Rapid economic growth in Kazakhstan over recent decades has brought a sharp upswing in electricity demand and usage. Per-capita gross domestic product (GDP)increased from below US $ 6,000 in the mid-1990s to over US $ 27,000 in 2019 and the country looked on course to meet its mounting resource demands by harnessing the coal resources in the North East.
A long-term engagement strategy, backed by targeted concessional financing from the European Bank for Reconstruction and Development (EBRD) and the Climate Investment Funds (CIF), has been instrumental in jump-starting Kazakhstan’s renewables market. Cooperation between the Government of Kazakhstan and the EBRD began in 2008 with the signing of a Sustainable Energy Action Plan (SEAP). Its main objective was to drive sustainable growth and economic diversification and to address regional imbalances within the country.
Since 2010, grant funds from the CIF’s Clean Technology Fund (CTF) have helped strengthen the country’s enabling environment and facilitated the growth in capacity and investments in the renewables sector. This was done through support for developing a robust legislative and regulatory framework, such as designing of feed-in-tariffs (FITs), establishing clear laws for investors, and developing frameworks for technical, environmental and legal due diligence of projects. Such technical assistance was complemented byproject preparation funds to support the first-of-its-kind projects and help private sector developers overcome the initial barriers to market entry.
Robust regulation is supporting renewable capacity growth in Kazakhstan
This has been complemented with project preparationfunds to help private sector developers overcome the initial barriers to market entry. From 2014, US $ 433 million in EBRD investment and CTF concessional financing for 12 solar PV projects have significantly expanded private sector participation in the sector, providing over 572 megawatts (MW) of renewable generation capacity once completed. Of this, 484 MW had already been commissioned by the end of 2019, making up around 89 percent of the country’s total installed solar capacity at that time.
In 2015, Burnoye Solar-1 became the first utility-scale renewable energy project in Kazakhstan built under new legislation enabling private investment in the sector. With the addition of Burnoye-2, it became the largest non-hydro renewable energy plant in Central Asia. The EBRD invested US $ 121 million and CTF provided US $ 25 million in concessional co-financing for the two projects.
The EBRD-CIF partnership has enabled the sector to attract billions of dollars in clean energy investment to the country since 2013, reaching US $ 0.8 billion in 2019 alone. Investors have included other multilateral development banks (MDBs) and funds, in addition to a number of private companies from Bulgaria, China, France, Germany, United Arab Emirates (UAE), and the United Kingdom (UK).
Renewables now provide a small but rapidly growing share of Kazakhstan’s electricity generation. Total installed capacity across the country grew to 542 MW for solar PV and 284 MW for onshore wind by the end of 2019.
The new market-based auction regime has further attracted private sector developer events as their competitive bidding for renewable projects has resulted in substantially lower prices. Compared to FiT levels, weighted average prices per kilowatt-hour (kWh) dropped by 41 percent for solar, 12 percent for wind, and 12 percent for small-scale hydropower in the 2018 and 2019 auctions.
In recent years, partners like the Green Climate Fund (GCF) have provided support to improve the auction scheme, by offering technical assistance to the authorities in preparing and implementing the first site-specific wind auction, as well as in developing a carbon market to set a price on carbon.
EBRD and CTF renewable energy projects in Kazakhstan 2014–2019
* CTF co-financed the five projects highlighted in green and funded technical support for the seven projects highlighted in blue.
Renewables will become the core of the country’s power system in coming decades
By the end of 2019, the country was broadly on course to meet its 2020 targets. Solar PV, onshore wind and small hydropower were producing around 2.3 percent of the country’s electricity and large hydropower was producing, a further nine percent. However, ageing coal-fired plants generated almost 70 percent of electricity, with natural gas making up the rest. As a consequence, energy – power and heat generation in particular – currently accounts for 80 percent of Kazakhstan’s carbon emissions. Keeping on a path to become a green power economy could take decades.
With wind and solar potential of around 350 GW and 3760 GW respectively, there is scope for Kazakhstan to go further faster. CTF funds under the Accelerating Innovation in Renewable Energy (AIRE) program provide the opportunity to finance wind farms across the country. This is something the EBRD is actively exploring.
Continued renewables growth requires greater grid investment
Attracting further investment in renewables in Kazakhstan and achieving targets will require addressing one of the major barriers to further growth: its power grid. Much of the current grid is old and loses around 13 percent of the annual power generated.
Investment is already flowing into the sector. For instance, the EBRD and its partners, have provided around US $ 30 million in finance through its Kazakhstan Renewables Framework to the Mangistau Regional Distribution Company (MREK). This will enable MREK, a major power utility and grid operator in Western Kazakhstan, to invest in modernization of the existing substations and distribution, new power lines, and the installation of data and automatic control systems.
This will enhance MREK’s network capacity, efficiency and reliability, allowing for the smooth integration of renewables into the grid.
Grid infrastructure and capacity need to be a major focus in the coming years because so much investment in renewables and green end user technologies such as electric vehicles depends on it. The EBRD and CIF’s long-term engagement continues with the recently approved Technical Assistance Facility (CIF-TAF) funding programme that will work with the Kazakhstan Electricity Grid Operating Company (KEGOC) on integrating renewables through enhanced tools, procedures and modernization of grid infrastructure.
With strong government commitment, established partnerships, a supportive enabling environment, and an increasingly confident private sector, all the building blocks for further investment are already there. Every effort must be made to ensure the momentum built up over the last decade is not lost.
Meeting more of its domestic energy demands through plentiful and affordable renewable power rather than heavily subsidised fossil fuels not only provides the added benefits of diversification but also delivers a range of environmental, health and economic benefits.
The economic damage wrought by the coronavirus pandemic presents an opportunity to build back better by following the Kazakh model. Analysis shows that a long-term, holistic strategy that builds strong enabling environment, institutional and human capacity to boost economic growth, followed by a targeted use of concessional financing can ensure that not only is the recovery green, but also that the country stays put on its path of energy transition.
Authors
Marat Yelibayev
Principal Banker, Energy Eurasia team European Bank for Reconstruction and Development (EBRD)
Marat Yelibayev is a Principal Banker with Energy Eurasia team at the European Bank for Reconstruction and Development. Marat has over 15 years experience in banking, private equity, corporate finance, and accounting across the different industries in Central Asia and Caucasus. Before joining EBRD, Marat was an Investment Director with CITIC Kazyna Investment Fund I. Prior to that, Marat worked at PwC and Deloitte accounting firms where he gained extensive experience in accounting, reporting, and internal controls.
Serik Shashdauletov
Investment Analyst, Energy Eurasia team European Bank for Reconstruction and Development (EBRD)
Serik Shashdauletov is an Investment Analyst with Energy Eurasia team, Sustainable Infrastructure Group at the EBRD. Serik has over 5 years of experience in banking, corporate finance, financial modelling and valuation across the different industries in Central Asia. Prior to joining EBRD, Serik was a Senior Associate at Deal Advisory at PwC.