Project partners Funded by Published by: eclareon GmbH Albrechtstrasse 22 10117 Berlin, Germany E: [email protected] T: + 49 30 8866740-0 Fax: + 49 30 8866740-11 www.eclareon.com Person responsible for content under §55 paragraph 2 RStV: Christoph Urbschat (eclareon) Funding body: Federal Foreign Office (German: Auswärtiges Amt) Project funding number: ZMV I 6 - 2519AA0650 Design: Bundesverband Solarwirtschaft e.V., eclareon GmbH Place and date of publication: Berlin, January 2020 Authors: Ulf Lohse, Tatiana Andreeva, Alik Aylarov, Christoph Urbschat, eclareon GmbH We thank for support in preparing the study: Delegation der Deutschen Wirtschaft in Zentralasien 2 Page Content Objectives of the ENABLING PV Project 8 1. Electric Power Sector of Kazakhstan 9 Sector Infrastructure 10 Energy Sector of Kazakhstan 10 Electricity Market Stakeholders 13 Energy Sector Regulator 14 Commercial Infrastructure Organisations 14 Technology Infrastructure Organisations 14 Energy Producers 15 Grid infrastructure 16 Electricity Sales Companies 16 Electricity Consumption and Demand 16 On-Grid Power Generation 17 Off-Grid Power Generation 17 Electricity Markets, Prices, Tariffs and Costs 18 Wholesale and Retail Markets 18 1.3.1.1 Decentralised Electricity Market 20 1.3.1.2 Centralised Electricity Market 20 1.3.1.3 Balancing Electricity Market 20 1.3.1.4 Market for System and Support Services 21 1.3.1.5 Electric Power (Capacity) Market 21 1.3.1.6 Formation of electricity prices 22 1.3.1.7 Electricity Tariffs for End Users 23 Investment Framework for PV 25 Solar Irradiation 25 Participants of PV Market in Kazakhstan 26 Groups of potential users of solar power generation 30 2. Regulatory and Business Framework 31 Regulation and Support Schemes for PV and RES 31 Auction Bidding Mechanism 33 Codes and Standards 36 Rules of Power Transmission and Technological Connection to the Grid 36 State Standards for Solar Energy 36 Terms of Trade, Investment and Import 36 Inflation and Interest Rates 36 Import Conditions for Photovoltaic Modules 36 Financing of Photovoltaic Power Plants 37 3. References 38 3 List of Figures Figure 1 Schematic world map and Kazakhstan on the world map 9 Figure 2 Total installed capacity of power generation facilities and total annual power generation in Kazakhstan by type of power plants 10 Figure 3 Installed capacity of RES facilities in Kazakhstan at the beginning of 2020 in MW and % of total RES capacity in the country 11 Figure 4 Proportion of different energy sources in total installed capacity in Kazakhstan in 2018 12 Figure 5 Schematic representation of the three energy zones of the UES of Kazakhstan 12 Figure 6 Power generation in Kazakhstan by major energy generating companies 15 Figure 7 Electricity consumption by sector in 2019 in Kazakhstan 17 Figure 8 Schematic structure of electric energy and capacity market in Kazakhstan 18 Figure 9 Scheme of the Electricity Market in Kazakhstan 19 Figure 10 Centralised purchase of capacities from power generating organisations 21 Figure 11 Tariffs for residential consumers by type 25 Figure 12 Annual global solar radiation on a sloping surface (GTI) of Kazakhstan 26 Figure 13 Installed capacity of RES facilities and solar power plants in Kazakhstan 28 Figure 14 Installed RES objects within the framework of auctioning in Kazakhstan by type of generation 28 Figure 15 Implementation scheme for construction of RES facilities through RFC " 33 Figure 16 Scheme of issuing a bank guarantee and standby letter of credit for participants in auction tenders for RES projects 34 Figure 17 The scheme of purchase and sale of the generated electricity by RES stations 35 4 List of Tables Table 1 Installed capacity of the largest power generating companies of Kazakhstan 15 Table 2 Prices for wholesale market consumers 23 Table 3 Tariffs for industrial consumers in 2019 23 Table 4 Targets for RES sector development until 2020 27 Table 5 Private companies-winners at auction in 2018, 2019 in the solar energy sector of Kazakhstan 29 Table 6 Fixed tariffs for RES objects 31 5 List of Abbreviations Short for . Definition . BRELL Related energy systems of Belarus, Russia, Estonia, Latvia and Lithuania CAPEX Capital expenditures CHP Combined heat and power plant CIS Commonwealth of Independent States DCF Discounted Cash Flow Analysis - discounted cash flows DSCR Debt Service Coverage Ratio EK REC East Kazakhstan Regional Energy Company ESC Energy supply companies ET Energy Transmitting Organisations EU European Union GDP Gross Domestic Product GOST National Standard GRES Combined-cycle gas-fired power station GTI Global Tilted Irradiation - global solar radiation on an inclined surface GW Gigawatt GWh Gigawatt per hour HPP Hydropower plant IRR Internal Rate of Return JSC Joined Stock Company KEGOC Kazakhstan Electricity Grid Operating Company KREM Committee for the Regulation of Natural Monopolies and Protection of Competition KUS Kazakhstan utility systems LLP kV Kilovolt kW Kilowatt kWh Kilowatt per hour LCOE Levelised Costs of Electricity LLCR Loan Life Cycle Coverage Ratio LTD. Limited Liability Company MW Megawatt MWh Megawatt per hour NDC SO National Dispatcher Center of the System Operator NEG National electric grid NP Non-Commercial Partnership NPV Net Present Value 6 Short for . Definition . OJSC Open Joint-Stock Company PAO Public Joint Stock Company PP Power Plant PV Photovoltaic REC Regional Energy Company REgC Regional Electricity Grid Companies RES Renewable Energy Source RF Russian Federation RFC Financial Settlement Center of RES in Kazakhstan RnD Research and development activities SME Small and Medium Business Enterprises SPP Solar Power Plant TPP Thermal power plant TW Terawatt TWh Terawatt per hour UES Unified Energy System (or UPS) UES SO System Operator UES USSR Union of Soviet Socialist Republics VAT Value Added Tax WACC Weighted Average Cost of Capital WPP Wind Power Plant 7 Objectives of the ENABLING PV Project The market for solar PV installations has become increasingly international over the last decade. While the first solar boom mainly encompassed developed countries, who supported renewable energies (RE) with often similar support schemes mainly based on feed in tariffs, the landscape for solar energy today is different and much more diverse. Having either already reached or on the verge of reaching cost competitiveness with conventional energy sources in many countries, the number of RE markets and business models that work in those markets have multiplied in the last years. And just as every project is different, so are the conditions and regulatory frameworks in every country. It is in this context of an increasingly international PV market that the German solar association BSW-Solar, together with the consulting firm eclareon, started to investigate business models and the business environment for PV in different countries under the label “ENABLING PV” in 2013. One year later the first study was published and today the series covers Russia, Tunisia, Jordan, Brazil, Argentina, Nigeria, Angola, Iran, Pakistan and Afghanistan. The label “ENABLING PV” demonstrates the intention of this report: enabling the growth of solar PV based energy around the globe. In order to achieve this, projects need to be realised and the foundation for these is the collection, distribution and discussion of country specific knowledge. ENABLING PV reports shall provide a starting point for those investors and solar entrepreneurs who are interested to expand their business to new markets. This report on the potential of PV in Kazakhstan partly grew out of eclareon’s activities in Kazakhstan in 2019 and 2020. In the second half on 2020, meetings and workshops will be organised with the administration, companies, institutions, universities and potential investors to discuss the possible applications of PV systems and to identify pilot projects. The results of some of these deliberations are presented in this report. For 2020 another visit to Kazakhstan with new workshops is planned. Moreover, the aim is to present the results of the current study, find interested partners on site and develop PV pilot projects in the country. 8 1. Electric Power Sector of Kazakhstan The Republic of Kazakhstan is the largest Central Asian country, located in the centre of the Eurasian continent. The country was founded after the collapse of the USSR in 1991. Today more than 18.6 million people live in Kazakhstan. With a territory of 2.7 million km2 Kazakhstan is the second largest country in the CIS and the ninth largest in the world [1]. It borders Russia to the west and north, China to the east, and the Central Asian countries Kyrgyzstan, Turkmenistan and Uzbekistan to the south. The total length of the borders is 12,200 km, 600 km of which are adjacent to the Caspian Sea. Kazakhstan is the last CIS country in terms of population density – only 6.71 inhabitants per km2. This is primarily due to the harsh continental climate with its characteristic warm summers and cold winters. Different climatic conditions render Nur-Sultan (Astana) the second coldest capital in the world with an average annual temperature of +3.5° C, while the average temperature in the southern regions it is +15.8° C. Figure 1 Schematic world map and Kazakhstan on the world map Source: eclareon 2020, map generated by Pixel Map Generator, amCharts. The country's economy is based on industry (34.1% of GDP), services (61.2% of GDP) and agriculture (4.7% of GDP) [2]. The extraction and export of carbon raw materials (natural gas, oil) ensured a rapid growth rate of the country's GDP. Since 2000, the average GDP growth rate was 9.4% – until the global financial crisis hit in 2008. GDP growth fell to 1.2% in 2009, mainly caused by a sharp drop in oil prices, which fell by 71.9% within a 3 months period[48]. Nevertheless, GDP per capita at purchasing power parity has been growing steadily, increasing by a factor of 3.5 since 2000 and amounting to $27,659 in 2018.