The adoption of the law "On support for renewable energy sources" in 2009 created favourable conditions for sustainable development, energy sector diversification and renewable energy sources (RES) development.
However, investors suggested certain amendments to the legislation based on the best international practices to reflect the current state of the industry. Below are some suggestions indicated to date.
Auction Qualification Requirements
The qualification requirements for bidders determine which suppliers are eligible to participate in the auction, including the conditions they should meet and the documentation they will provide before the auction. An important aspect of the requirements for large RES projects is relevant experience a potential developer has.
Currently, according to the Kazakhstan legislation, in order to participate in auction bidding, the participants confirm qualification requirements only for legal capacity by providing copies of the Articles of Association, certificates of state registration/re-registration, legal entity details, and application fee for participation in the auction bidding.1 In addition to the documents, a bank guarantee is required.
As auctions for renewable energy sources do not generally require qualification based on experience, we refer to international practice to examine the advantages and disadvantages.
According to international practice, qualification requirements in terms of experience include analysis of the following documents:
- experience in RES facilities development;
- experience in operating RES facilities;
- experience in attracting similar amounts of financing.
For example, in the auction organised by the Moroccan Association for Sustainable Energy (MASEN) in 2011, the following experience-related criteria were taken into account:
- the applicant company should have experience in developing and operating a solar power plant of minimum 45 MW capacity;
- no penalties or damages incurred for delays or inadequate execution;
- experience with thermal power projects: the applicant company should have experience in the development, operation, and management of thermal power plants over the last ten years of at least 500 MW in total, including at least 100 MW in the last seven years.2
Overall, stricter qualification requirements ensure that the state will have competent bidders, hence a better infrastructure in the form of renewable energy sources such as solar, wind, and hydro power plants.
However, we note that it would be advisable to balance the implementation of the qualification requirements in order to mitigate the risk of entry barriers for new players in the renewable energy market.
A direct agreement is a special tool that allows project lenders to claim the position of borrower/sponsor in case of contractual default, which would otherwise give the project contractor the right to terminate or suspend the contract in question.
For financing RES projects, it is desirable to have an explicit agreement that allows lenders to replace the seller in case of serious power purchase agreement (PPA) breaches. As a result, lenders can find a solution that allows them to safely continue building or operating a power plant; otherwise, the project becomes unviable.
We specify that the direct agreement needs to be regulated in detail. There should be provisions such as notices to creditors, extension of repayment periods, step-in rights, and the right to novate the PPA in favour of the substitute organisation.3
Change in Law
It is a common global practice for commercial contracts to contain a boilerplate clause on change in law which guarantees certain compensation in the event of such and subsequent negative impact on a contract party.
Although the provisions of the Kazakhstan Civil Code ensure the contracts stability, these do not apply, for example, to tax, customs, currency, and other issues arising in the implementation of contracts and closely related to the contract performance and outcomes.4
To date, electricity producers have not been assisted in the event of adverse changes in legislation or regulations. Such assistance should take the form of an adjustment of the PPA tariff in order to maintain the economic equilibrium, ensuring that no profit made or loss incurred by the producer as a result of changes in the law.
In addition, we note that besides aforementioned aspects in RES regulation, improvement of the provisions of the model PPA contract by the Financial Settlement Centre, changes in tariff indexation and other aspects need to be addressed.
The RES legislative framework is improving year by year, and we hope that this trend will have a positive impact on the overall RES market development and help Kazakhstan on its way to a "green economy".
1. Order of the Minister of Energy of the Republic of Kazakhstan dated 21 December 2017 No. 466 On Approval of the Rules for Organisation and Conduct of Auction Bidding, which includes qualification requirements for auction bidders, the content and procedure for submitting an application, types of financial security for the auction bid and the conditions for their payment and return, the procedure for summing up the results and determining the winners.
2. IRENA, Renewable energy auctions: a guide to design, irena.org/RE-auctions guide
3. Understanding Power Purchase Agreements, second edition, page 87
4. "General Issues of Contractual Stability in Civil Law and Stability Conditions in Subsoil Use Contracts", https://online.zakon.kz/Document/?doc_id=31505542&pos=4;-111#pos=4;-111
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