The main topics discussed at COP26, the 2021 UN Climate Change Conference in Glasgow, were energy transitions in emerging markets and how rich countries would support poor countries. The energy transition is particularly difficult in developing economies where they derive most of their income from fossil resources and must balance economic growth with the goal of “net zero”.

Kazakhstanhowever, has vast potential in the renewable energy sector and could affect financing and regulatory trends on the African continent.

DEVELOPMENT OF RENEWABLE ENERGY IN KAZAKHSTAN

Kazakhstan continues to develop its renewable energy market in line with the concept of transitioning to a green economy^[1] adopted on May 30, 2013. According to this concept, the share of renewable energy sources in total electricity production was to be 3% by 2020, 10% by 2030 and 50% from alternative energy sources and low-carbon renewables (RES) by 2050. In addition, in accordance with the national development plan of Kazakhstan,^[2] a 6% share of RES in total electricity production should be reached by 2025.

The first target of a 3% share of RES was successfully achieved in 2020, and the President of Kazakhstan asked the government to increase the share of renewables from the initial 10% to 15% by 2030. D ‘after information published by the Ministry of Energy of Kazakhstan, there were 134 renewable energy projects in operation with a cumulative capacity of 2,010 MW at the end of 2021, including 684 MW of wind power plants, 1,038 MW of solar power plants, 280 MW of hydropower plants and 8 MW of bioenergy. plants. In addition, 10 renewable energy projects with a combined capacity of 290.6 MW are expected to be commissioned by the end of 2022.

The major players in the market are international oil and gas companies, energy companies, and RES equipment manufacturers. Funding for RES projects is usually provided by international financial institutions and development banks.

The Law on Support for the Use of Renewable Energy Sources was passed on 4 July 2009 and provides for a renewable energy auction process (which replaced a previous feed-in tariff system) to attract investment in the SERs. The last auctions were held in November 2021. An auction winner signs a 20-year power purchase agreement with the state-owned Financial and Settlement Center of Renewable Energy LLP (FSC). The FSC is the only buyer and buys all the electricity produced by the RES company.

The government of Kazakhstan has developed the following public support measures to attract investment in the renewable energy industry:

• Purchase of electricity guaranteed at auction price for 20 years
• Annual indexation of auction prices
• Investment preferences (tax breaks, state in-kind subsidies)
• Provision of government financial support to FSC
• Exemption from the energy transport charge and priority dispatch of electricity

Although the first target for shares of renewables in total electricity generation has been met, investors continue to worry about low auction prices and their sustainability, as well as inadequate indexation. Therefore, regulators in Kazakhstan continue to improve renewable energy regulations in order to reach the next target of a 6% share of RES in total electricity generation by 2025.

TRENDS IN REGULATION AND FINANCING IN AFRICA

While many African countries are dependent on fossil resources, the shift to green energy has progressed very rapidly over the past decade thanks to the wealth of renewable energy 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 global investments in renewable energy since 2000 have been 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 an average of 6.4% by 2050, according to the report.

Developing an adequate regulatory framework that prevents market distortions and encourages investment and innovation is key to attracting investment. Many African countries are developing fiscal and financial incentives, including tax and customs exemptions, for the early years of projects when they are “capital intensive” and require huge investments. Current regulation is very focused on the electricity sector, including tariff regulations, market rules and supply 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 to the country. Ethiopia has also ratified the New York Convention[3] in 2020, which aims to have foreign and non-domestic arbitral awards recognized and enforced and therefore to protect 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 electrical code which ended the monopoly of SENELEC, the national electricity company, and adopted new legislation establishing an energy regulatory authority responsible for overseeing the regulation of the energy sector.

Competitive sourcing programs have helped attract investors and funding by providing a transparent and predictable path to market, but they need to be supported 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 elements of a successful renewable energy project include consideration of local content requirements, grid access and renewable energy storage.

The availability of finance is also essential to achieve 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, financing is the biggest obstacle to ensuring Africa’s sustainable transition to large-scale renewable energy. To overcome 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 major providers of project finance. renewable energy in Africa.

Notable funding sources include the following:

1. Climate Investment Fund (CIF): Established in 2008, the CIF comprises four key programs – the Clean Technology Fund, the Forest Investment Program, the Pilot Program for Climate Resilience and the Energy Development Program renewables – the last two of which have specific objectives. mandates to finance the development of renewable energy projects in certain African countries.
2. Sustainable Energy Fund for Africa (SEFA): SEFA is a trust fund managed by the African Development Bank and supported by donors from the governments of Denmark, Italy, Norway, Spain, Sweden, United States and United Kingdom. SEFA’s objective is to support sustainable economic growth in African countries through the efficient use of currently untapped clean energy resources with small and medium-sized private sector-led projects needed to drive the continent’s transition to a more inclusive and green growth. SEFA finances projects of the order of 30 to 200 million US dollars.
3. Africa Renewable Energy Fund II (AREF): Having achieved its first closing in 2021, AREF is the successor to the Africa Renewable Energy Fund, which closed in 2014. AREF is a pan-African private equity fund managed by Berkeley Energy focused on infrastructure development and early-stage renewable energy projects (i.e. hydro, solar, onshore wind and energy storage). The fund will primarily focus on greenfield assets in Sub-Saharan Africa, but excluding South Africa.
4. Africa Energy Guarantee Facility (AEGF): The AEGF was launched in 2018 by the European Investment Bank in collaboration with Munich Reinsurance and the African Trade Insurance Agency as a dedicated risk-sharing facility. It supports private investment and financing in Africa’s energy sector and the development of sustainable energy infrastructure in Africa. AEGF provides investment insurance for power projects in Africa.

[1] Decree of the President of the Republic of Kazakhstan No. 577 of May 30, 2013, “On the concept of transition of the Republic of Kazakhstan to green economy”.

[2] Decree of the President of the Republic of Kazakhstan No. 636 of February 15, 2018, “On approval of the national development plan of the Republic of Kazakhstan until 2025”.

[3] Convention for the recognition and enforcement of foreign arbitral awards of June 10, 1958.

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