The Kazakh government's plans to commission over 30 domestic renewable energy projects by 2020 have led us to examine Kazakhstan's renewables industry and the opportunities for prospective investors. This is not the first time the country has shown an interest in diversifying its power mix towards alternative sources; however, we maintain our view that the business and regulatory environment remains relatively unattractive and, despite sporadic project announcements, we are yet to see widespread investment in the market. This is a trend we expect to continue unless the government implements a clear regulatory framework for renewables.
The Kazakhstan government announced at the end of January 2014 that it plans to commission more than 30 renewable energy developments (roughly 1,850MW of capacity) by 2020 - in a move that would help reduce the country's overreliance on thermal energy and help it achieve energy security. This is particularly pertinent as power consumption is set to increase robustly over the course of the decade, spurred on by positive demographics and promising economic prospects; boosted by its natural resource wealth (primarily oil, gas, coal, iron ore and other base metals).
Yet, while the country boasts some strong fundamentals, we believe it will find it difficult to attract private investment into the underdeveloped renewables industry, given the sector-and country-specific barriers that lie ahead of prospective investors. This is highlighted by our Renewables Risk/Reward Ratings (RRR) for Kazakhstan, which score the country relatively poorly across the board, particularly in comparison to the Central and Eastern Europe (CEE) regional average.
|Kazakhstan and CEE Regional Renewable Risk/Reward Ratings (Score Out Of 100)|
Dragging the industry risks and rewards scores down is the general lack of development across the renewables industry. A number of projects have been announced in recent years but progress has been limited in terms of bringing capacity online. The absence of a renewable energy framework, along with subsidies to attract developers, provides little incentive for investment and the relatively low level of liberalisation also weakens the overall outlook. The business environment remains challenging, as high levels of corruption and inefficient government bureaucracy present pertinent barriers to market entry.
That said, financing from international financial institutions and development banks is becoming increasingly available for renewable energy developments in Kazakhstan. For example, it was announced at the end of April 2013 that the Eurasian Development Bank (EDB) agreed to provide a 10-year loan of US$94mn to help fund the construction of a 45MW wind power project in the Akmola region ( see 'Headwinds Against Renewables Future', May 1 2013).
|Kazakhstan Wind and Solar Capacity and Non-Hydro Renewables Generation, 2013-2023|
Overall, we maintain our belief that renewable energy projects are likely to be sporadic developments, as opposed to part of a widespread investment trend within Kazakhstan. This is a pattern we expect to continue unless the government takes steps to improve both the regulatory and general business environment within the country.