1 Legal and regulatory framework

1.1 What role does the state play in the renewables industry and which national legislative and regulatory provisions have relevance for the renewables industry in your jurisdiction?

The state is mainly responsible for establishing favourable conditions for:

  • the construction and operation of renewables facilities;
  • the effective integration of renewable facilities into a unified electric power and heat system and market;
  • the promotion of electricity and thermal energy production using renewable energy sources;
  • the provision of investment preferences to legal entities engaged in the design, construction and operation of renewable facilities; and
  • the provision of assistance in fulfilling Kazakhstan's international obligations to reduce greenhouse gas emissions.

Renewable sources in Kazakhstan are mainly regulated by the following laws and bylaws:

  • Law 165-IV on Support of the Use of Renewable Energy Sources dated 4 July 2009 ('Renewables Law'); and
  • Law 588 on the Electric Power Industry dated 9 June 2004.

The following state programmes, among others, provide strategic guidance on the deployment of renewable sources in Kazakhstan:

  • the Concept on the Transition of the Kazakhstan Republic to a Green Economy;
  • the Concept of Development of the Fuel and Energy Complex of the Kazakhstan Republic 2030;
  • the Strategy for Achieving Carbon Neutrality by 2060;
  • the Concept of the Development of the Electric Power Industry of the Republic of Kazakhstan by 2035; and
  • the Energy Balance Plan for Kazakhstan 2035.

1.2 Which bilateral or multilateral instruments or treaties with effect in your jurisdiction have relevance for the renewables industry?

In 2016, Kazakhstan signed and ratified the Paris Agreement. Within the framework of the Paris Agreement, Kazakhstan committed to:

  • an unconditional reduction of greenhouse gas emissions by 15% from 1990 levels by 2030; and
  • a conditional reduction of 25% (in case of international support) by 2030.

These commitments have had a significant impact on the development of the renewables industry in Kazakhstan.

1.3 Which national regulatory bodies are responsible for enforcing the applicable laws and regulations? What powers do they have and what is their general approach in regulating the renewables industry?

The Ministry of Energy is the primary regulatory body for the renewables sector. It has the following functions, among many others:

  • implementing state policy to support the use of renewable sources;
  • developing and approving laws and normative legal acts relating to the use of renewable sources;
  • approving the plan for the location of facilities for the use of renewable sources;
  • developing and approving the procedure and terms for determining the nearest point of connection to electric or heat networks and connecting facilities for the use of renewable sources and facilities for energy waste disposal;
  • developing and approving the rules for the organisation and conduct of auction sales; and
  • determining:
    • the terms of auction sales;
    • planned capacity according to the types of renewable sources; and
    • proposed zones for the location of facilities for the use of renewable sources in accordance with the plan of for the location of facilities for the use of renewable sources.

The Financial and Settlement Centre is the authorised body for the centralised purchase and sale of electricity produced by renewable facilities and supplied to the electricity networks of the Kazakhstan unified electric power system.

The Kazakhstan Electricity and Power Market Operator acts as the operator of the centralised trading market and organises auctions.

The Kazakhstan Electricity Grid Operating Company is the electricity transmission system operator of the unified power system of Kazakhstan.

Energy-transmitting organisations and energy-supplying organisations are responsible for transmission and distribution.

1.4 What role do regional or local government or public bodies play in the renewables industry?

Local executive authorities of regions, cities of national importance and the capital mainly:

  • coordinate projects for the construction of facilities for the use of renewable sources located in the relevant territory for the production of thermal energy supplied to the centralised heating system;
  • reserve and provide land plots for the construction of facilities for the use of renewable sources; and
  • provide targeted assistance to individual consumers.

2 Renewables industry

2.1 Which renewable technologies are considered relatively mature in your jurisdiction, and which are emerging as potentially new technologies in the market?

The most popular technologies are wind energy and solar energy, although hydropower and bioenergy are also produced in Kazakhstan.

2.2 Who are the key players in the renewables industry in your jurisdiction?

The key players in the renewables industry range from private sector companies operating renewable facilities to national regulatory bodies which oversee and support the development of the sector. The main functions of the national regulatory bodies are set out in question 1.3. Renewable energy producers supply energy to the network. Conditional consumers (conventional power plants) act as consumers of the electricity produced by renewable facilities.

Other main players include non-profit associations Qazaq Green and the Association of Regional Environmental Initiatives, which play a significant role in the promotion of renewables in Kazakhstan. Development banks and financial institutions also provide financing and technical assistance for the construction and commissioning of renewable facilities.

2.3 How much do renewables currently contribute to the domestic energy mix? What are the near-term projections for the role they will play?

At the end of 2022, the installed capacity of renewable facilities in Kazakhstan totalled 2400 megawatts (MW). Solar and wind power plants took the lead, with 1100 MW and 958 MW of installed capacity respectively. The installed capacity of small-scale hydropower plants amounted to 280 MW; while that of biofuel plants amounted to 8 MW.

According to the Ministry of Energy, 15 renewable facilities with a capacity of 276 MW are planned to be commissioned in 2023.

3 Utility-scale renewables projects

3.1 What utility-scale renewables projects are currently operational or planned in your jurisdiction? What are their key features?

Solar power plants are mainly located in the southern parts of Kazakhstan, with annual potential of solar energy reaching 2.5 billion kilowatt-hours.

Due to Kazakhstan's advantageous geographical location, it has significant wind potential, with an average wind speeds of 4 to 5 metres per second in the wind corridors. The highest wind energy potential is in:

  • the Caspian region;
  • central and northern Kazakhstan; and
  • southern and southeastern Kazakhstan.

On 9 June 2022, Total Eren and JSC 'Samruk Kazyna' signed an agreement for the construction of a wind power plant with a capacity of 1 gigawatt with a storage system in the Zhambyl region. The wind power plant project will be implemented in stages. Full completion of the project is planned for 2024 to 2026. The project will increase the total generation of renewable facilities in Kazakhstan by almost 50%. The preliminary cost of the project is estimated at $1.9 billion. The unique feature of the project is the fact that for the first time in Kazakhstan, a wind power plant will be supplemented with an electricity storage system. This will:

  • smooth out the natural fluctuations in renewable generation;
  • accumulate excess electricity; and
  • help to ensure the stability of the power grid.

3.2 What authorisations are required for the construction and operation of utility-scale renewables projects in your jurisdiction?

Typically, renewable facilities are constructed by the winner of an auction. The requisite authorisations include, but are not limited to:

  • land plot selection;
  • design and survey works;
  • registration of land rights;
  • development and approval of design documentation;
  • construction permissions;
  • connection to the grid;
  • comprehensive testing; and
  • decommissioning of the renewable facility.

3.3 Do these authorisations vary in respect of the location of the energy source, the location of the asset or the involvement of a foreign entity?

The basic authorisations are the same throughout the country. Certain environmental, connection and other permits will be required, depending on issues such as the type of renewable facility and the capacity of the station.

The participation of foreign investors in the project does not affect the number of permits required.

3.4 What is the procedure for obtaining such authorisations? How long does this typically take? Who is responsible for issuing them?

Auctions: If a renewable facility is implemented under an auction mechanism, an investor must:

  • register with the Kazakhstan Electricity and Power Market Operator's trading system; and
  • obtain applicant status by:
    • concluding an auction services agreement;
    • paying a service fee; and
    • submitting an application.

Development phase: In the development phase, an investor must apply to local executive bodies in order to obtain a land plot. Appropriate site selection plays a crucial role, as it will determine the economic feasibility of the project and how optimally renewable sources will be used.

Design and survey works are the cornerstone when constructing or reconstructing a renewable facility. An investor can carry out design and survey work once it has obtained permission from the relevant local executive authorities (LEAs). The land use design must be approved by the land relations offices of regions, district and cities. The LEAs of the region, cities of significance to the state, the capital, districts or cities of regional significance will then make a decision on whether to grant the land plot rights. The full state registration of land plot rights is achieved by signing temporary (short-term, long-term, paid, unpaid) land use contracts or land purchase contracts with the LEA.

An investor must submit a request to identify the closest connection point to the relevant energy transmitting organisations, which in turn will provide grid connection points with an appropriate voltage class and ensure that renewable facilities are connected to the grid.

In accordance with the Electricity Grid Rules, grid connection arrangements rely on the availability of three main documents:

  • the power delivery scheme;
  • the technical conditions; and
  • the agreement on the connection of the renewable facilities.

An investor must engage a specialised design company to develop the power delivery scheme. The system operator will approve this document, which will specify the relevant organisation (transmission and/or generation) that will provide grid connection points.

The investor then files an application to obtain technical specifications for grid connection based on the approved power delivery scheme. This is issued by the connecting grid company and contains technical specifications for connection to the network.

The investor must finance all activities required to obtain the technical specifications. The validity period is no less than the time needed to conduct the preliminary project studies and for the design and construction of the renewable energy facility, as identified by current design and construction norms; and it should not exceed three years.

Under the agreement on the connection of the renewable facility, the transmission company must provide the renewable facility with access to the network by providing the connection points outlined in the technical specifications. This agreement is valid from the date on which the technical specifications are finalised to the date of signing of the grid connection act. However, a deadline will be associated with the latter, linked to the commissioning deadlines agreed in the power purchase agreement.

Construction phase: Before construction and installation work begins, the developer must notify the relevant LEAs of the commencement of the construction activity. The major implementation stages of the construction of a renewable facility are as follows:

  • obtaining source materials to develop the construction project;
  • approving a schematic design;
  • developing and approving the feasibility study and project documentation;
  • conducting an environmental impact assessment;
  • performing construction works;
  • commissioning and acceptance of the facility; and
  • registering the right to a constructed renewable facility with the state.

Operation phase: Operation of the power plant starts on the date of commencement of a comprehensive test of the electrical installations. This comprehensive test may take place prior to the completion of construction and the issuance of the act of facility acceptance.

3.5 What are the key features of such authorisations, including any process for renewal and the rights and obligations of the holder?

The relevant regulatory legal acts determine:

  • the authorisation requirements;
  • the documents required for issuing relevant authorisations;
  • the term of validity; and
  • the procedure for the renewal of each type of authorisation.

Foreigners and foreign legal entities can obtain authorisations on an equal basis with citizens and legal entities of Kazakhstan, unless otherwise provided by the laws of Kazakhstan and international treaties.

3.6 Can these authorisations be transferred? If so, how and subject to what consents? Do any restrictions apply to the transfer?

The general rule is that licences and permits cannot be transferred to another person or entity.

3.7 What obligations apply in relation to decommissioning? How is this funded?

Decommissioning of the plant and energy facilities is a purely technical issue. There are no separate regulations on the decommissioning of renewable energy facilities in Kazakhstan. Notably, the Power Law specifies that repair works on electricity facilities must be approved by the Kazakhstan Electricity Grid Operating Company, the system operator. Repairs to, and cessation of the works of, power plants and their associated facilities are governed by:

  • Order 246 of the Minister of Energy dated 30 March 2015 on the Technical Operation of Electrical Installations of Consumers; and
  • Order 246 of the Minister of Energy dated 30 March 2015 on Approval of the Rules for the Technical Operation of Power Plants and Networks.

3.8 What are the main barriers to the development of utility-scale renewables projects in your jurisdiction?

One of the main barriers is insufficient manoeuvrable capacity in the energy system to cover intermittent renewable energy production.

3.9 Environmental issues

  1. What environmental regulations or requirements must renewables generators in your jurisdiction observe on an ongoing basis (from pre-development to decommissioning)?
  2. What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?
  3. Which national and regional regulatory bodies are responsible for the enforcement of environmental obligations, and what is their general approach in regulating the renewables industry?

(a) What environmental regulations or requirements must renewables generators in your jurisdiction observe on an ongoing basis (from pre-development to decommissioning)?

The Environmental Code requires enterprises to conduct an environmental impact assessment (EIA), depending on the hazard class. The investor and project developer should take into account the results of the EIA and seek to minimise any damage to the environment and health. The EIA procedure results in the preparation of an environmental management plan, the results of which are then submitted for review by a state environmental expert. Environmental permits for emissions are issued by authorised environmental protection bodies, depending on the hazard class. Project developers should further comply with fire, industrial, and health and safety regulations and instructions under Kazakhstan law. Non-compliance may lead to administrative or criminal liability in case of severe damage to health and safety.

(b) What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?

According to the Environmental Code, in accordance with the 'polluter pays' principle, a person whose actions or activities cause environmental damage must fully and at its own expense remediate the components of the natural environment that have been damaged. The administrative or criminal liability of a person that caused environmental damage does not relieve that person from civil liability. The authorised body in the field of environmental protection is entitled to file claims for the remediation of environmental damage against individuals and legal entities that may be held administratively or criminally liable.

Under administrative liability, a violation will result generally in the imposition of a fine on the developer. The amount of the fine will depend on the size of the business, as set out by the legislation.

According to the Criminal Code, an environmental violation that results or could have resulted in major damage or caused harm to human health may be punished by:

  • a fine of up to 3,000 MCIs;
  • restriction of liberty for up to three years; or
  • imprisonment for the same period.

(c) Which national and regional regulatory bodies are responsible for the enforcement of environmental obligations, and what is their general approach in regulating the renewables industry?

The Ministry of Ecology and Natural Resources is responsible for enforcing environmental obligations.

3.10 Health and safety issues

  1. What key health and safety requirements apply to renewables projects in your jurisdiction and are there best practices in relation to health and safety that should be adopted?
  2. What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?

(a) What key health and safety requirements apply to renewables projects in your jurisdiction and are there best practices in relation to health and safety that should be adopted?

Corporate social responsibility in the employment space is based on the protection of the rights of employees enshrined in Kazakhstan law, and aims to promote the development partnerships between a business entity and its employees in order to resolve social issues and regulate working conditions. The main measures regarding employment and labour relations are aimed at:

  • preserving jobs;
  • improving working conditions; and
  • ensuring:
    • the safety of working conditions;
    • compliance with the norms of social protection of workers; and
    • the approval of internal policies.

Architectural, urban planning and construction activities should be designed to ensure the safety of structures for human life and health and the environment. When designing structures, all possible risks to human life and health and the environment at all stages of the lifecycle – including during normal operation and emergencies, and arising from alleged violations during construction or installation work and unacceptable construction – must be identified and taken into account. In the course of construction and installation works, the developer must:

  • meet the safety measures specified in the design documentation; and
  • ensure that their implementation is monitored and supervised at all stages of the construction of the structure.

Structures under construction must be positioned away from other objects at the requisite distance in accordance with established standards.

(b) What are the potential consequences of breach of these requirements – both for the renewables generator and for its directors, managers and employees?

Breach of the health and safety requirements can result in civil, administrative and criminal liability for the developer. Under administrative liability, a violation will generally result in the imposition of a fine on the developer. The amount of the fine will depend on the size of the business, as set out by the legislation.

According to the Criminal Code, a violation of safety regulations, industrial sanitation or other labour protection rules committed by a person who was responsible for organising or ensuring compliance with these rules, resulting in the negligent infliction of harm to health or death, may be punished by:

  • a fine of up to 160;
  • restriction of liberty for up to seven years; or
  • imprisonment for the same term.

4 Distributed generation projects

4.1 What are the key differences in relation to small-scale distributed generation projects compared to utility-scale projects in your jurisdiction with regard to the regime discussed in question 3?

Kazakhstan law does not recognise a separate category or provide a definition of 'small-scale distributed generation projects'. As a result, small-scale renewables facilities must meet general requirements in terms of issues such as:

  • construction;
  • operation;
  • connection to networks; and
  • permits.

While these requirements are appropriate and justified for large-utility scale power plants, they are excessive for small-scale renewable facilities.

4.2 What are the main networks that apply to small-scale distributed generation projects in your jurisdiction?

Regional transmission networks are the main networks that apply to small-scale distributed generation projects in Kazakhstan.

5 Taxes and incentives

5.1 What national, regional and/or local incentives are available as subsidies or support to facilitate the deployment of renewables projects in your jurisdiction?

Kazakhstan's renewable energy legislative framework provides for the following support measures, among others:

  • guaranteed purchase by the Financial Settlement Centre (FSC) of all electricity produced and supplied to the grid;
  • the conclusion of power purchase agreements at auction prices for 20 years;
  • the creation of a reserve fund at the FSC;
  • the annual indexation of tariffs; and
  • an exemption from payment for the transmission of electric energy in case of the supply of electric energy to the FSC.

Kazakh law stipulates investment preferences for investment projects in Kazakhstan. Investment preferences include, among other things:

  • tax preferences;
  • state in-kind grants; and
  • exemptions from custom duties.

Renewable facilities fall under the category of investment and priority investment projects.

5.2 Are any tax reliefs available for investment in renewables projects?

According to the Entrepreneurial Code, priority investment projects can benefit from tax preferences and investment subsidies. In particular, the following tax preferences apply:

  • a 100% reduction in corporate income tax;
  • the application of a coefficient of zero to land tax rates; and
  • the calculation of property tax at a rate of 0% to the tax base.

Consequently, investors in renewable energy facilities receive additional incentives for the implementation of projects in Kazakhstan. This constitutes significant support, especially in terms of property tax.

5.3 Have there been any interventions affecting renewables projects in terms of their ability to be constructed or operated, or their ability to earn revenue, in your jurisdiction?

The Kazakhstan government aims to ensure favourable conditions for the sustainable development of the renewables sector in Kazakhstan and is thus constantly improving and modifying the legal framework in this sector. For instance, renewable energy projects were recently included on the list of priority investment projects, which allows them to apply for significant investment incentives provided by the state.

5.4 What other incentives are available to promote the development of the renewables industry in your jurisdiction?

In addition to the renewables auction mechanism, two types of state support for small-scale renewables facilities are currently available in Kazakhstan for non-electrified and electrified areas of the country. For non-electrified zones, the law provides for a direct support mechanism; while a net metering mechanism is available for consumers connected to distribution electric networks. The main conditions of these mechanisms are set out in the table below.

Aspects Direct support Net metering
Reimbursement of expenses by the state Up to 50% of the investment value No
Terms of providing support Compensation is provided after the commissioning of the facility and registration with the local executive body Not applicable
Installed capacity limit Up to 5 kW Up to 100 kW
Connection to the network No Yes
The right to sell energy No

Yes

Receiving remuneration for electricity released to the grid at the retail tariff of the energy supply organisation in terms of the excess of the supplied electricity over the consumed electricity from the grid for the same period
State funding Regional budget in order of priority of registration of the application (limited availability of budget funds) No

6 Financing structures

6.1 Is debt financing typically used and are there any particular structures that are common for renewables projects in your jurisdiction?

Debt financing and equity financing are commonly used to fund the development of renewable facilities in Kazakhstan. Multilateral development banks and international financial institutions (IFIs) generally provide financing under syndicated loan facility agreements.

Green bonds are evolving as an innovative tool in Kazakhstan to finance small-scale renewable projects. JSC Damu Entrepreneurship Development Fund has raised funds from the market by issuing and placing green bonds on the Astana International Exchange to finance renewable projects via commercial banks and microfinance organisations in Kazakhstan.

6.2 What are the advantages and disadvantages of these different types of structures?

The advantages and disadvantages of debt and equity financing are similar to the general peculiarities of each mechanism.

One of the main advantages of equity financing is that the developer bears less risk because it has no fixed monthly loan payments to make. If the developer has credit problems, equity financing may be the only option to finance growth. Even if debt financing is offered, the interest rate may be too high and the payments too steep to be acceptable. In the case of equity financing, equity investors expect to receive a return on their investment. The business owner thus must be willing to share some of its profit with the equity partners. The amount of money paid to the partners may be higher than the interest rates for debt financing. This may be considered as one of the disadvantages of equity.

The main advantage of debt financing is that taking out a loan is temporary. The relationship ends once the debt is repaid. The lender has no say in how the owner runs its business. One of the disadvantages of debt financing is that lenders will typically demand that certain assets of the company be held as collateral and the owner must often guarantee the loan personally.

6.3 What other considerations and concerns should parties bear in mind when deciding on a financing structure for a renewables project?

The standard form of auction-based power purchase agreement contains no provisions to ensure a higher level of bankability of renewables projects in Kazakhstan. For example, there are no provisions on the guaranteed purchase of all electricity produced (take or pay) or provisions regulating curtailment issues.

6.4 What main financing institutions are active in your jurisdiction?

Local second-tier banks provide financing for renewable energy projects in Kazakhstan. Other active financial institutions that provide financing for renewable projects include:

  • the Eurasian Development Bank;
  • the Asian Development Bank (ADB);
  • the European Bank for Reconstruction and Development (EBRD);
  • the Asian Infrastructure Investment Bank (AIIB);
  • the Chinese Development Bank; and
  • the Industrial and Commercial Bank of China.

According to publicly disclosed information, the EBRD had provided debt financing in the amount of around $500 million in order to create 14 renewables facilities with a total capacity of around 800 megawatts as of April 2022.

6.5 Which financing markets are usually turned to for sources of debt in your jurisdiction, (eg, local, London, New York)?

All major IFIs – including the EBRD, the World Bank, the ADB and the AIIB – participate in the financing of renewable projects in Kazakhstan. In addition, Kazakhstan Development Bank has a solid credit portfolio for financing renewable projects in Kazakhstan.

7 Transmission, distribution and export

7.1 What are the applicable processes for connecting renewables projects with transmission, distribution and export networks in your jurisdiction? Do these processes differ between different types of renewable technologies and between renewables and non-renewable projects?

In order to connect renewable projects to transmission lines, a producer must submit a request to identify the closest connection point to an energy transmission organisation. In addition, an investor should contact a specialised project organisation, which will develop the power generation scheme. The Kazakhstan Electricity Grid Operating Company (KEGOC), the electricity transmission system operator, will approve the power generation scheme.

An energy-producing organisation that plans to construct, expand or reconstruct a new or existing renewable facility and the energy transmission organisation to whose electrical grids the facility will be directly connected must sign a standard agreement on connection.

The connection process does not differ depending on the technology. However, connection of the renewable facility to the grid and transmission of the renewable energy are prioritised over non-renewable projects. For instance, renewable facilities are exempt from payment for the transmission of electricity when they supply electricity to the Financial Settlement Centre (FSC).

7.2 What requirements and restrictions apply to the export of renewable energy onto the network?

Renewable facilities must comply with the general requirements of the Electric Grid Rules when exporting renewable energy to the network. For instance, a comprehensive test of electrical installations must be carried out according to a programme agreed with the system operator, KEGOC, prior to commencing the export of renewable energy to the network.

7.3 What other considerations and concerns should be borne in mind in relation to the transmission, distribution and export of renewable energy in your jurisdiction, including participation in ancillary services, wholesale electricity trading markets, network charging arrangements specific to renewables and the ability to construct part of the connection infrastructure? Are there long queues and delays for connection?

The owners of renewable facilities bear the costs associated with:

  • the construction of the network from the renewable facility to the point of connection to the network of the energy transmission organisation;
  • connection to the network;
  • the transmission of energy from the renewable facility to the point of connection to the network; and
  • the measurement of the supplied energy.

Renewable power plants that sell electric energy via bilateral private power purchase agreements without the involvement of the FSC must sign a contract with KEGOC for the provision of balancing services of electric energy. Access to the national or regional electric network can be provided to renewable energy producers only if the producers have concluded a contract with KEGOC for dispatch services for the unified electric power system of Kazakhstan.

7.4 Are there any initiatives, reforms or consultations relating to the connection of renewables projects?

To the best of our knowledge, no reforms relating to the connection of renewable energy projects are anticipated.

8 Storage

8.1 What processes and rules apply to parties wishing to construct and operate a storage (eg, battery, hydrogen, hydro) project in your jurisdiction?

The legal and regulatory framework for energy storage has lagged behind the development of the renewables industry. Currently, the concept of energy storage is not specified in Kazakhstan law. Several state programmes and strategies aimed at promoting the development of the electric power industry and the industrial and innovative development of the country as a whole have been adopted; however, energy storage systems are mentioned only tangentially.

8.2 Are there any barriers to the development of storage projects in your jurisdiction?

The lack of a legal and regulatory framework for energy storage is one of the main obstacles to the development of storage projects in Kazakhstan.

8.3 What other considerations and concerns should be borne in mind in relation to the development of storage projects in your jurisdiction?

Double charging of network usage for imported and exported energy from a storage device may be viewed as an obstacle to the equitable treatment of electricity storage.

Another issue is that it is necessary to obtain an easement if the storage location is located near important infrastructure facilities. If an easement is denied, a new location must be chosen for the storage project.

9 Competition

9.1 Are there any dominant players, including dominant purchasers, in the renewables industry in your jurisdiction?

The Financial and Settlement Centre acts as a single buyer and guarantees the purchase of electricity produced by renewable facilities under a power purchase agreement.

9.2 Are there any pro-competition measures that are targeted specifically at renewables generators?

The renewable energy auction mechanism operating in Kazakhstan can be regarded as a pro-competition measure targeted at renewables generators. Renewable energy auctions are organised and conducted by the auction organiser KOREM using an electronic platform. Renewable energy auctions are intended to select projects for construction and determine auction prices for electricity from renewable energy sources.

10 Disputes

10.1 In your jurisdiction, do disputes typically go to arbitration or litigation, and does this vary for different types of disputes? What sorts of matters tend to come up in disputes?

The parties have the right to decide between themselves how to resolve any disputes. In the case of foreign companies, the best option is arbitration. Under model power purchase agreements concluded with the Financial Settlement Centre, disputes may be resolved by the International Arbitration Centre of Astana International Financial Centre.

10.2 Have there been any important disputes in the public domain that relate to or may potentially impact on the renewables industry or the deployment of renewables projects?

Based on publicly available sources, there do not yet appear to have been any such cases.

11 Trends and predictions

11.1 How would you describe the current renewables landscape and prevailing trends in your jurisdiction?

According to the Ministry of Energy, as at the end of 2022, 130 renewable energy facilities were operating in Kazakhstan with a total installed capacity of 2400 megawatts (MW), including:

  • 44 solar power plants – 1150 MW;
  • 46 wind farms – 958 MW;
  • 37 hydro power plants – 280 MW; and
  • 3 bio power plants – 8 MW.

The volume of electricity generation from renewable energy sources in 2022 amounted to 5.11 billion kilowatt-hours, or 4.53% of total electricity generation. In 2023, this figure should reach 5%. The successful results of auctions held from 2018 to 2022 reveal that the transition from fixed tariffs to an auction mechanism was a sound and timely decision, which is in line with international best practice. The introduction of the auction mechanism made it possible to:

  • create a competitive environment;
  • attract international investment in the renewable energy sector; and
  • reduce tariffs for renewable energy.

11.2 What influence are net zero commitments having on the development of the renewables industry in your jurisdiction?

The Strategy for Achieving Carbon Neutrality by 2060 envisages that greenhouse gas emissions associated with fossil fuels will be reduced by transitioning from the use of fossil fuels and their derivatives to alternative and renewable sources.

11.3 What new developments are anticipated in the next 12 months, including any proposed legislative reforms?

Kazakhstan plans to adopt a new fully fledged Law on Heat Power Industry Law that will, among other things, provide support for the use of heat obtained from renewable sources and other alternative energy sources. The draft law is currently under consideration in the Majilis of Parliament.

According to amendments to Kazakh law that will enter into force on 1 July 2023, the concept of a 'single buyer of electric energy' will be introduced. This is a legal entity with 100% state participation, determined by the authorised body, that will carry out the centralised purchase and sale of planned volumes of electricity, including from renewable power plants. Previously, electricity from renewable producers was paid for by traditional power plants; now, a single buyer will purchase renewable electricity and cover any possible losses at the expense of the state budget.

It is anticipated that the new model for the centralised purchase and sale of electricity will:

  • eliminate speculative transactions relating to the purchase and sale of electricity;
  • ensure the satisfaction of the declared volumes of the daily schedule of production and consumption of electricity; and
  • strengthen competition in the generation and supply sectors.

12 Tips and traps

12.1 What are your top tips for renewables generators in your jurisdiction and what potential sticking points would you highlight?

Kazakhstan has established a relatively good and bankable legal and institutional framework for the development of renewable energy projects. Generally, such projects are procured under an independent power producer model, whereby a government-designated entity (ie, the Financial Settlement Centre (FSC) as a single offtaker) enters into a long-term (20 years for renewables projects) power purchase agreement (PPA) with a private sector entity to purchase power at a fixed auction price from the project, subject to annual indexation.

Nevertheless, several obstacles are impeding investment and the general development of the renewables industry in Kazakhstan. The main barriers include:

  • the volatility of the national currency;
  • the absence of appropriate indexation for the construction period;
  • high interest rates on loans;
  • a lack of long-term financing; and
  • the low level of auction tariffs.

Moreover, the model PPA needs some improvements. For instance, the model PPA lacks a take-or-pay clause – that is, a contractual structure which obliges the buyer to purchase (take) the goods in a certain quantity at a certain time and to pay for the goods (pay), regardless of its actual ability to take delivery of the goods. Under the Renewables Law, the centralised purchase and sale of electricity produced by renewable energy facilities is carried out by the FSC. The FSC is only obliged to make payments to the developer for the electricity supplied to the grid. Therefore, there is a risk that developers will be unable to receive certain additional payments from the FSC, due to possible limitations of electricity-generating organisations in accepting and transmitting the entire volume of electricity (generated by the developers) to the grid. The introduction of a take-or-pay clause would mitigate this risk. The introduction of a direct agreement would allow project lenders to claim the position of borrower/sponsor in case of contractual default, with the introduction of provisions such as:

  • notice to creditors;
  • extension of repayment periods;
  • step-in rights; and
  • the right to novate the PPA in favour of the substitute organisation.

In addition, the model PPA does not provide for international arbitration, which might prove unattractive to foreign investors.

Furthermore, small-scale renewables development has been hindered by:

  • insufficient support measures;
  • complex and time-consuming procedures for connecting to electricity networks;
  • the high cost of installations for net consumers; and
  • challenges in licensing procedures for connecting small-scale renewable facilities to the grid at the level of regional power grid companies.

Overall, there is insufficient manoeuvring capacity in the energy system to cover intermittent renewable energy production.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.