The state audit revealed that one of the branches of the Samruk-Kazyna fund had embezzled 15.4 billion Kazakh tenge allocated for the construction of a wind power plant (WPP).
We are talking about the company “Ereymentau Wind Power” (EWP) owned by Samruk-Energo JSC. In 2020, the company entered into an agreement with a Olympus Trans Service LLP for the construction of a wind farm in the area of the city of Ereymentau with a capacity of 50 MW and a cost of over 26 billion Kazakh tenge.
The construction period was supposed to last 17 months until June 2021. But the contractor has still not fulfilled his obligations. Although, the company received an advance in the amount of 15.4 billion Kazakh tenge. It turned out that the customer did not even demand the return of funds that were borrowed. In 2019, EWP received a loan of 23.2 billion Kazakh tenge from the European Bank for Reconstruction and Development (EBRD) for the construction of the above-mentioned wind farm. At the same time, the power of the station was supposed to increase to 300 MW in the future. That is, the largest energy project was ruined before it even began.
How is the renewable energy sources industry developing in Kazakhstan in general? Who finances the construction of such power plants? What government support measures are provided for investors? How much electricity does Kazakhstan currently generate using renewable energy sources and what are the plans?
Coal and more
Kazakhstan has large reserves of hydrocarbon resources: coal, oil and gas. But their use as fuel in electricity generation will decrease every year. The use of fossil fuels in energy production leads to an increase in greenhouse gases, the emissions lead to an increase in the temperature of the planet. Therefore, most countries of the world have agreed to gradually reduce the consumption of hydrocarbon energy resources and in the future completely abandon them. This agreement is outlined in two main international documents – the Kyoto Protocol and the Paris Climate Agreement. Kazakhstan takes part in both conventions.
Today, the renewable energy industry is regulated by several regulatory documents. The first is the law “On Supporting the Use of Renewable Energy Sources” adopted in July 2009, the second is the Concept for the transition of the Republic of Kazakhstan to a “green economy” approved by presidential decree in May 2013. Later, this law was amended but the target indicators did not change – by 2020 the share of alternative and renewable types of energy in the country’s energy balance should be 3%, in 2030 – 15%, and in 2050 – 50%. Kazakhstan wants to achieve carbon neutrality by 2060 and has approved a corresponding strategy.
Today, about 67% of the country’s electricity is generated by coal, 21.5% by gas. Hydroelectric power plants (HPPs) produce 7.3% of electricity, renewables – 4.5%. Kazakhstan receives more than 88% of its electricity from fossil fuels and approximately 12% from renewable sources (big hydropower stations included).
Theoretically, the task is feasible if we use the full potential of renewable energy sources that the country possesses. The commissioning of new clean energy capacity is high. From 2014 to 2022, according to the Ministry of Energy, the number of stations operating on renewable energy sources increased from 26 to 139 units and their installed capacity increased from 177.5 MW to 2.6 GW. At the same time, the main share – almost 2.4 GW are solar and wind power plants and the rest – are small hydroelectric power plants (up to 25 MW) and biogas power plants.
Kazakh and international experts who have studied the country’s possibilities for renewable energy sources note the high potential of wind and solar energy. For example, the effective potential for the use of wind energy for Kazakhstan is estimated at 14.8 GW for zones with an average annual wind speed of more than 8 meters per second (m/s) with a total area of 1,400 square kilometers. At the same time, the installed capacity utilization factor (ICU) is 31-50%. This is a high level for renewable energy sources. The Almaty region has the greatest potential for developing wind energy.
Experts consider the resource potential of solar energy to be “quite great.” On average, the number of hours of sunshine in Kazakhstan ranges from 2200 to 3000 per year and the energy of solar radiation is about 1620 kWh per 1 sq. m per year. However, the capacity factor of solar power plants in Kazakhstan will not exceed 20-21%.
As a result, from an economic point of view, it is more profitable to build solar power plants in the Turkestan, Zhambyl, Kyzylorda and Almaty regions and wind power plants in the Akmola, North Kazakhstan, Mangistau, Turkestan and Almaty regions.
But the actual statistics turned out to be slightly different compared to the forecast. Thus, the highest capacity factor at already commissioned wind farms was in Atyrau region – 45%, at solar power plants – in Almaty region – 25%. The national average: wind farm – 24%, solar power plant – 16%.
Who finances it and how?
According to PwC estimates, in Kazakhstan for 2011-2020 about 628.5 billion Kazakh tenge were invested in the construction of renewable energy sources. Oil and gas companies also invest in such projects. In recent years, investors and financial institutions have increasingly sought to “decarbonize” their portfolios by redirecting investments to support clean energy. Banks are carefully studying new projects to comply with the green economy. All this supports the renewable energy sector.
Development banks are mostly involved in financing “green” projects in Kazakhstan such EBRD, which issued loans worth 162 billion tenge, the Development Bank of Kazakhstan issued loans worth 67 billion tenge and the China Development Bank with 29 billion tenge. The most common financing model is when 70% of the project cost is realized through borrowed funds.
If we count by quantity, then almost two thirds of all projects were implemented by Kazakh investors. If we look at the installed capacity, then the share of stations built by local companies accounts for 41% of the total installed capacity of the facilities. Experts conclude that foreign investors are most often interested in implementing large projects.
Since 2018, the selection of renewable energy projects has been carried out through auctions. The Ministry of Energy annually develops a bidding schedule and auctions about 250 MW of the required capacity. The ministry believes that this method makes it possible to systematically develop the renewable energy market and attract investment. The lots indicate the required number and type of power plants, the volume of their capacities, as well as the regions of location.
Today, the Akmola region has the largest installed renewable energy capacity – more than 508 MW (408 – wind power plants, 100 – solar power plants). Zhambyl region is in second place – almost 441 MW (250 from the sun, 176 from wind). The third is Almaty region – 371 MW, (60 – solar power plants, 146 – wind power plants).
State support measures
Kazakhstan provides investors with several preferences and government support measures for the construction of renewable energy facilities. The state company “Financial Center” (FC) signs off-take contracts with investors with the liability to purchase the electricity for 15-20 years at a price fixed.
The KEGOC company (which manages the unified energy system) undertakes to connect renewable energy facilities to networks, carry out maintenance and give priority when dispatching electricity from renewable energy sources.
In addition, auction prices are indexed annually to consider inflation and changes in the exchange rate. Investors in renewable energy projects are exempt from customs duties, VAT on imports, property, land, and corporate income taxes, and they are also provided with state grants. The reduction in the cost of construction of renewable energy sources led tariffs to decline from year to year.
From 2014 to 2017, fixed tariffs for electricity from renewable energy sources in local currency were in effect. With investors who implemented or began implementing projects during this period the state entered contracts at fixed tariffs. For wind power plants the tariff is 59.7 tenge per kWh, solar – 34.61 tenge, at small hydroelectric power stations – 16.71 tenge, biogas plants – 32.23 tenge. A separate tariff of 59.7 tenge per 1 kWh was established for the Astana EXPO-2017 wind farm commissioned in 2019-2020 with a capacity of 100 MW. The owner of the station is TsATEK Green Energy.
With the introduction of an auction model in 2017 the price is set through bidding. The average tariff for contracts concluded based on the results of bidding last year: for solar power plants – 16.95 tenge/kWh, for wind farms – 15.76 tenge/kWh. The cost of electricity has dropped significantly.
Another significant measure to support the industry is the obligation of the so-called “conditional consumers” to purchase from the Financial Center all electricity produced using renewable energy sources. Such consumers include energy companies using coal, gas, petroleum products and nuclear fuel as well as hydroelectric power plants.
How to improve
Market participants believe that there are many areas that need to be improved to increase the potential of renewable energy sources. For example, one of the main problems of the sector is the instability of production, the lack of sun and wind immediately lead to a decrease in electricity generation. This problem can be solved in several ways including creating a balancing power market and an electricity storage system.
Experts believe that it is necessary to develop flexible capacities, increase flexible sources which include gas power plants and hydroelectric power stations or build electricity storage facilities. The lack of such capacity limits the growth of renewable energy sources. The higher the share of renewable energy sources in the energy balance, the more reserve capacity is needed to cover demand when generation from renewable sources decreases.
Investors also note that the system operator requires renewable energy facilities to find balancing capacities themselves, that is, to build storage facilities. Although, this is not provided for by law. KEGOC explains this by the shortage of balancing capacities in the energy system of Kazakhstan. The installation of storage devices significantly increases the cost of projects.
Another question is what prices will be after the contracts for the guaranteed purchase of electricity expire. By the beginning of the 2030s this issue will need to be resolved. Experts believe that without increasing electricity tariffs it will be difficult to solve this problem. At the same time, it is necessary to increase the consumer’s profits and provide subsidies for vulnerable members of society.
The problem of lack of reserve capacity can also be solved by stimulating conscious consumption. It implies that large consumers limit their electricity consumption for a certain number of hours a day in exchange for economic incentives (monetary rewards). This is a widely used mechanism around the world and it will cost much less than building stations. Consumers take part in the process and can control the market. There is currently a sharp increase in electricity consumption around the world. It is clear that in the future there will not be enough resources to satisfy the growing demand and increasing the production of renewable energy sources is crucial.