On the road to a green economy: improving legislation on renewable energy sources – Energy and Natural Resources

The adoption of the law “relating to support for renewable energies” in 2009 created favorable conditions for sustainable development, the diversification of the energy sector and the development of renewable energies (RES).

However, investors have suggested certain changes to the legislation based on international best practices to reflect the current state of the industry. Here are some suggestions given so far.

Auction qualification requirements

Bidder qualification requirements determine which vendors are eligible to participate in the auction, including the conditions they must meet and the documentation they will provide prior to the auction. An important aspect of the requirements for large RES projects is the relevant experience of a potential developer.

Currently, in accordance with the legislation of Kazakhstan, to participate in the auction, participants confirm the qualification requirements only for legal capacity providing copies of articles of incorporation, certificates of state registration/re-registration, legal entity details, and application fees for auction participation.1 In addition to the documents, a bank guarantee is required.

As auctions for renewable energy sources generally do not require qualification based on experience, we refer to international practice to examine the advantages and disadvantages.

According to international practice, qualification requirements in terms of experience include the analysis of the following documents:

  • experience in the development of RES installations;

  • experience in operating RES facilities;

  • experience to attract similar amounts of funding.

For example, during the auction organized by the Moroccan Association for Sustainable Energy (MASEN) in 2011, the following experience criteria were taken into account:

  • the candidate company must have experience in the development and operation of a solar power plant with a minimum capacity of 45 MW;

  • no penalties or damages incurred for delays or improper performance;

  • experience in thermal power projects: the candidate company must have experience in the development, operation and management of thermal power plants in the last ten years of at least 500 MW in total, of which at least 100 MW over the past seven years.2

Overall, stricter qualification requirements ensure that the state will have qualified bidders, resulting in better infrastructure in the form of renewable energy sources such as solar, wind and hydroelectric power plants.

However, we note that it would be desirable to balance the implementation of qualification requirements in order to mitigate the risk of barriers to entry for new players in the renewable energy market.

Investment attractiveness

Direct tuning

A direct agreement is a special tool that allows project lenders to claim the position of borrower/sponsor in the event of contractual default, which would otherwise give the project implementer the right to terminate or suspend the contract in question. .

For the financing of RES projects, it is desirable to have an explicit agreement that allows lenders to replace the seller in the event of serious breaches of the power purchase agreement (PPA). As a result, lenders can find a solution that allows them to safely continue building or operating a power plant; otherwise, the project becomes non-viable.

We specify that the direct agreement must be regulated in detail. There should be provisions such as notices to creditors, extension of repayment periods, rights of intervention and the right to novate the PPA in favor of the replacement organization.3

Change in law

It is common worldwide practice for commercial contracts to contain a boilerplate change of law clause that guarantees some compensation in the event of such subsequent negative impact on a party to the contract.

Although the provisions of the Civil Code of Kazakhstan guarantee the stability of contracts, they do not apply, for example, to tax, customs, monetary and other issues related to the performance of contracts and closely related to the performance and contract results.4

To date, electricity producers have not been assisted in the event of unfavorable changes in legislation or regulations. This support should take the form of an adjustment of the PPA tariff in order to maintain economic balance, ensuring that no profit or loss is incurred by the producer as a result of changes in legislation.

Furthermore, we note that in addition to the above-mentioned aspects of SER regulation, the improvement of the PPA model contract provisions by the Financial Settlement Center, changes in tariff indexation and other aspects need to be addressed.

The legislative framework for RES is improving year by year, and we hope that this trend will have a positive impact on the overall development of the RES market and help Kazakhstan on the path to a “green economy”.

Footnotes

1. Order of the Minister of Energy of the Republic of Kazakhstan of December 21, 2017 No. 466 on approval of the rules for the organization and conduct of auctions, which includes the requirements for qualification of auction bidders, content and procedure submission of an application, types of financial guarantees for the auction and the conditions for their payment and restitution, the procedure for summarizing the results and determining the winners.

2. IRENA, Renewable Energy Auctions: Design Guide, irena.org/RE-auctions guide

3. Understanding Power Purchase Agreements, Second Edition, page 87

4. “General questions of contractual stability in civil law and conditions of stability in contracts of subsoil use”,
https://online.zakon.kz/Document/?doc_id=31505542&pos=4;-111#pos=4;-111

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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