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III International Business Festival on renewable energy SOURCES

Charter – appeal to the Government of the Republic of Kazakhstan

from the business community of the renewable energy industry on the further development of renewable energy sources in Kazakhstan (based on the results of the Solar Fest Qazaqstan event held on July 4-5, 2019 in the Burabay district of the Akmola region)

The business community of the renewable energy industry (hereinafter referred to as RES) supports the initiatives of the First President of the Republic of Kazakhstan – Elbasy N. Nazarbayev on the transition of the Republic of Kazakhstan to a green economy and sustainable development.

Today, more than ever, Kazakhstani society is aware of the great responsibility for the ecological future of our country and the health of the nation. In the Concept on transition to a green economy, one of the factors for reducing emissions of greenhouse gases and harmful substances is the adoption of renewable energy technologies. At the same time, currently there are constraints on the development of renewable energy on the market of Kazakhstan, which were discussed in details at the Solar Fest Qazaqstan event, resulting in the following recommendations to the authorised government bodies and the Government of the Republic of Kazakhstan for adopting these measures to improve the investment climate in RES industry.

  1. Affordable long-term financing in national currency from financial institutions is a decisive factor for the development of the renewable energy industry and the financial sustainability of projects in Kazakhstan.
    1. In order to reduce auction prices for renewables and the extent of their impact on the economy of the Republic of Kazakhstan, it is necessary to have available

long-term financing (up to 15 years) in national currency with a final rate of no more than 10% per annum. In order to achieve affordable financing conditions, it is necessary to consider the possibility of developing a targeted program to support financing of green investment projects, including the possibility of reducing the interest rate by providing preferential funding to financial institutions for green projects;

  1. We consider it worthwhile to study the topic of issuing long-term government “green bonds” as a tool through which the Government of the Republic of Kazakhstan will be able to announce to the international and national community about the course taken to a “green economy” focused on long-term and sustainable development. The funds received from the placement of “green bonds” most effectively can be used on a repayable basis to finance “green” economically viable projects related to renewable energy, energy efficiency and energy conservation, management of industrial and consumer waste, environmentally friendly transport and a low carbon economy as a whole.

2.  Stimulation of the adoption of small-scale renewable energy projects

The widespread adoption of small-scale renewable energy projects will not only contribute to the achievement of renewable energy goals, but also create attractive conditions for the development of private entrepreneurship and form a market for small-scale renewable energy projects.

At the same time, such projects are aimed at the use by both the urban population and enterprises – “RES for urban life”, and for the purposes of agricultural enterprises and households – “RES for rural life”.

Potential subjects of support may be::

  1. Individuals, households;
  1. Peasant farms;
  1. SME, social facilities (schools / kindergartens / hospitals).

Suggested support measures:

1) Institutional measures::

  1. Amendment of the legislation on support for renewable energy / tax legislation;
  2. Adoption of target indicators for the implementation of small-scale renewable energy projects in the context of regions and cities of republican importance;
  3. Making appropriate adjustments to the by-laws to simplify the procedure for grid connection of small-scale renewable energy projects;
  4. Recommendations on the development of standards for small-scale renewable energy projects, including on the application of renewable energy sources in the framework of energy efficiency measures.
  1. Financial measures:
    1. Target subsidies of up to 80% for individuals, up to 40% for Peasant farms of the cost of renewable energy technologies;
    2. Subsidising the bank rate on loans for SMEs for the installation and application of renewable energy technologies;
    3. Tax preferences for SMEs.
  1. Other measures:
    1. Information support measures: propaganda through pilot projects and demo installations in the regions of Kazakhstan;
    2. Development of estimated handbooks and standards for the design and operation of renewable energy technologies to simplify the procedure for the expertise and calculation of the volume of targeted subsidies.

Support measures are aimed at encouraging the use of renewable energy technologies for the following purposes:

  1. Heating and hot water;
  1. Power supply (development of distributed generation).

3.  Risks of solvency of conditional consumers

In accordance with the current legislation, conventional energy-producing organizations (hereinafter – EPO) are conditional consumers having obligations to purchase the full amount of electrical energy produced by renewable energy sources. The regulatory legal acts in force from January 1, 2019 (hereinafter referred to as RLA) governing the tariff policy of the EPO (“freezing” tariffs for 7 years) do not cover the cost of purchasing electricity from renewable energy, taking into account the annual growth of their share and indexation of RES tariffs, which in turn, creates the risk of further solvency of the financial and settlement centre.

It is required to improve/adopt changes to the regulatory legal acts regulating the tariff policy of EPO to stimulate the development of renewable energy sources and achieve the set target indicators.

4.  Sustainability of the financial and settlement centre for support of RES

The issue of financial sustainability of the “Financial and Settlement Centre for Support of RES” LLP (hereinafter referred to as FSC) has a serious impact on attracting investments in renewables and on the cost of such investments. In case of reducing the risk of insolvency of a single electricity purchaser, investors will be able to provide attractive prices for electricity at renewable energy auctions, which will positively affect the cost of the impact of renewable energy sources on the economy of Kazakhstan.

In this regard, the Government needs to develop a specific mechanism for ensuring the long-term sustainability of the FSC.

5.  Education. Training the personnel potential of the RES industry

To date, there is no demanded training program on renewable energy in the education system of the Republic of Kazakhstan, for both undergraduate and graduate programs. Thus, in the renewable energy market there is a huge shortage of local renewable energy engineers in the field of solar, wind, hydropower.

It is proposed to include in the List of groups of educational programs of undergraduate, graduate and doctoral studies (Appendices 1, 5 to the Model Rules for Admission to Education in Educational Organisations Implementing Educational Programs of Higher and Postgraduate Education) on the basis of a license for the study of “Engineering”.

Provide additional funding:

  • to modernise the material and technical base of universities in the field of renewable energy, in particular the increase in the number of laboratories,
  • to attract foreign academic teaching staff in the field of renewable energy,
  • to improve the qualifications of domestic teaching staff (in Kazakhstan and abroad) during two cycles of recruitment for undergraduate, graduate and doctoral programs, which in turn will improve the quality of educational programs, contributes to the expansion of international contacts of academic staff of universities, developing joint research projects with foreign scientists, increasing the number of publications in international scientific journals, improving the quality of scientific work, the introduction of joint with foreign partner universities double diploma master’s and doctoral programs, as well as forming the basis for further scientific and educational cooperation, and the organisation of additional educational services, training and stimulation of creative activity, etc.

It is also proposed the active implementation of the dual system in order to increase the practical component of education for applied bachelor degree and consider the possibility of increasing the size of the State educational scholarship for all levels of education for educational programs of the engineering path.

  1. Inclusion of renewable energy projects in the List of priority activities for the implementation of investment projects (GR RK No. 13 of January 14, 2016) as an additional measure of support in the context of annual reduction of renewable energy tariffs as a result of auctions.

Currently, in accordance with Articles 287, 289 and 290 of the Entrepreneurial

Code of the Republic of Kazakhstan, preferences are granted through investment contracts for investment projects in two modes: for investment projects (hereinafter referred to as IP) and for investment priority projects (hereinafter IPP), such as:

  • Article 287: The IPP and IP are exempt from customs duties through investment contracts for a period of 5 years;
  • Article 289: IPPs are ensured by the stability of tax legislation.
  • Article 290 (tax preferences)::
  • IPs are exempt from VAT on imports (12%), but only on imports of raw materials and/or materials within 5 years after the commissioning of the first fixed asset.
    • IPPs are exempt from:
  • corporate income tax from enterprises (20%) within 10 years after the date of signing the investment agreement;
  • land tax within 10 years after the date of signing the investment agreement;
  • property tax (0.5% – 2.0%) for 8 years after the date of putting the fixed assets into operation.

To date, renewable energy projects are only included in the list of investment

projects and are entitled to apply exemption from customs duties and import VAT. However, given the particularities of renewable energy projects, such projects do not import raw materials and/or materials after commissioning the power plant. In other words, the provided IP regime does not bring any value and does not apply to renewable energy projects, except for exemption from customs duties, which can be obtained regardless of the investment contract in normal conditions in accordance with Article 190 of the Customs Code.

Taking into account the fact that the tariff for the purchase of electricity from renewable energy will decline from year to year as a result of the introduced auction system, as well as due to the low profitability of renewable energy projects for the first 8-10 years, there is a risk of losing investor interest in renewable energy projects.

Thus, additional measures are needed to support investors, which will ease the tax burden on investors, and accordingly make the industry more attractive for investments. The cost of capital investments in the construction of renewable energy facilities is estimated at more than 500 billion tenge to achieve the state’s set goals of a 3-5% share of renewable energy in total electricity production.

Taking into account the above, and emphasising the importance of developing renewable energy sources in the country, Kazakhstan’s commitments to reduce emissions to the environment at the Paris Conference, as well as the target indicators set by the President of the Republic of Kazakhstan in the concept of transition to a green economy, we ask the Government of the Republic of Kazakhstan to support and assist in the inclusion of renewable energy projects in the list of investment priority projects as a measure to support the further growth of the renewable energy sector, including by attracting serious investments in the country.

The business community of the renewable energy industry – participants of the Solar Fest Qazaqstan, under the auspices of the Solar Power Association of Qazaqstan, is ready to actively participate in the consideration and discussion of possible ways to implement the above measures together with the competent government bodies of the Government of the Republic of Kazakhstan.