This LawFlash summarizes key takeaways from the recent amendments by the Kazakhstan government to the standard form of the power purchase agreement (PPA) for energy-producing organizations using renewable energy sources (RES).
The law “On amendments to certain legislative acts of the Republic of Kazakhstan on the matters of administrative reform in the Republic of Kazakhstan” dated 19 April 2023 introduced changes to, among others, the law “On Electric Energy” and the law “On Supporting the Use of Renewable Energy Sources” within the framework of implementation of balancing market of electric energy.
In furtherance of the abovementioned amendments to law, on 22 September 2023, the minister of energy of Kazakhstan issued Order No. 349 (the Order), which amends the model form PPA. The Order entered into force on 13 October 2023.
GENERAL PPA TERMS
The following are the general terms of PPAs:
- Basis for PPA – result of an auction
- PPA parties – energy producing organizations using RES (Seller), Financial Settlement Center LLP (Sole Offtaker)
- PPA term – 20 years
- Price – the PPA is signed based on the winning price as a result of the auction. Auction prices are subject to one-off indexation and annual indexation based on the consumer price index or national currency exchange rate to US dollars, in accordance with the indexation formulas in the relevant regulation.
- Other terms of the PPA are standard. As a practical matter, no significant deviations from standard PPA are allowed.
- There are currently 133 RES objects with an overall installed capacity of 2,527 MW.
CHANGES TO MODEL PPA
The Order has introduced a number of notable changes to the model PPA form that apply to all PPAs entered into from 13 October 2023:
- The stability of law clause is removed from the PPA.
- Instead of purchasing the entire volume of energy actually produced by the Seller, the Sole Offtaker must purchase only the planned supply volume of power to the network.
- If the Seller generates less than the planned supply volume, it must make up for the difference by purchasing the shortfall from the Sole Offtaker at the price indicated in the PPA multiplied by a so-called increasing coefficient.
- If the Seller generates more than the planned supply volume, it sells the surplus to the Sole Offtaker at the price indicated in the PPA multiplied by a so-called reducing coefficient.
- The Seller must furnish the information on planned supply volumes of power into the balancing electricity market system daily before 8:00 (Astana time), in accordance with the Wholesale Market Rules. Prior to the amendments, the accounting of supplied energy was carried out based on the Seller’s meter readings.
- Payment for the planned supply is done by the Sole Offtaker after the system operator approves the daily schedule of production and consumption of electric energy for the next day in accordance with the Wholesale Market Rules. Prior to the changes, payment for electric energy actually produced by the Seller was carried out by the Sole Offtaker within 15 business days after the expiration of the payment period established for conditional consumers on the basis of the invoice and act of reconciliation.
- In addition to notice in case of a merger, the parties are now obliged to immediately notify the Sole Offtaker in the case of any corporate reorganization (namely merger, accession, division, spin-off, or transformation).
- An anti-corruption clause has been added.
It should be noted that the above changes do not affect the PPAs entered into prior to 13 October 2023. However, in light of the recent amendments to the law, energy RES producers with “old/grandfathered” PPAs are still required to enter into various ancillary agreements of a technical nature (e.g., agreement on the transfer of responsibility with the Sole Offtaker, sale and purchase agreement for balancing electricity and negative imbalances with JSC Kazakhstan Electric Energy and Capacity Market Operator (KOREM), and agreement on accession with KOREM).