Kazakhstan boosts its renewable energy investment system

March 26, 2022

Photo: UNDP Kazakhstan

UNDP is actively working on climate change mitigation, focusing on developing and expanding financing mechanisms for clean technologies and developing low-carbon enterprises through a Green Finance Accelerator. The development of low-carbon enterprises is promoted through innovative mechanisms such as green bonds, renewable energy auctions and carbon trading.

With UNDP support, the Kazakhstan Government is improving the standards of legislation related to the development and implementation of policies, programmes and regulations to reduce investment risks and increase investment to achieve renewable energy goals.

Thus, starting in 2018, UNDP in Kazakhstan, together with the Ministry of Energy of the Republic of Kazakhstan and with financial support from the Global Environment Facility (GEF), is implementing the project, entitled “De-risking Renewable Energy Investments.” The joint initiative aims to support the government in developing and amending legislation related to RE, as well as implementing pilot mechanisms for small businesses interested in using RE technologies.

"The activities of our joint project focused on encouraging private companies to invest in RES in Kazakhstan in order to achieve the goals set out in the national strategic documents "Kazakhstan 2030" and "Kazakhstan 2050." This is fully in line with the objectives and, in general, with the policy of the Ministry of Energy of the Republic of Kazakhstan in the field of renewable energy sources," said Abay Kulanbay, Director of the Department of RES, Ministry of Energy of the Republic of Kazakhstan.

The basic improvement of the investment system is the introduction of new innovative mechanism on RE - auctions with documentation (site-specific RE auction). The key point of the proposed mechanism is that before the start of the auction, the potential investor receives data on the main parameters of the project as part of a pre-feasibility study:

- Information on a specific area of project implementation

- Technical specifications for connection to the grid

- A general estimate of the total cost of construction RE power plant/assessment of the project's feasibility

This allows bidders to calculate their chances, eliminate "hidden" risks and offer even lower rates during the auction.

Image: UNDP Kazakhstan

"During this process, participants offer the lowest tariff per kWh of "green energy", considering, firstly, the amount of energy intended for purchase by the government, and secondly, the location proposed by the potential investor for the construction of the plant. The "proposed" location of the facility carries additional risks (uncertainties) for the investor. For their part, the auction participants must consider the cost of the generated energy. For example, the area may have its own characteristics (e.g. marshy area, or grid-crossing area), and all this leads to additional unexpected costs for the investor, increases the cost of the project and restricts it if the tariff price is reduced during the auction," explains Syrym Nurgaliyev, project manager at UNDP in Kazakhstan.

Currently, there are 134 operating renewable energy plants in Kazakhstan with total capacity of 2010 MW (HPP - 280 MW; WPP - 684 MW; SPP - 1038 MW; biogas plant - 8 MW).  By the end of 2021, the amount of electricity generated by RE was over 4.2 billion kWh. The share of electricity generated by RE in the total volume of electricity generation is 4%.

It is worth noting that the implementation of RE projects in Kazakhstan started with the adoption of the Law "On Promotion of Use of Renewable Energy Sources" in 2009 and several adopted legal acts (RLAs).

Under the joint initiative of UNDP in Kazakhstan and the Ministry of Energy of the Republic of Kazakhstan to organize site-specific RE auctions, a number of amendments were made to the existing RLAs and the "Rules for the Organization and Conduct of Auctions, Including Qualification Requirements for Auction Participants, Content and Procedure for Submission of Applications, Types of Financial Guarantees for Participation in Auctions and Conditions for Their Deposit and Return, Procedure for Summary of Results and Determination of Winners."