the market for bilateral corporate RES contracts.

First. Inability to sell the RES electric power to retail consumers under bilateral contracts.

After the introduction of the new "Single Buyer" mechanism, the RES producing organization (in this example, a small hydroelectric power plant) cannot be a supplier of electric power to retail market entities. It must be a power supply company. In this regard, the RES plants need to conclude bilateral contracts for the sale of electric power with subjects of the wholesale electric power market.

In particular, a number of small hydroelectric power plants: Tasotkelskaya HPP 1, Tasotkelskaya HPP 2 (Kompaniya A&T Energo LLP); Karakystakskaya HPP (Zhambylskiye GES LLP); Merke HPP 1, Merke HPP 2 (GidroEnergeticheskaya kompaniya LLP); Merke HPP 3 (RemKommStroi LLP); Uspenovskaya HPP (Kainar-AKB LLP); Antonovskaya HPP (Cascade Karatalskikh GES LLP); Aksu HPP LLP; Sarkandskaya HPP (Firma Tamerlan LLP); 3 stations - Darkhan, Ryszhan, Koshkarata (Kelesgidrostroy LLP); Korday WPP (Izen Su LLP") after the introduction of a Single Buyer, were unable to continue fulfilling their obligations to supply electric power to retail consumers (population, sanatoriums, recreation centers, farms, etc.) located in remote, hard-to-reach places.

Thanks to the amendments adopted in June 2024, a norm was fixed that obliges PSOs to purchase electricity from small hydroelectric power plants as a matter of priority. In particular, energy supply organizations, as a matter of priority, purchase electric power from hydroelectric power plants with a total installed capacity of no more than 10 megawatts located in their service area, commissioned before July 1, 2023 and which, as of July 1, 2023, did not have long-term contracts for the purchase and sale of electric power concluded with a single buyer in accordance with the legislation of the Republic of Kazakhstan in the field of support for the use of renewable energy sources, at the marginal tariff for electric power. At the same time, the purchase of electric power from these hydroelectric power plants is allowed at the level of installed capacity as of July 1, 2023.

Second. The requirements of the system operator for the availability of balancing capacities in the framework of the implementation of bilateral contracts.

In accordance with the electrical grid regulations (paragraph 4, Chapter 2), the scheme of power output of a power plant is coordinated with the system operator - the relevant organization (energy transmission or energy production), to whose electric networks it is planned to connect.

At the same time, the system operator will coordinate the power output scheme only if there are control capacities. Thus, if the project is intended to be implemented under bilateral agreements, without support through RFC LLP, a necessary condition for the implementation of this project (given the shortage of regulatory capacity in the UES of Kazakhstan, as a result of which an increase in the share of unstable RES facilities poses a threat to reduce the reliability of the UES of Kazakhstan) is the provision of regulatory capacity from the project applicant with connection to ALFC and the conclusion of a corresponding agreement with KEGOC JSC for the provision of electric power regulation services in the UES of Kazakhstan (the draft agreement is attached). At the same time, maneuverable generating capacities that are not currently involved in the power balance of the UES of Kazakhstan should be presented as an adjustment capacity. As an alternative, it is possible to consider equipping the SPP with an energy storage device with a capacity of 50% of the installed capacity of the SPP and a capacity sufficient to deliver the installed capacity of the storage device within four hours.

In this regard, the examples of renewable energy projects mentioned above are NC KazMunayGas JSC and Solidcore Resources Plc have decided to use gas generation as a balancing capacity.

It should be noted that currently there are no examples in the country of the use of BESS systems implemented in conjunction with RES projects in order to participate in the regulation of imbalances. The reason for this is the lack of operational experience of such systems, high capital costs for implementation and operational costs associated with the degradation of BESS and the need to maintain capacity.

The third. The lack of a regulatory framework for the development of the corporate PPA contracts segment.

One of the tools for the development of the RES market is the segment of corporate PPA contracts, when industrial enterprises conclude a direct contract with a RES generator for the purchase of "green" electric power in order to reduce their carbon footprint. Already today, as part of the implementation of the strategy to achieve carbon neutrality, most companies in the industrial sector have adopted strategies at the corporate level aimed at decarbonization of production processes. However, due to the lack of regulation of the corporate PPA contracts segment and the need to develop appropriate bylaws, the existing provision of the RES Law remains inactive, which leads to the fact that the development of corporate contracts for the purchase and sale of the RES electric power is not developing properly.

In order to avoid such a scenario, as well as achieve strategic goals on carbon neutrality, it is necessary to provide for a flexible approach to the development of renewable energy sources in the country by working with the Government of the Republic of Kazakhstan and the RES market to develop and approve Rules for the implementation of corporate RES PPA contracts.

Fourth. It is necessary to improve the mechanism of qualified consumer

Thus, companies implementing the RES projects through the QC mechanism note the following problems.

Firstly, after the introduction of a Single Buyer, conceptual discrepancies arose in the legislation. Thus, in accordance with Article 165 of the Entrepreneurial Code of the Republic of Kazakhstan, energy-producing organizations using renewable energy sources and operating within the framework of the QC are defined as a group of persons. At the same time, in accordance with Article 15-5 of the Law of the Republic of Kazakhstan "On Electric Power Industry", a group of entities is included by the authorized body in the Register of Groups of Entities for the creation of electric power capacity. However, for example, there are cases when a group of individuals from the register of energy-producing organizations using traditional fuels that are part of a qualified consumer. Thus, from the point of view of the conceptual framework of the Law of the Republic of Kazakhstan "On Electric Power Industry", such projects cease to meet the criteria for classification as qualified consumers, although in accordance with the Entrepreneurial Code of the Republic of Kazakhstan they are, since they meet the criteria for classification as a “group of entities”. Thus, the exclusion from the Register of a group of entities responsible for creating electric power under the Law of the Republic of Kazakhstan "On Electric Power Industry" should not be a criterion for excluding a group of persons from the qualified consumer mechanism.

Secondly, the consumer in the QC mechanism actually has to buy electric power from both a Single Buyer and an EPO for RES, which is part of the same group of entities with it. Taking into account that there is a share of the RES electric power in the electric power purchased from a Single Buyer, it turns out that the consumer purchases a "double" volume of the RES electric power in the purchase mechanism, which is currently not balanced.

Based on the above, we believe that due to the fact that legislative acts provide for the possibility of selling electric power within a group of persons, the accompanying legislative acts should be brought into full compliance in order to eliminate further discrepancies and form a "solid" regulatory framework for the implementation of RES projects through the mechanism of qualified consumers.

For this purpose, the following steps are necessary:

1. Consider the norms in legislation under which consumers, as part of a group of persons, could purchase electric power from both a Single Buyer and an EPO for RES on the principle of a qualified consumer and reduce the cost of RES from a Single buyer by purchasing such electric power from an EPO for RES included in the same a group of entities.

2. Consider introducing a mechanism for recalculating (balancing) electricity purchases for those organizations that have implemented renewable energy projects using the qualified consumer mechanism / redistributing cost shares to support the use of renewable energy sources to consumers in a group of entities.

3. To bring into line the concepts of "groups of entities" (the Business Code of the Republic of Kazakhstan), "register of groups of persons" (the Law of the Republic of Kazakhstan "On Electric Power Industry"), "qualified conditional consumer" (Rules for the formation of a plan for the placement of facilities for the use of renewable energy sources) in the regulatory framework.

Thus, the development of the corporate PPA contract sector can not only contribute to the development of RES in the country, but also work to increase the competitiveness of enterprises and reduce the carbon footprint.