Key topics discussed at COP26, the 2021 United Nations Climate Change Conference in Glasgow, were energy transitions in emerging markets and how richer countries would support poorer nations. Energy transition is particularly challenging in developing economies when they derive most of their revenues from fossil resources and have to balance economic growth with aiming for “net zero.”
Kazakhstan, however, has vast potential in the renewable energy sector and could affect financing and regulatory trends on the African continent.
Kazakhstan continues to develop its renewable energy market in line with the Concept on Transition to Green Economy adopted on May 30, 2013. According to this concept, the share of renewable energy sources in the total electricity production was meant to be 3% by 2020, 10% by 2030, and 50% of low-carbon alternative and renewable energy sources (RES) by 2050. Further, pursuant to the Kazakhstan National Development Plan, a 6% share of RES in the total electricity production should be met by 2025.
The first target of a 3% share of RES was successfully met in 2020, and the Kazakhstan president instructed the government to increase the share of renewable energy from the initial 10% to 15% by 2030. Based on information published by the Kazakhstan Ministry of Energy, there were 134 operating renewable energy projects with a cumulative capacity of 2,010 MW at the end of 2021, which included 684 MW of wind power plants, 1,038 MW of solar power plants, 280 MW of hydro power plants, and 8 MW of bio power plants. In addition, 10 renewable energy projects with a cumulative capacity of 290.6 MW are planned to be commissioned by the end of 2022.
Main players on the market are international oil and gas companies, energy companies, and manufacturers of RES equipment. Financing of RES projects is usually provided by international financial institutions and development banks.
The Law on Support of Use of Renewable Energy Sources was adopted on July 4, 2009, and provides for a renewable energy auction process (which replaced a prior feed-in tariff scheme) to attract investments in RES. The latest auctions were held in November 2021. An auction winner signs a 20-year power purchase agreement with the Financial and Settlement Center of Renewable Energy LLP (FSC), which is owned by the state. The FSC is the sole offtaker and buys all electricity produced by the RES company.
The Kazakhstan government developed the following state support measures to attract investments in renewable energy industry:
Despite the first target of renewable shares in total electricity production being reached, investors continue to raise concerns about low auction prices and their sustainability, as well as inadequate indexation. Therefore, Kazakhstan regulators continue to further improve renewable energy regulations in order to meet the next target of a 6% share of RES in total electricity production by 2025.
While many African countries are dependent on fossil resources, the shift to green energy has very rapidly progressed over the last decade through the wealth of renewable energies available on the continent. According to a January 2022 report published by the International Renewable Energy Agency (IRENA) in collaboration with the African Development Bank, only 2% of the global investments in the renewable energy since 2000 were made in Africa despite the continent’s potential. However, if the policy framework and financing follow, the energy transition could boost Africa’s GDP by 6.4% on average by 2050, according to the report.
The development of an adequate regulatory framework that prevents market distortions and fosters investments and innovation is key to attract investments. Many African countries are developing tax and financial incentives, including tax and customs exemptions, for the first few years of the projects when they are “capital intense” and require huge investments. The current regulatory focus is very much on the power sector, including tariff regulations, market rules, and procurement guidelines.
In Ethiopia, for example, Proclamation No. 1076/2018 set out a framework for the development and financing of public-private partnerships to attract independent power producers in the country. Ethiopia also ratified the New York Convention in 2020, which aims to have foreign and nondomestic arbitral awards recognized and enforced and to therefore provide protection to foreign investors.
The opening of the electricity market to private investors through regulatory changes has also been seen on the other side of Africa. Senegal adopted in July 2021 a new electricity code that put an end to the monopoly of SENELEC, the national electricity company, and passed new legislation setting up an energy regulation authority to oversee regulation of the energy sector.
Competitive procurement programs have helped attract investors and financing by providing a transparent and predictable route to market, but they need to be backed by an appropriate regulatory and contractual framework. In this regard, to streamline project development, several African countries have developed model power purchase agreements (PPAs) for renewable energy. Other key components of a successful renewable energy project include considering local content requirements, access to grid, and storage of the renewable energy.
Availability of funding is also key to achieving the transition to renewable forms of energy across Africa. According to a September 2021 white paper, Financing the Future of Energy, by the World Economic Forum in collaboration with Deloitte, funding is the biggest hurdle in ensuring Africa’s sustainable transition to renewables at scale. To scale this hurdle, development finance institutions and multilateral development banks such as the African Development Bank and development funds such as the Climate Investment Fund have become the dominant providers of funding for renewable energy projects in Africa.
Notable sources of funding include the following:
 Decree of the President of the Republic of Kazakhstan No. 577 dated May 30, 2013, “On Concept on Transition of the Republic of Kazakhstan to Green Economy.”
 Decree of the President of the Republic of Kazakhstan No. 636 dated February 15, 2018, “On Approval of the National Development Plan of the Republic of Kazakhstan until 2025.”
 Convention on the Recognition and Enforcement of Foreign Arbitral Awards of June 10, 1958.