Good morning my name is Sarah Lawson. I'm a senior energy analyst at the U.S. Agency for International Development also known as USAID. I work with foreign government counterparts globally and USAID missions on electricity policy issues and particularly on renewable energy auctions. I'm pleased to welcome you to today's webinar: Kazakhstan Energy Diversity Through Renewables. This is the second in a series on USAID energy auctions webinars. Renewable energy auctions can be a powerful tool to scale up renewable energy through enterprise driven development. Open, transparent, and competitive renewable energy coupled with declining prices for solar and wind technologies have facilitated billions of dollars of investment at record low prices all over the world. In 2019, 109 countries around the world held auctions, up from in 2018. So that's a lot of countries. During this webinar we will explore how Kazakhstan designed a renewable energy auction program that both diversified the country's energy mix and attracted private investment while achieving low prices. We'll talk about questions such as how to get stakeholder buy-in to transition from feed-in tariffs to auctions, create favorable conditions for private sector investment, design an auction for a country that has over generation of fossil fuels, test the market, limit exposure, and increase competition through auction sizing and design, as well as systematically address integration challenges for renewables in the short, medium, and long term. This will be an ambitious webinar. A few housekeeping items to mention before we begin. Please write any questions you have in the chat box at the bottom of the screen. We're now all very familiar with this during pandemic times. Feel free to ask questions throughout the presentation. We'll address them at the end during a Q & A session and we've dedicated some time for that. So please do prepare your questions. At the end of the session, at the end of the presentation we'll have a discussion session we can ask you to participate in. If you'd like to participate, please raise your hand, we can unmute you or we can just ask a question that you've posed from the chat. This webinar will be recorded and it will be available on the training sections of the USAID Renewable Energy Auctions toolkit. We've designed this toolkit so that it helps serve you policy makers, international development professionals, and energy stakeholders. Who are designing and implementing auctions. It's a gateway to all of our USAID auctions material including white papers, guides, training materials, PowerPoint presentations, and sample auctions documents. Visit usaid.gov/energy/auctions for more information. Today's webinar will include remarks from Patrick Meyer USAID Central Asia Regional Mission Energy Advisor and Sergey Yogan USAID Central Asia Regional Mission Energy Project Specialist based in Almaty. They will share some insights on the country context as well as challenges and opportunities of the energy sector in Kazakhstan. Next, we'll hear from Bayan Abylkairova Deputy Chief of Party for the USAID Power of the Future Program and Allen Eisendrath Tetra Tech projects' Energy Advisor. The presentation will be followed by discussion and Q&A as I mentioned. Bayan Abylkairova is the Deputy Chief of Party for USAID Power the Future which is a program implemented by USAID Central Asia Regional. She has 17 years of experience working with government, IFIs, and international consulting firms. As a policy institutional expert and project manager she was involved in the development of the energy efficiency law in Kazakhstan and she helped to design and implement Kazakhstan's renewable energy auctions. She received a Master of Laws degree from the University of Manchester United Kingdom. Allen Eisendrath is a Tetra Tech Energy Advisor. After a long career with USAID working on energy, climate change, and infrastructure projects Allen now provides strategic guidance on energy and infrastructure reform, privatization, and finance. He has advised the government of Kazakhstan on energy sector issues since 2004 and advised on the auctions program since its inception in 2017. So, without further ado I will turn it over to Patrick. Thanks, and I hope you enjoy the webinar. Hi everyone, my name is Patrick Meyer. I'm an energy advisor with USAID's Central Asia Regional Mission based in Almaty. I'd like to take a few minutes to tell you about our energy portfolio in Central Asia. USAID is a leading international development agency working in environment, water, energy, health, private sector engagement, and numerous other areas. Energy is one of our most critical sectors in Central Asia. Over the last six years or so Central Asian countries have announced a wide range of new energy priorities to promote energy security and economic growth. These include reducing carbon emissions, increasing renewables and efficiency, increasing energy exports, and reducing subsidies. USAID assists Central Asia to realize these goals through a number of different projects and partnerships. We also work very closely with other donor agencies and with international financial institutions. So through these platforms we're enabling Central Asia to scale up low-cost renewable energy and increase energy efficiency we do this by implementing specific interventions such as power purchase agreements, planning for lease cost generation, and launching a trading platform for competitive auctions. The reverse energy auctions are one specific intervention but represent really only a piece of a much larger platform we have in this region. For a broader context we also are working to build a modern and efficient regional power system and market. We're promoting the establishment of a regional electricity market that would be capable of providing lowest cost electricity to consumers and enhance overall energy security. We're also enabling the trade of electricity beyond the borders of Central Asia by contributing to the 1.2 billion dollar CASA 1000 project that will deliver 1300 megawatts of hydropower from Central Asia to South Asia. This is a large infrastructure project that will build transmission lines to transport hydroelectric power from Tajikistan and Kyrgyzstan to Pakistan where it's needed the most. The project also includes Afghanistan as well but while Afghanistan will not receive or sell power they will receive transit fees for maintaining the section that passes through their country. Through this work USAID and other donors are transforming the region's electricity system by enabling valuable foreign exchange revenues for the people of Tajikistan and Kyrgyzstan providing clean, reliable energy for the people of Pakistan. So now coming back to Kazakhstan, I'll mention that we're also partnering with the leading regulatory agency of the United States, NARUC, and transferring their knowledge to Kazakhstan and throughout Central Asia to strengthen the capacity of energy sector regulatory authorities. This will help the region's regulatory agencies effectively discharge their own mandates, create an enabling environment for investment, protect consumer interests, and develop clean energy capacity and policies. We're also partnered with an association of U.S. private energy companies, USEA, and engage in capacity building to strengthen utility employees throughout Central Asia enabling them to effectively manage their own power systems and run financially viable businesses. Importantly both of these partnerships will enable Central Asia countries to work together to realize their goal of a regionally interconnected energy system. Lastly we're very proud to announce that tomorrow, October 1st we're launching a new five-year 39 million dollar flagship energy activity called Power Central Asia. This activity will assist all five Central Asian countries built upon more than a decade of USAID intervention in this sector and aim to liberalize and reform the region's electricity markets. It will also develop new clean sources of energy in Kazakhstan and throughout Central Asia and strengthen the regional power market. Most importantly Power Central Asia will significantly enhance the Central Asian countries and the U.S. Government's goals to establish a regional energy network with cross-border trade. This network will be based on open data sharing on uniform cyber security protocols and on harmonized standards, and this will bring reliable and affordable energy for millions of people across Central Asia. So, while we're here today to talk about renewable energy auctions, I wanted to give you that broader perspective of how the auctions fit into USAID's regional energy portfolio. And with that, I'll turn it over to my colleague Sergey Yelkin to provide greater details on Kazakhstan's power sector. Thank you. Thank you, Patrick. So in my presentation I would like to focus and basically respond to three questions. What is the status of an economic and power sector in Kazakhstan; why Kazakhstan deploys renewable energy; and how USAID provides assistance. So, next slide. Kazakhstan - it's a pretty small country. So about 18 million population but from Soviet time until now it's continued very intensive exploitation of mineral resources and fuel resources. We have an enormous deposit of coal, oil, natural gas, uranium, and most of them, it's exported. About 80 percent mineral resources go to export; 60% of oil and gas. Actually, it's great to have a lot of mineral and fuel resources but it creates a significant problem for Kazakhstan, for economics. A budget is vulnerable from dependence on price fluctuations and also generation capacity in Kazakhstan based on cheap coal thermal power generations. Next slide. And it creates not only economic and budget issues, but also significant environmental pollution. According to some statistics about 80 percent of the territory of Kazakhstan is under degradation and every year about 40 million tons of industrial and household waste generated in our country total accumulated about 22 billion tons of waste in the country. And at some point, people understand – our government understands - it's not, it's not sustainable in the long term and we have to do something also additionally to this about 230 million tons of CO2 emissions with 80 percent from power sector generations in Kazakhstan. The Government of Kazakhstan decided to change this approach and develop a number of national policies regulations to fix this situation. For the next slide you can see that Kazakhstan developed a long-term national strategy 2050 that provides some goals and targets to develop a green economy in Kazakhstan. Kazakhstan developed accelerated industrial strategy to shift from heavy industry, from fuel industry to more appropriate, more attractive for population and for economy and Kazakhstan actively participates in international conventions like a Ratified Kyoto Protocol at some point, Kazakhstan actively participated in Paris Agreement and make national determined contribution to reduce emissions by 15 percent or by 25 percent depend on conditions. Also, Kazakhstan developed a national power sector strategy to shift from coal to more efficient, more reliable, more sustainable energy. In 2009 Kazakhstan signed adopted law on energy efficiency and energy saving In 2009 law on renewable energy and particularly in renewable energy, Kazakhstan focuses on development of renewable energy auctions. On the next slide you may see the power sector structure in Kazakhstan which you see that about 80, more than 80% of generation is coming from coal, 8% from gas, 9% from hydropower and a little more than 1% from renewable energy but despite of this current situation Kazakhstan developed a very ambitious goal to generate about 10% of from renewables in 2030 and achieve 50% in 2050. Kazakhstan is moving in these directions. There are a number of barriers but Kazakhstan tried to overcome this. You may see on the next slide some statistics; what was in Kazakhstan in 2014 in terms of renewable energy. We had only 26power plants, a little less than 200 megawatts. But after six years, it's more than 100 facilities generating renewable energy and generating different technologies on wind, small hydro, and solar, biomass. Actually, progress and success of this achievement depends on high governmental policy and support and also contribution, actively contribution with donors. In 2000, during a number of years USAID provided assistance to Kazakhstan power sector. We had a program to support energy efficiency. We had a program too for climate change mitigation and in 2007 we started a new program, Power the Future. Actually, success of this development depends on broad cooperation with national counterparts and in donor communities. On the next slide you may see details of the Power the Future goals and tasks We actively work with Asian Development Bank, with European Bank of Development, in reconstructions. Actually, you said you play a key role in this development. Actually, several tasks, key tasks, for our program are support policy and regulatory development, strengths and power sector planning, ability to improve renewable energy forecast and grid integration and enhance cooperation with other countries in Central Asia. One of the key aspects from this number of tasks is to support renewable energy excellence. On the next slide you may see how Power the Future provides assistance to these auctions. We help to develop renewable energy rules and regulations with national counterparts and developers. We created an IT platform to conduct electronic trade and also, we developed an investor's guide and a number of workshops, seminars, public hearings for people to explain what's the opportunity and how to enroll. As a result of these activities you may see on the next slide that during auctions conducted in 2018 and in 2019 49 projects adopted with a total amount of more than one thousand megawatts and the most interesting that about 145 companies participated in these auctions from 12 countries and the most significant component and success of this auction, the price decreased for wind and hydro by 23-25 percent and for solar by 45-46 percent. There is significant support to consumers in Kazakhstan and two developers to decrease tariffs for final consumers and based on these auctions, the success of these auctions Kazakhstan plans to conduct additional auctions in this year for about 250 megawatts and also to expand this experience to other countries. For example, Uzbekistan, our neighbor is very interested to use these lessons and experience and planning to develop renewable energy auction policy in their country. So I think actually what, some kind of other conclusions why Kazakhstan achieved this significant result. There are three factors. First, it's a clear national policy to support renewable energy. Second is we have a number of national champions who spent a lot of time and efforts to develop this from - actually – scratch to very good success. And also, the last one is donor community support. So I think I will stop on this and thank you for your attention. If you have any questions, we can respond later and now I can give the floor to my colleagues Bayan Abylkairova and Allen Eisendrath to continue in detail describing the renewable auctions system. Thank you. Allen and Bayan, are you all ready to go? Okay please next slide. Okay I'll start out by talking about the drivers of the auction program. The Kazakh auction was unique in that the country started out with very low-cost coal generation and a large surplus of generation capacity. In Kazakhstan coal generation is 2 to 2.3 cents per kilowatt hour whereas the feed-in tariffs for renewables were high. They were between six and nine cents a kilowatt hour. So a lot of people considered renewables a very expensive and unnecessary resource. So then, given the fact that they had too much electricity at cheap prices, why did the government decide to begin an auction series? Well they did it first to build the RE industry. It takes time to build a new industry. Everyone knew that eventually the Soviet coal plants should be replaced or renovated. Some of them were 60 years old. They wanted to establish a downward price path for renewable energy. Everyone knows that the first auction typically is about 30, 40, 50 below the last feed-in tariff but every auction that you hold for several years usually declines and finally, the transmission folks wanted to gain experience with grid integration. Next. Now I want to impress on you that Kazakhstan has incredible wind resources. This was very widely known. A lot of donors had funded renewable resource mapping exercises and as you can see from those dark areas and the red areas, a huge area of Kazakhstan has very high wind resources. Next slide. So for the renewable energy geeks in the audience, here you probably are thinking, well what are the capacity factors that they could get? Kazakhstan has many regions. This is just a small sample where the capacity factors for wind are above 45 and they even have some areas that reach 55. So they have a tremendous wind resource. Next. Okay so I gave you the rosy picture. Let me tell you the less rosy point of view. There were many barriers to Kazakh auctions. Starting at the bottom, the macro factors. Kazakhstan has a low credit rating, a triple B by fitch and the local currency, the tenge, had depreciated very heavily since 2008. It went from 118 to the dollar to 446. So there was a huge currency risk there. Investors said that term financing, that is financing for five to ten years, was just not available. In addition, there was a strong opposition by the coal industry. They said, "Why do we need renewables? We've got enough cheap coal generation." The IFIs said nobody's going to bid unless you give them very favorable terms: 100% foreign exchange indexation, sovereign guarantees, and foreign arbitration. In addition, the generators were told that they had to buy the renewable energy but they couldn't pass the full cost to their customers. So, they lost money on every kilowatt hour. And then Kazakhstan was known as a place where there was general investor concern about transparency. So the investors had to climb a mountain of barriers. Next. So one of the first things that the government did - and I would recommend that you consider this in the countries where you are working - is they had a very careful and deliberate design process. The go-ahead decision considered all of the key questions. In addition it involved all of the stakeholders including the party that would buy the electricity, the transmission company, the Ministry of Energy, parliament, the market operator, private investors, developers, and international lenders. So they really brought everybody in to the table for a careful process of designing the auction. And then in the end the senior officials in the Ministry of Energy and the president himself decided to go ahead. Next. So here I'll turn it over to Bayan. Would you like to pick it up here? Bayan are you there can you hear me okay? Thank you Allen and hi everyone. I'm very pleased to participate in this webinar and thank you for USAID and for SURE for this opportunity and inviting you to participate for this webinar and to share experience on renewable energy auctions in Kazakhstan. I will briefly introduce the key government support measures, the key features of Kazakhstani auction mechanism, auction results for the last two years, and plans for auctions of 2020, some components of renewable energy auction rules and procedures and key elements on PPA and some brief summary on the takeaways from auctions in Kazakhstan. As Sergey already mentioned the first renewable energy law in Kazakhstan was adopted in 2009 and since then the legal institutional and regulatory framework has significantly improved. Today government policy includes the several renewable energy support measures. First of all it established a single buyer, the financial settlement center, that is obliged to buy electricity from renewable energy generators and the financial settlement center sells it to traditional generators in proportion of their volume of their electricity generation, of their traditional conventional electricity generation. We have established feed-in-tariffs then renewable energy generators are exempted from a payment for electricity transmission services. They have priority dispatch for renewable energy generators. Also, there is a requirement that transmission companies cannot refuse to connect a renewable energy facility with the reference to network unavailability; the transmission company bears the expenses for the network reconstruction and expansion if the renewable energy plant needs to be connected to the transmission lines. Through the auctions, they also proposed land plots and grid connection points and they are reserved for renewable energy auctions. Legislation also identifies some investment preferences under an entrepreneur code where some taxes can be eliminated. We have PPA for 15 years which is concluded with a single buyer financial settlement center and also the annual indexation of tariff considering the exchange rate and consumer price index. As it was already mentioned that in 2017 the government decided to move from feed-in-tariffs to auction mechanism and USAID together with IFIs provided assistance in this work and before I continue I would give something brief, I would like to give some brief key features of Kazakhstani auction mechanisms. At least three months prior to auctions, the government has to publish auction schedule and this schedule has to include the renewable energy technology, the megawatt capacity, the auction day, the ceiling price, the project size, whether it is small or large, the auction type, and the information available on land plots and grid connection points and the other information. Auctions are held by zones. The Kazakhstan power system is divided into a unified power system Kazakhstan is divided into northern, western and southern zones. Auctions are held separately for different types of renewable energy technology. There are two types of auctions with documentation and without documentation in terms of installed capacity. As I said there is another classification. Auctions can be - the projects can be large and small. The auctions for small projects are up to 10 megawatts and large projects are over 10 megawatts. The primary financial eligibility condition is the bid bond financial guarantee for participation in the auction and it must be provided in the form of a bank guarantee or it can be the credit letter issued with a swift system. Auction ceiling prices are set by the Ministry of Energy and for example in 2018 the first ceiling price for first auctions was established at the level of feed-in-tariffs and for this year in 2020 the auction ceiling prices are set at the level of maximum auction prices by types determined as a result of previous year auctions. The auction mechanism, it is a reverse auction with main selection criteria is the lowest price. There are two conditions that make auctions valid. First, at least two participants in the auction must participate and the total amount of bids should be more than 130 percent of the proposed capacity. The new feature for this year is that for last condition, this 130 percent of proposed capacity, does not apply to auctions for biomass and hydro projects. It means that hydro projects, biomass have a priority for support. I just want to make sure we are on the correct slide. Actually I cannot see my slide but it should be a result of 2018 auctions. I don't know if I see there we are okay so just let us know when we should go to the next slide. Yeah perfect, thanks man. As you can see from this slide in 2018 there were 20 auctions organized by the auction organizer for a total capacity of one thousand megawatt. It was mostly wind and solar despite the fact that seven auctions were invalid due to insufficient number of bidders or insufficient capacity of applications. Still 36 renewable energy projects for more than 800 megawatts were selected as a result of successful auctions and we achieved considerable price reduction for wind and hydro. The lowest proposed price was about 23 percent or for solar it was 48 percent lower than the starting ceiling price. And as far as we know the most of all PPAs almost all PPAs were signed and the projects are under implementation. Let me highlight here for auctions 2018, as many auction participants came with their own projects developed under previous feed-in-tariffs. But since for some reasons they could not get feed-in-tariff or they couldn't timely start or complete their projects, the feed-in-tariff projects, they got a chance to continue development and construction of their projects under auction price. This was a unique feature of auctions 2018 and this is why we got these auctions were successful and the big number of projects were auctioned. Next slide please. For results of auction 2019 there were eight auctions, total capacity was 255 megawatts and 13 projects were selected and prepared or signed. Two main aspects for auctions of those to 2019 I would like to point out here. As I said that in 2018 many auction participants and bidders came with their own projects with land plots and grid connections and most of those proposed by the government planted grid connections were not in demand and the government decided to introduce project site-specific auctions more developed with prepared documentation. It means that potential investors are provided with the package of project documentation with the pre-feasibility study, with the market research, resource potential assessment, pre-feasibility study, initial environmental impact assessment, land application specifications, and cost for its purchase or lease and the grid connection and power distribution schemes and all technical documentation required for the renewable energy project development. First auction, such auction held in 2019 was a 50 megawatt solar plant in the Turkistan region. There were seven companies from six countries. Starting auction price was about 7.7 U.S. cents and the minimum proposed price was 3.3 U.S. cents, which is still lower than the prices we got in 2018. I think it's important here to mention that the winner of this auction was ENI, an Italian oil and gas company and it shows the oil and gas companies dominating the energy sector in Kazakhstan are diversifying their energy portfolio and adding renewables to their portfolio. ENI is not the only company, oil and gas company implementing renewable energy projects in Kazakhstan they have already two projects to win, projects in the October region for - I think - a total 100 megawatts and we also have Total, and Shell implementing renewable energy projects in Kazakhstan. The second point that I would like to highlight here is, as you can see if you compare the capacity volume, the total installed capacity proposed for auctions: 1000 in 2018 and only 255 in terms of 2019 year. The reason for that was that the system operator raised concerns about the grid integration and power system stability issues in relation to increased volume of variable renewable energy. For example with USAID assistance at, it started a couple of years ago, one year ago and it's still in the process, the system operator and together with USAID assistance implementing great integration studies and for for some issues of great integration the government decided to reduce the capacity quota and provide 255 megawatts for last year auctions. Next slide please. Auctions 2020, and for this year there also will be 250 megawatts for eight auctions. You can see here that two auctions will be site specific auctions with documentation where two solar projects with 20 megawatts each will be proposed for investors. Both projects are located in the south of Kazakhstan and the single buyer, the financial settlement center, is contracted by the design institute and the development of the project previously documentation is in process. USAID Power the Future program is providing continuing support for auctions and we are participating in webinars for investors together with key stakeholders of the power sector. Next slide please. Here I would like to provide some components of renewable energy auction rules and procedures. There is a certain process established by auction organizer, KOREM, Kazakhstan Electricity and Power Market Operator, the KOREM provides electronic trading IT platform for auctions and during the design of auction process there was a key target to ensure the transparent process for this selection of renewable energy projects and winners. In this regard the auction rules describe the renewable energy auction schedule, content, qualification requirements, list of submission documents in the application process, types of financial guarantee, bid submission, the winner selection process, and many other rules and to make. Next slide please. Training of bidders. To make sure that bidders know how to register and submit their documents, how to participate in auctions in trading sessions, and submit their bids, the auction organizer KOREM provides special training for bidders. For these trainings, bidders need to conclude an agreement with KOREM and pay a certain service fee for the training. At the same time bidders can learn independently from renewable energy auction operational manuals or guidelines that specify all the details regarding auction procedures. All these documentations were developed by KOREM and with USAID assistance. Next slide. Here, content of renewable energy auctions of auction bids without documentation. As I already mentioned one feature of renewable energy auctions in Kazakhstan is that the Minister of Energy introduced the main types of auctions. The two types of auctions: auction without documentations and the site specific auctions with a main project documentation developed in advance. Auction rules in this regard have different requirements for these two types of auctions and different application requirements. Also there are different amounts for auction financial guarantee for bid bones and differences in other requirements. For example if we can consider auctions without documentation, investors leaders could choose from those land plots and grid connections proposed by the government. For the auctions but they also could come with their own projects developed with their own land plot, with their own grid connection, as long as they feed the auction capacity limit. Next slide here. Auctions with documentation. I would only highlight here that the winner of the auction has to buy this documentation from a financial settlement center and as a single buyer and reimburse the full cost of the project documentation including taxes. Next. Auction trading day. The auction process includes a three-hour process from 2 p.m to 5 p.m Noor Sultan time. At the same time the interesting innovative feature here is that the main time of the trading session lasts one hour. If for example after 55 minutes from the start of the trading session nobody submits the bid with a lower price than already submitted then the organizer closes the trading session and defines auction results. But if after 55 minutes there is a bid submission with a lower price, then the trading session is extended for another five minutes and following this rule, the trading session is extended each time for five minutes when the minimum price bid is received from the bidders and of course within the three hours. This rule of one hour with five minutes extension was introduced in 2019 based on the experience and analysis of the auction process of 2019 auctions. For example when I participated in the auction as an observer at the beginning it was a three hour trading session and at the beginning nobody submitted their bids and only at the last hour of the session, the auction participants became more active and they started to submit their bids and the real competition happened. In the last hour of the three-hour trading session so based on that the government, the Minister of Energy improved the auction process and introduced the one hour with five minutes extension rule to last year's auctions. Next slide please. Bid submission terms. As I already mentioned the auctions, as a reverse auction mechanism, the prices can go only down and the proposed bid cannot exceed the starting auction ceiling price and the bidder can change it only downwards and follow certain price change steps. For this year and last year it was 5 per one kilowatt hour and for the first year in 2019 it was one per kilowatt hour. So again I'm just saying it to show the evolving process of auctions from one year to another year. Each year in 2018 in 2019 and for 2020, the auction rules were improved based on the monitoring of the experience and analysis of the previous auctions. An interesting feature here is that bidders can see on their screens the lowest price proposed by other bidders and so based on that they can make a decision whether they want to apply the smaller price or not. Next slide please. Observers to ensure transparency of each auction. The government decided to establish an observer's council - observation council which includes representatives from the government renewable energy association, power sector associations. They were represented by Kaz Energy, from the Kazakhstan Electricity Association and also representatives from institutions like UNDP, USAID, EBRD, ADB and others. So the total number of observers shall not exceed the eight people. So usually it was, seven eight, people the main role of observers is to verify the list of bidders that provide financial guarantee. We do it at the beginning of the trading session and we check this list and to check if they provided financial guarantee and then they become eligible to participate in the trading session. Observers also have to observe the transparency, to ensure transparency of trading sessions. They check the auction organizer's actions if they behave, they conduct auctions transparently. For example when I participated as an observer in several auctions we were not allowed to use our phones. We were close to one trading room for three hours. At the beginning it was three hours and we could not leave the room until the auction organizer finished the trading, completed the trading session and announced the auction results. On the auction screen, we as observers, we could see the bidder's name the proposed capacity, the price changes, how the prices were went down and the time of bid submission, the information on auction winners with the indicated prices and project capacity has to be published at the KOREM website within one hour after the close of the trading session. Until that, as observers we are not allowed to share any information results. Next slide please. Bid financial guarantee and PPA performance bond. They are very important because they provide the financial guarantee for participation in auctions and also financial guarantee for construction and commissioning of the project considering that renewable energy is relatively new to Kazakhstan and there is no experience on the renewable market. The government, in order to allow participation of local companies, has decided to not put strict legal, financial, and technical pre-qualification requirements. For example, such as a certain number of years of experience for renewable energy projects implementation. For example, key economic and financial indicators, related to sellers credit worthiness and their financial stability and several others. However, the amount of bid bond provided for the financial center was the key financial precondition for auction admission. For auctions without documentation, the amount of bid bond was relatively low compared to when probably, international practice which was, is about 5000 USD per 1 megawatt but auctions with documentation, bid bond for financial, I mean financial guarantee for auction participation was 2.5 times higher. It's about 12 500 thousand bid bonds to be returned under certain conditions. Next slide please. Power Purchase Agreement. As it was already mentioned that we have a power purchase agreement concluded for 15 years. It is signed by the financial settlement center single buyer. It includes indexation of tariffs - allows indexation of tariffs thirty percent for inflation and seventy percent for currency exchange rate. It's for auction projects. The PPA template also includes creditors stepping rights and dispute resolutions through international arbitration centers under Astana International Financial Center. These last two recommendations, I mean two provisions of PPA were introduced in 2019 as a result of cooperative work, coordinated work with the government, with the USAID, with the EBRD and other institutions. There is a condition that, when signing PPA, winners should provide a PPA performance bond which is at the rate is 10 million tenge per megawatt or it's about 25,000 USD per megawatt. Also PPA does not have a take or pay and or curtailment provisions but although PPA does not have these provisions, PPA still requires and it still requires bankability improvements. The fact that almost all winners sign PPA means PPA can be acceptable under the currently existing regulatory framework. I would like to conclude here and summarize the following highlights of renewable energy auction experience in Kazakhstan. The auction mechanism was introduced very timely and helped the government to create effective competitive conditions. Auction raised high interest among national and international investors; more than 150 companies participated from 12 countries. Auctions help to achieve considerable price reduction compared to feed-in-tariffs. In parallel the government is continuing to work on improvement of renewable energy regulatory framework, in particular ensuring the financial stability of financial settlement center possibility for prolongation of PPA from 15 to 20 years, potentially also allowing the cost of renewable energy pass through to directly to the final consumer. Minister of Energy and the system operator also continuing grid integration studies, power sector development planning with high renewable energy penetration, and trying to resolve our system balancing and the stability issues. The solution of these problems will allow more renewable energy in the future overall. We can say that the government demonstrates its commitment to modify the renewable energy regulatory framework to allow more renewables integration in the future and I would like to stop here. Allen if you have anything to add as a key from the auctions, I'm glad. I think it's useful to note that before the decision to go ahead with the auctions was made, there was very strong opposition in the coal industry and in the Ministry of Energy. So, one of the key takeaways here is that a country needs a larger strategic framework in which they're making this decision. In the case of Kazakhstan, they knew that they wanted to build the renewable industry. They knew that eventually their 40 and 50-year-old coal plants would need to be replaced and so they just decided to set themselves on that path toward low prices of renewables. So that's the main thing I'd like to impress here. I say we have a lot of excellent questions. Should we switch to that, Sarah? Yes, Allen and thank you so much for the informative thoughtful presentations, Allen and Bayan. Those were really interesting. We have a lot of questions, at least 20 or so. So, feel free to keep putting them in the chat. We have about 30, a little 25 minutes for questions. So, I did want to point out quickly here that some of the mechanics that Bayan was addressing in the auction, some of the, sort of, technicalities and details of the auction are addressed in an investor guide that the Power of the Future project wrote which is available on their website. Maybe we can put the link in the chat but it's in English and it really lays out the details of the auction. So if you are in another country, I saw people were asking can you please make this applicable to other countries like Uganda, so that's great that we have countries joining from all over the world. Part of the reason that we did this webinar is so that you can see the example of Kazakhstan and some of the documentation they used, some of the, sort of, corruption fighting and transparency type of methodologies that they used and that you could decide whether or not those are applicable in your country and perhaps emulate them. So one of the questions that has come up a couple times is you know given that Kazakhstan had ample cheap coal generation was there any strategic energy planning or economic analysis that went into deciding to move forward with this auction? And also, there were a number of different technologies that were proposed on the auction and how were those capacity limits set? So whoever would like to answer that Allen or Bayan, please jump in! That's a beautiful question. The economic analysis -I absolutely love explaining this -no one knows the price of renewables before you begin an auction program and so Kazakhstan had actually done a lease cost generation plan where they used their original feed-in-tariffs which were like 18 and 22 cents a kilowatt hour as the cost of renewables and they concluded that they shouldn't build any renewables they should just build gas generation. Now that you know I want to impress on our audience that you really don't know the price of renewables until you hold auctions and so that's the main decision that the Kazakhs made is that they're going to start holding auction so they can discover what the cost of renewables is and that's exactly what happened. Thanks Allen. Bayan did you want to add anything to that? I can with regard to power sector planning development. It was mentioned at the beginning already by Sergey that there is a strategy for the green development, green economy strategy and where all these indicators of renewable energy are established. Based on that, the government introduced the auction mechanism to allow the lower price and more investment. But Bayan, I think it's important to add that people were widely aware that Kazakhstan has absolutely tremendous wind resources and so there was an interest in the energy community to start figuring out how much can we get those resources to generate for and as I said you just don't know until you hold an auction or multiple auctions. And along those lines there were a lot of questions about ceiling prices and how they were set and obviously pricing is really important. Somebody also asked about whether these prices are subsidized in some way? So I believe that the first auction was, the ceiling price was set based on the feed-in-tariffs. The previous feed-in-tariff but I but maybe Allen and Bayan, I can ask you to kind of expand. It was set at the level of the feed-in tariff and everybody knew that the feed-in tariff was quite high.But you know the ceiling price was somewhat arbitrary they just said we need a price that we think people will bid under and they set it at that. Great and I mean you know and there is some fluctuation of prices, so I think we noticed that wind prices actually went up after the first auction. So maybe you can address a little bit about, you know, why you would do multiple rounds and whether or not these types of price fluctuations are normal or not for countries that are just beginning auctions. That's actually a really great question, Sarah. Kazakhstan didn't commit to an auction. They committed to an auction program and what they knew what they had learned by looking at other countries that had held successful programs is that the evolution of prices happens over multiple auctions and prices can go up and they can go down depending upon the exchange rate. One of the reasons that the price went up for wind was that the tenge actually depreciated and so any foreign imports like wind turbines became more expensive between 2018 and 2019. I think I want to emphasize that the auction program is, it's what you, Sarah called the action forcing event. The auction program gives multiple opportunities to industry to innovate and to show what private industry is capable of doing and that's exactly what Kazakhstan embarked on. Thanks Allen and Bayan you can come off mute and video if you so desire. If anybody, there's a lot of great questions here and I'll keep asking them on behalf of people but if you feel strongly that you would like to come off mute and ask your question just press the hand raise button and we can we can unmute you. There were some questions about what's the difference here between capacity and energy? Why megawatts or megawatt hours? Can you just talk a little bit about that difference? So Kazakhstan decided to use the simplest approach to auctions at the beginning and that was because everybody was skeptical that it would work. And the simplest approach, the approach that is globally most common in early auction programs is to just auction kilowatt hours. Later on what we find and in fact SURE has an excellent paper on this topic. Later on countries start to innovate their auctions they start to buy for particular blocks of time. They will buy dispatchable energy during certain hours. They add all kinds of bells and whistles as they assess their needs. Great thanks Allen and there were a couple questions about financing. So how did people attain financing? What was the mix between government financing and IFI financing and financing from other sources and are people, you know, are these developers getting financing on time? Bayan do you want to respond? Where did people get financing? The financing, it was the international investors and also the international banks but we did not hear that the auction projects were receiving, I mean any auction projects receiving the, for example EBRD financing or ADB financing. Yeah there was very little donor financing. There was very little donor financing. We did hear of some interesting Chinese what's called mezzanine financing which is where a lender lends for the construction period and then they have to be paid back on commissioning and the project owner has to refinance the project. The Chinese were definitely in some projects and was there also balance sheet financing? I mean you mentioned any or can you address other sources of potential financing? I know none of us are developers but just wondering. We heard about several venture capital companies that were financing using their own accumulated resources so that's essentially kind of a balance sheet type financing. Finance was really a problem at the beginning of this auction. I can't explain how scared people were. It was a very dicey situation going into the auction and I have to say for our audience, you know the Kazakh government and the core team they just said look we're hearing all of these negatives we're hearing all these reasons why we shouldn't do it, we're hearing all the banks saying no, we're not going to lend to this and they just said look we're putting the opportunity out there and people can figure out how they're going to respond and what they found was that there were lots of good responses. And I think we see this a lot. There tends to be a lot of skepticism especially for new countries doing auctions and a lot of fear and as I mentioned earlier there's 109 countries around the world that have held auctions. So I think as this becomes popularized globally and it just becomes accepted and if you have other countries around you in a region that are doing an auction then you know there are investors. They're monitoring the market and they want to develop somewhere. There's a lot of, I think, competition to develop projects in places like Europe so they are looking for new markets. And I guess in the case of Kazakhstan, this was the first country in the region to develop auctions and so I think there was even more fear. But as Sergey mentioned before now Uzbekistan is looking at developing auctions. I'm not sure exactly where they are on that but if they were sort of a first mover on this. So maybe you could say a little bit more about the fact that tariffs were split between 70 percent foreign exchange. I'm sorry foreign currency and 30 percent in local currency would it have been possible to set the tariffs 100 percent in local currency? You know, can you talk a little bit more about that split? And sorry I think I screwed that up. So maybe Allen you can clarify. So the government of Kazakhstan had embarked on a policy they called de-dollarization that is putting all costs into local currency. And well, the international lenders said if you don't give 100 percent for an exchange indexation nobody will bid. The government said sorry this is our country you know we're making our own policies and they said a reasonable approach would be to index 70 percent in U.S. dollars and then index 30 percent to inflation. In the end you know it was one of those decisions a brave government makes. They put it, they designed the auction that way. Everybody bid. Remember not all of your costs are denominated in dollars, so the workers who are maintaining the plants are paid in local currency. A lot of the spare parts and equipment is in local currency, so it worked fine. Bayan do you want to add anything to that? No. Another thing I think is interesting about this auction, we had some questions on this, is Kazakhstan as Allen noted earlier has excellent wind resources but some of those wind resources are far from load centers and we see this in a lot of countries. It's sunny and windy. You know not necessarily in the middle, maybe somewhere like in the middle of nowhere. It's not necessarily - you don't necessarily have the best resources right next to your cities and population centers. So how do you reconcile? You also know the difference between the fact that you need a lot of money and a lot of time to build a transmission line and you can build a wind or solar generation plant relatively quickly. Oh my that's a great question, Sarah. You know in Kazakhstan they have these excellent wind resources spread all over the country and what the transmission company realized very early on is there was a huge risk that everybody would flock to the substations. You know the areas that were around a substation that had the best resources and then the lines would get overloaded and so the transmission company and this gets back to that point about the inclusive process the transmission company was able to raise their hand and say we're very concerned about excess capacity and our ability to absorb now. Sarah also raises a very important point about the evolution of auction programs because what Kazakhstan did was for the first couple of auction series they said this is the capacity that each of our substations can take and we won't contract anymore at these locations. And now they're doing a zonal plan where they, over the longer term will actually extend the transmission into some of the best areas and expand the capacity of the network to absorb from the better areas. Thanks a lot Allen. I think that's really useful. I don't want to miss the opportunity, unfortunately the time that we live in right now is a time when a global pandemic in COVID-19 and participants asked, you know, how is the pandemic impacting the auction rounds that are planned and maybe some of the current projects that are under development? Bayan also you know that you're sitting in the region maybe you have an opinion on that? Yes there was an extension for one year those projects are applied who suffer from the pandemic they apply, they establish the procedure and they could get the extension for one year. Yeah and I mean we've seen this it's just much harder to attain financing. It's harder to bring your equipment into the country. Everything is more difficult in the pandemic and yet projects are still being developed. Allen I don't know too if you want to address this as a macro level question that if you're a country and you're planning an auction right now, do you keep planning an auction during the COVID-19 pandemic or do you kick it down, kick the can down the road what do you know? Most countries have given an extra year or two for developers to complete their projects. We're working with several countries that are still going ahead with their auctions so the pandemic isn't stopping auctions. It's slowing them down oh and the other thing is that I mean the pandemic has caused a reduction in electricity demand and some financial stresses for the electric sector because more people are staying home. So you get those lower residential rates. Thanks Allen. A question on a little bit of a different topic. So I think this is one of the really interesting facets of the Kazakh auction and there as we mentioned earlier you know there was a lot of skepticism about transparency in the auction. I think this is one of the most transferable areas of this auction is that you had all of the publications online. There was a website where if you were a developer you could access it. If you're a member of the public, you could access it. I don't think you could access all the documents as Bayan was pointing out unless you paid some money for the documentation but there was quite a bit of information online. There was this IT platform that you know meant that there wasn't a human hand that was picking the winner. So I think that was really helpful. One of the attendees asks how can we compare? How is an auction process renewable energy? How is that comparable or useful for, let's say, a totally different country, looking at oil exploration zones and auctioning or procuring oil exploration zones? So just to kick it off I think that the process of competitive procurement that we just described the process of transparency of making sure you have enough competition that you have a pipeline of bidders in country who are going to bid and that you have that dialogue with the private sector to bring them in that you're looking at the PPA and that you're engaging in these planning processes is really important it doesn't matter what you're preparing. However, maybe, I'll let Allen and Bayan address a little bit with oil exploration zones. I don't know if that's offshore or onshore. Go ahead Sarah I don't think there's a direct comparison with oil and gas exploration. They use different models for competitive procurement although you know, I urge the participants if you are planning on supporting an auction as a usage program, do get in touch with Sarah and get the documentation for the Kazakh auction because it's very transparent, it's very above board. I mean if you can reverse engineer it in your own country I wanted to also, Sarah I wanted to respond to Aina's question about is there planning and a forecast of what will be the share of wind energy in five or ten years? I call this, with some humor in mind, I call this the Heisenberg's uncertainty principle. What happens realistically is that countries begin an auction process and prices start relatively high because it's new. Because you know the developer, the builders have to buy new equipment and so forth and prices tend to decline toward the global norms with several auctions over a couple years. And what usually happens, Aina, is that as policy makers and electric industry people start seeing low prices they do the classic economic thing which is, this is very cost effective, I want more of it. And so a lot of the targets that you see early in a program are just based on some kind of political idea. You know something, that somebody dreamed up at the COP and then later on if they start seeing prices like, there was just an auction in the UAE for 1.3 cents a kilowatt hour for PV, for photovoltaic energy and when policymakers start seeing that they say okay more PV, more you know, like in the U.S. wind is 1.6 cents in from Texas to North Dakota and so the buyers are all saying we want more of that cheap wind because it's cheaper than coal or gas. So they, so I know that the original targets I would say, it's evolutionary and it evolves as the experience of the auctions is observed. Yeah that's a great point Allen. I mean we're seeing that renewables are really the least cost generation in most countries of the world now and auctions are a big reason for that since they're pushing down the price and they're allowing that framework to take place. I had a question from Lily on whether there is such a thing as failed bidding and auctions? So several of the auctions I think in Kazakhstan actually didn't receive the required number of, I think it was three bids, and so that auction was considered failed or they didn't take the capacity for that auction. Since they divided it as Bayan was mentioning it into multiple, you know separate land plots um so, you know, that's one example of it didn't meet the requirements that were set in the information and so they didn't end up receiving a winning bid. Bayan I don't know if you want to expand on that at all. You mean whether it was, those auctions which were considered invalid not repeated I mean the land plots and the grid connection, they were not proposed for other auctions because the schedule established from the prior, the minimum three months prior to the auction so all schedule and with all the information land plot and the grid connection points available they're already established and published in the websites and this information cannot change during the process. This is also the element of transparency so the government and the policymaker does not change the last minute. So the investors know in advance which auction, what opportunities, what land plots and what information and documentation provides and before the preparation of the auctions the Minister of Energy, the system operator to go they contacted the local defined the, based on the zones they defined the available lands and then they checked the grid connection availability and this is the initial, the starting information provided for the auctions but it does not mean that the land is 100 percent guaranteed and the investor needs to go - I'm talking now about auctions without documentation - the investors needs to go to that particular region and contact local administrator, local municipalities and corresponding agencies and get the resource assessment and all the, prepare all the documentation needed, as assessments needed for participation in the auction for them to decide whether to participate or not. Hey Lily that's my favorite question of the month. Are there failed auctions? There are. I'm keeping a catalog of failed auctions and I'm advising folks like you that an auction failure is not the end of the world. So let me tell you. Turkey had their first wind auctions failed. Colombia - their first auction failed. There are several other countries. Mexico. Mexico - their first auctions failed and Failure is you can view it as a test of the market. So you put it - you put a set of terms on the table and you say the bidders come on and bid and they - the bidders - say oh I'm sorry but this isn't acceptable. So then you change the terms and in every single case that I've seen the next auction, Poland also had their first two auctions failed because they had collusion among the bidders and in almost every case the next auction when they adjust the terms to address the concerns of investors it transacts. So failure means that you've over tested the market. But in Kazakhstan they didn't have an auction failure. I mean they just had a few plots as Bayan said they had a few plots that couldn't transact. Thanks Allen, so maybe we have time for one final question and there's so many great questions here I'm having a hard time deciding between them but I think maybe we can ask - I like this question. It's - somebody asked about more capacity offered from Vakur - why was more capacity offered from solar participants versus wind but there were more realized wind projects? I'm not sure which round that was exactly. Maybe we can talk a little bit about competition within solar competition within wind. Allen and Bayan you're both on mute, presentation isn't over quite yet. Yeah so no that's a really, that's a really good question. Just think about it guys. Setting up solar panels is really easy. They go right on the ground they're like a meter and a third above the ground. They're really easy to build. The EPC side of it, the engineering part of it is really easy. Building wind plants is exotic because you're hoisting a 40 ton turbine up 110 meters or so into the air and you're doing it in the windiest place in the country. So that turbine, you know, while it's on the crane is swinging around. So there was a lot of fear about wind at the beginning and the developers were less experienced with it. So that's the reason why solar was more popular. So thanks a lot. Thanks so much to our presenters Allen and Bayan, Patrick and Sergey and thank you so much to all the participants. We had almost 100 people today and you had wonderful questions. So thank you very much. After this event you will actually, we're going to pop a link to a survey into the chat box. If you liked this event please tell us. If you didn't like it, all feedback is welcome, we'll email you the presentation slides. After the event, a link to the recording will be available in a couple days on our renewable energy auctions toolkits website. So if you just google USAID Renewable Energy Auctions Toolkit Kazakhstan you'll see it up in just a couple days. Our next event, our next webinar in the series will be on advanced elements of renewable energy auctions focusing on technology agnostic auctions of the spectrum of technology differentiation within auction so the details on that event will be shared soon. Thanks again for joining us today and we hope to see you in the future.