Solar energy potential, energy market and why it’s one of the main markets we are going to work with.
Solar DAO is a closed-end investment fund created to finance construction of PV solar plants around the world. The project’s white paper is available on its webpage, and all recent updates are published in Telegram.
Solar DAO is planning to expand in both Europe and Asia, with Kazakhstan being envisioned as one of the largest potential target markets. Solar DAO founders, UNISOLEX LLC, are already participating in construction of two PV solar plants, 1.06 MW in Kyzylorda and 10 MW in Almaty. This article provides a comprehensive overview of Kazakhstan’s potential to host a developed solar photovoltaics industry.
Despite the country’s rich endowment in fossil fuels, the Kazakh government is aspiring to get to the cutting edge of contemporary renewable energy support policies. Kazakhstan has been pursuing such policies quite consistently throughout the past decade, and the government expresses a strong commitment to renewable energy generation. As the following will demonstrate, the country indeed has a lot of strong advantages to become an Asian powerhouse of renewable energy generation.
Why Kazakhstan? Geography, Climate & Demography
Excluding Russia, Kazakhstan is the largest country of the former Soviet Union, and also the largest landlocked country in the world. With its 2,724,900 square kilometers of total area and 18’050’488 inhabitants, the country possesses an abundant quantity of natural resources, including oil and gas, as well as minerals, which account for as much as 57% of Kazakhstan’s industrial output, or about 13% of the national GDP. However, there is an enormous and underexplored potential for energy generation — overground.
Most of the country’s territory is covered by a vast flat steppe extending from the Volga river in the west to the Altai Mountains in the east, and from the plains of Western Siberia in the north to the Central Asia deserts. In other words, there is a plenty of space suitable for solar panels installation.
More importantly, Kazakhstan has a particularly favourable climate condition for solar energy generation. Due to the country’s unique geographical position, it enjoys the sunshine from 2200 to 3000 hours per year, which is equivalent to the annual rate of 1300 to 1800 kWh per square meter of solar radiation in central and southern regions, and from 1000 to 15000 kWh per square meter in the west and in the north. This is especially true of the southern regions of the country. The following map shows the high potential regions for solar power plants.
The population of Kazakhstan is divided between rural and urban areas almost evenly, with 53.2% of total inhabitants living in the cities (2015 estimate). The major urban area is the country’s capital Astana with 759’000 inhabitants and Almaty with 1.5 million (2015).
Most of the country displays a relatively low population density, with an average of 6 persons per square kilometer. This is especially true in the country’s interior, that is, besides the urbanized areas of extreme north and extreme south. Low population density is widely recognized as one of the enabling conditions for solar energy development. These vast underpopulated areas could host large arrays of solar panels.
Moreover, developing the new capacity from renewable energy sources in both north and south could limit the need to transmit electricity over large distances, thus improving the efficiency of electrical supply and eliminating electricity imports from the other Central Asian countries.
On the other hand, for those people living in isolated villages and small towns, solar electricity will be a sustainable energy solution and thus the demand can be reasonably expected to be high. However, even in the large urban centers like Astana and Almaty planned temporary blackouts are not infrequent, mainly due to the ageing and inefficient infrastructure, suffering from 15 to 33% of efficiency losses. Here the construction of PV solar plants may help as well.
Bordering Russia in the North, and China in the South-West, Kazakhstan is the most economically powerful state in the vast region of Central Asia. In 2016, the country’s GDP amounted to $480 billion (at purchasing power parity), generating as much as 60% of the GDP of the whole region.
The country’s economic power is also reflected in its energy balance. Kazakhstan is ranked among the world’s highest energy intensive economies, even though its energy use is highly inefficient. The three power networks of Kazakhstan’s grid are tied in the north to the Russian power grid and in the south to the United Energy System of Central Asia, a regional power network developed in the Soviet Union to integrate intra-regional electric supply. The following picture maps the electricity transmission and distribution (T&D) infrastructure of Kazakhstan.
According to the 2016 estimates, Kazakhstan currently produces 94.5 billion kWh and consumes 91.6 billion kWh of electricity. The country also possesses a large pool of installed generation capacity of 22.06 million kW, of which 87% is generated from fossil fuels. Specifically, 75% of the total energy production is provided by coal power plants.
Against this background, the scores of renewable energy generation are almost negligible, with 13% of total installed capacity belonging to hydroelectric plants and 0.3% to other renewable energy sources, including solar energy. Other estimates report that renewable energy accounts for just 0.6% of all power installations, 95% of which comes from small hydropower projects.
However, from the point of view of PV solar plants construction, this can also be read as a huge and unexplored opportunity. According to a recent article published in Energy Procedia,
The recent economic growth in Kazakhstan increased demand for additional energy in order to ensure economic growth. In this context, the use of renewable resources to cover the gap between supply and demand becomes attractive.
According to the 2015 forecast reported in a recent article in Renewable and Sustainable Energy Reviews, even under conditions of low demand the electricity production in Kazakhstan will rise up to 100 TWh in 2023.
New energy will be needed to finance the new economic growth, and the Government of Kazakhstan is quite aware of the need to diversify its energy generation capacity by introducing renewable sources.
Targets and Visions
Since 1995, Kazakhstan has been a party to the UN Framework Convention on Climate Change. The country has also ratified the Kyoto Protocol in 2009. Also in 2009, Kazakhstan established the rules for monitoring the renewable energy supply (amended in 2014).
The 2009 Law on the measures of state support for use of renewable energy sources creates favourable conditions for the construction and operation of renewable energy facilities. It introduced several measures to do so, including:
- a process for development and approval of the plan (programme) regarding location;
- mandatory purchase of electricity by a regional grid company and the national grid operator KEGOC (Kazakhstan Electricity Grid Operating Company);
- partial compensation for electricity losses in their grids as a consequence of the above mentioned mandatory purchase of electricity;
- an individual tariff is set by ANMR, the national anti-monopoly regulator, with the tariff fixed at a level that ensures investment payback at reasonable levels.
Building upon this, Kazakhstan created a multilateral, cross-sectoral and voluntary Partnership Programme “Green Bridge” (GBPP). Its main goal is to create a stable long-term foundation for green investment, technology transfer, environmental innovation and sustainability, including the creation of a labour market for long-term green jobs. In 2012, it has was endorsed by the World Summit on Sustainable Development in Brazil.
The year 2013 has been a year of opportunity for renewable energy in Kazakhstan. Since 2013, Kazakhstan uses feed-in tariffs, fixed for 15 years, that guarantee the purchase of electricity generated from solar energy according to the regulations, as well as tradable RECs.
In the same year the Government of Kazakhstan adopted a new law, On Supporting the Use of Renewable Energy Sources, that promotes technology-specific feed-in tariffs for selected renewable energy technologies, including solar photovoltaics, up to 35 MW. The programme is estimated to cost KZT 1,100 billion (c. €5.3 billion).
Also in 2013, the Government has set the objective to install about 1040 MW of renewable energy capacity by 2020, including 4 MW from solar sources, costing KZT 317.05 billion (c. €1.25 billion). Also in 2013, Kazakhstan adopted the Energy Efficiency 2020 programme, aiming to reduce energy consumption by 10% annually until 2015. More ambitiously, by 2020 the Kazakh government aims to achieve solar power generation level of 713.5 MW at 28 solar electric plants.
These targets are in line with the Government’s “Concept of Transition of Republic of Kazakhstan to the Green Economy” approved by Presidential Decree №577 in May 2013. The overall objectives of the Concept are to reduce energy consumption by 25% of the level of 2010 by 2020, 30% in 2030, and 50% in 2050. More specifically, Kazakhstan aims to achieve a share of at least 3% of energy generation from renewable sources (wind and solar), 30% in 2030, and 50% in 2050. During the current phase (until 2020), the project focuses on the creation of suitable infrastructure, including solar plants.
This project is managerially and financially supported by the United Nations Development Programme (UNDP), and also UNECE (United Nations Commission for Europe), and the European Union.
A year before, in 2012, the country envisioned its long-term Strategy 2050 which set a goal to achieve 50% of energy generation from renewable sources by 2050. According to the UNPD analysis, this is a major step forward to develop renewable energy in the country. Thus, the Strategy prioritizes renewable energy projects in granting land plots and exempts them from custom duties for imported materials needed to commission the plant.
Moreover, the Strategy also creates favourable conditions for the plant operators, who no longer need to pay for transmission services and are eligible to obtain complimentary access to the power grid. These measures are meaningful, given the country’s problems with the ageing and inefficient transmission and distribution (T&D) infrastructure, and will enable future investors and producers to substantially reduce operational costs.
The Law on Investment allows renewable energy facilities to receive state-sponsored grant funding of up to 30% of the project costs related to land plots, buildings, machinery and equipment. Foreign investors have the opportunity to apply for tax deductions (in accordance with the Tax Code), including, but not limited to, exemptions from land and property taxes. Finally, electricity production no longer requires a licence, thus driving the bureaucratic costs down.
Most recently, 2017 has been announced to be the year of “green energy” in Kazakhstan, according to the country’s Ministry of Energy, with 37 projects aiming to attract investment in renewable energy across the country.
Organizational and institutional policy landscape in the field of renewable energy support is quite diverse in Kazakhstan. First, there is the Ministry of Industry and New Technology, responsible for the management of energy saving and energy efficiency policy. It approves feasibility studies for planned renewable energy projects and provides consulting support.
Field-specific players also include KEGOC, the major regional grid operator, that manages the national power network. Kazatomprom JSC is the National Atomic Company that has a subsidiary responsible for implementation of projects in renewable energy sector, including the KAZ PV that works with solar power projects. The ANMR, a regulatory body responsible for the antitrust regulation, sets and defines the tariffs and defines tariffs.
There is also a dedicated state investment agency Invest in Kazakhstan, engaging foreign investors to land in the country and providing consultancy services.
Besides, several major development banks are active in Kazakhstan’s renewable energy industry. Asian Development Bank (ADB) is providing equity, loans and guarantees for the private sector companies with clear development impacts, provided they expect a good rate of return. The Eurasian Development Bank is also active in the renewable energy support, granting loans of $30 to $100 million for renewable energy projects.
European Bank for Reconstruction and Development (EBRD), along with the International Finance Corporation (IFC), also provide renewable energy producers with equity, loans and loan guarantees, given the project’s good commercial potential to be realized within the next 15 years.
The EBRD is implementing the Kazakhstan Renewable Energy Financing Facility (KazREFF) to provide development support and debt finance to renewable energy projects, including solar energy, which meet required commercial, technical and environmental criteria. The Facility comprises an amount of up to €50 million for financing projects together with up to €20 million of concessional finance from Clean Technology Fund (CTF), and the technical assistance funded by the Japanese government through the Japan-EBRD Cooperation Fund (JECF).
The EBRD has been particularly active in financing the construction of solar parks in Kazakhstan: having established the Burnoye Solar 1 in Zhambyl region in April 2014, it is planning to start construction of Burnoye Solar 2, to be located in the same region, both with a capacity of 50 MW. The bank will grant a $44.5 million loan in partnership with the CTF.
In November 2012, Astana was chosen by the International Exhibitions Bureau (BIE) as the venue to host EXPO-2017, that is currently taking place under the title “Future Energy” and closing this September. This notable event is a good signal for investors in renewable energy in Kazakhstan, since the country became the first one of the former Soviet Union to host such a prominent international event, with participants from more than 100 nations and 10 international organizations. The EXPO will demonstrate the best global practices in the field of renewable energy generation, as well as the latest technological solutions in solar, wind, and water energy generation.
Kazakhstan’s prospects for renewable energy receive even more expert support. In November 2015, the 3rd International Forum on Sustainable Energy of CIS and Central Asia took place in Astana. In his speech at the Forum, Vitaly Daviy, the director of Innovative Business Centre (IBCentre), a Vilnius-based think tank and business event organizer, said that
In the next two years, Kazakhstan could become a major market for renewable energy in Central Asia and the CIS as a whole.
Other energy experts present at the Forum confirmed his vision. Thus, Sergey Novatsky, the CTO of Ukrainian Systems Solar emphasized the particular opportunity for Kazakhstan in the field of PV solar plants. According to him, if the solar panels are equipped with sun trackers (as Solar DAO plants indeed are), this could increase solar power productivity up to 30–40%. In Novatsky’s opinion, Kazakhstan is an ideal market for such systems.
Eric Wheeler, a London-based risk consultant from The Risk Advisory Group, is even more straightforward:
Additional installed capacity from renewable energy sources is seen as a potential panacea for electricity shortages in Kazakhstan.
A Window of Opportunity
Currently, there are 50 enterprises in Kazakhstan that produce renewable energy with a total capacity of 300 MW. With the country’s annual consumption of more than 90 billion kWh, there is clearly a long road ahead. More specifically, solar energy’s share in the emerging field of renewable energy remains modest, having been just slightly above 57 MW (as of September 2016). In 2017, there are 6 operating and 15 projected solar power stations across the country.
Alongside the notable efforts of EBRD (see above), foreign investors are increasingly interested in Kazakhstan’s potential. Most recently, the French company ECM Technologies, an industrial vacuum furnace manufacturer, in partnership with unspecified Chinese company, have announced the plan to construct a 12 MW solar park in Shetpe, Mangystau region, supported by the Kazakh government.
The fact that the Government is looking forward for investments in renewable energy is also evidenced by the recent establishment of a special online resource, Atlassolar.kz, the atlas of Kazakhstan solar resources, launched by the Ministry of Energy and United Nations Development Project (UNPD) in May 2017 in partial fulfillment of the goals envisioned in the Green Economy Transition Concept (see above). The Atlas provides potential investors and other interested parties with comprehensive information in various forms on the solar resources in the country, relevant climate issues, electricity grid maps, and also has some functionality for analytics.
In summary, Kazakhstan is an attractive place to invest in solar energy, particularly in the construction of PV solar power plants, because of the following factors:
- Vast territories covered by steppes with excessive sunshine during the year; low population density
- The country’s need to finance its projected economic growth and to free itself from dependence on external electricity supply
- The government’s awareness and explicit strong commitment to support renewable energy
- Favourable policies and regulation for renewable energy generation, including feed-in tariffs and tax reductions
- Active international involvement, including major international organizations and development agencies operating in the country
The two most important obstacles on the way for renewable energy industry development in Kazakhstan have been the steep capital requirements and the ageing and inefficient infrastructure. As for the latter, the government has introduced several important measures to drive down the operational costs for renewable energy producers, including favourable access to the grid, priority in granting land plots, and custom exemptions for materials and equipment supplies.
As for the former, Solar DAO is the best solution, with its ability to crowdfund the PV solar plants construction by engaging numerous investors, often with modest capitals. It is not by accident that Solar DAO is planning to expand in Kazakhstan: the project’s value proposition exactly matches the country’s needs. Solar DAO’s pre-ICO for tokens closes on August 31st.The best time to join is now.
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