From 1 July 2023, a number of innovations for reforming the electric power industry have been introduced in Kazakhstan – most importantly, introduction of the “single buyer” model and launch of a real functioning balancing market.

The changes primarily aim to ensure Kazakhstan’s energy security, eliminating speculative operations in the electricity market by excluding redundant intermediaries and setting market prices based on objective factors.

We will focus on the key changes, including those affecting renewable energy sources (RES) projects.

1. Wholesale electricity market

The main change impacts how the wholesale electricity market operates. Energy-producing organizations (EPOs) now have only three ways to sell the electricity they don’t use for their own needs:

• Sell to Kazakhstan’s state-owned single buyer of electricity, the “Financial Settlement Center for Support of Renewable Energy Sources” LLP.
• Sell to consumers forming part of the same group of persons with the EPO (based on the direct or indirect control principle), i.e., legal entities buying electricity for their own needs without the purpose of resale.
• Sell to digital miners – EPOs can sell electricity to these miners only if their generating units are not connected to Kazakhstan’s unified electric power system¹, which must be confirmed by “KEGOC” JSC (this mode has been available from 1 April 2023).

In order to have access to the Wholesale Market, EPOs and other participants will be included in the list of wholesale electricity market participants approved by the system operator. Participants must enter into a number of contracts within the system services market to be included in this list.

The reverse side of the coin, the decentralized market as a separate option for electricity trading, is excluded. Under the decentralized market, EPOs could previously enter into corporate power purchase and sale agreements (Corporate PPAs) with any consumer that was a wholesale market participant. Under the changes, this opportunity will only remain available for RES-using EPOs that do not sell electricity to the state-owned single buyer at fixed tariffs or prices set based on the results of winning auctions for the sale of electricity.

2. Balancing market

The balancing market, which has been functioning in simulation mode (i.e., without actual financial settlements) since 2008, will start working fully in real-time mode. Depending on the imbalance values (i.e., the difference between the planned and actual electricity generation-consumption balance in kWh), different scenarios can take place in relation to participants of the balancing market.

Below we outline the key principles of balancing market functioning:

• Balancing market participants responsible for a positive² imbalance³ (e.g., if the EPO produces less electricity at a certain hour of a current (operational) day than planned, or if the planned generation indicators note that more electricity is consumed than planned) will be required to buy balancing electricity only centrally through the settlement center of the balancing market (“KOREM” JSC) on the basis of standard forms executed with the settlement center (i) an agreement for the sale and purchase of balancing electricity and negative imbalances and (ii) a connection agreement.
• Balancing market participants responsible for a negative imbalance⁴ (e.g., if the EPO produces more electricity at a certain hour of a current (operational) day than planned, or if the planned generation indicators note that less electricity is consumed) will also be required to sell negative imbalances⁵ only centrally through “KOREM” JSC, subject to the execution of the agreements indicated above.
• Balancing market participants have a right to transfer responsibility for the purchase and sale of balancing electricity and negative imbalances to the balance provider⁶ under a responsibility transfer agreement to be executed in accordance with the civil legislation of Kazakhstan (its standard form is not approved). The participant may act as a balance provider within one balancing zone. For doing so, the balance provider will receive payments specified in the responsibility transfer agreement from the participant.
• EPOs implementing RES projects that have entered into a PPA with the Financial Settlement Center for Support of Renewable Energy Sources” LLP based on the result of auctions (Auction PPAs) after 1 July 2023 must enter into a responsibility transfer agreement with the single buyer and buy balancing electricity from it or sell negative imbalances to it. Financial settlement of electricity imbalances under auction PPAs executed before 1 July 2023 will continue to be handled by the FSC and will be compensated by conditional consumers (i.e., traditional EPOs using coal, gas, etc.) as part of the RES support tariff.
• EPOs implementing RES projects and that have entered into a Corporate PPA will participate in the balancing market on the same terms as other balancing market participants and will be financially responsible for their own imbalances.

These changes create various opportunities to participate in the balancing market. To do this, participants have a right to bid for upward balancing or downward balancing to “KOREM” JSC.

• Upon activation of an upward bid, the participants sell balancing electricity (i.e., electricity intended to replenish positive imbalances) to “KOREM” JSC.
• Upon activation of a downward bid, participants will have to make a planned positive imbalance (e.g., the consumer must ensure the consumption of electricity, taking into account the amount of the electricity declared in the bid at a certain hour of the current (operational) day specified in the application).
• The marginal tariffs for both the sale of balancing electricity by “KOREM” JSC and the purchase of negative imbalances from “KOREM” JSC will be the same for all balancing zones and determined by “KOREM” JSC. For example, the marginal tariff for negative imbalances will be determined as the lowest marginal tariff for electricity established in the unified energy system of Kazakhstan.

We regularly monitor legislative updates and will keep you informed. If you have any questions, please don’t hesitate to get in touch with us.

1. Save for EPOs whose generating units were connected to a single electricity system before 1 January 2023.↩
2. "Positive imbalance" - an imbalance whose value is greater than zero (not negative) in kWh.↩
3. “Imbalance”- the difference between the planned and actual balance of generation-consumption in kWh.↩
4. “Negative imbalance” - an imbalance whose value is less than zero (negative) in kWh.↩
5. In fact, “to sell a negative imbalance” means the obligation of a participant responsible for such imbalance to compensate (through “KOREM” JSC) the costs of a participant that technologically has the ability to reduce its own generation.↩
6. Balance provider - a wholesale market participant that has assumed responsibility for financial settlement on the balancing market of its own imbalances and imbalances of other participants of the balancing market.↩