Unlocking Battery Energy Storage Systems Potential In Kazakhstan

Battery energy storage systems (“BESS”) are quickly becoming the missing link between Kazakhstan’s renewable energy ambitions and the physical realities of its power grid. Under the Concept for the Development of the Fuel and Energy Complex of the Republic of Kazakhstan for 2023–2029 it is planned to introduce 11.7 gigawatts of storage-enabled electricity capacity by 2029. The objective is to improve grid stability by enabling electricity generated by renewable energy facilities to be stored during periods of excess generation and dispatched during periods of peak demand.

While Kazakhstan has already established the legal and regulatory framework governing energy storage systems ("ESS"), the next phase of reform is focused on integrating ESS into the electricity market. Draft Law of the Republic of Kazakhstan "On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on the Development of Alternative Energy Sources" (hereinafter – the “Draft Law”) proposes dedicated auctions for standalone ESS projects, new tariff mechanisms, and broader participation in the wholesale, balancing and ancillary services markets ¹.

Current regulation

Kazakhstan’s legal framework for renewable energy contains a dedicated concept of an electrical energy storage system (“ESS”) defining an ESS as a technical device with an automated control system designed for the accumulation, storage and distribution of electrical energy, together with the associated structures and infrastructure ², and the definition of “auction trading” expressly extends to projects for the construction of new renewable facilities “including those equipped with electrical energy storage systems” ³.

The Electric Grid Rules approved by Order of the Minister of Energy of the Republic of Kazakhstan No. 210 dated 18 December 2014 and the Rules for the Technical Operation of Power Plants and Electric Networks approved by Order of the Minister of Energy of the Republic of Kazakhstan No. 246 dated 30 March 2015 establish a detailed conceptual framework for ESS and impose obligations covering comprehensive testing, control via automated systems, minimum state-of-charge levels, availability factors and behaviour during frequency and power-flow regulation. They also specify the content that every generator must include in the Power Distribution Scheme agreed with the System Operator, JSC KEGOC, requiring developers to specify the ESS technology type and its technical specifications, annual available capacity net of degradation, and annual availability factor.

For projects exceeding 499 MW, rules for organising and holding auctions for renewable energy projects ⁴ require the simultaneous construction and commissioning of an ESS with a capacity of at least 30% of the project's installed capacity and sufficient storage for two hours of operation at full load. This obligation continues for the duration of the PPA concluded with renewable energy auction winner.

Under the current regulatory framework, Kazakhstan does not provide a dedicated legal and regulatory framework for stand-alone ESS. Accordingly, a co-located ESS cannot generate an independent revenue stream and functions solely as a supporting component of the renewable energy project.

Upcoming regulation

Types of ESS
Draft Law defines the following types of ESS, which will help reduce grid loads, promote the expansion of distributed generation, and ensure reliable energy supply to various categories of consumers:

• Household energy storage system - an ESS intended for household use;
• Battery energy storage system - an ESS based on battery technology;
• Behind-the-meter energy storage system - an ESS installed in residential, commercial, or industrial facilities, located behind the connection point (beyond the electricity meter) on the consumer side, providing full or partial self-consumption of electricity through storage, retention, and discharge of electric energy.

Revenue Streams for BESS: Proposed Reform
The current absence of a standalone revenue model for battery energy storage systems ("BESS") is addressed in the Ministry of Energy's next legislative package. Draft Law proposes amendments to the electricity legislation aimed at establishing dedicated revenue streams for BESS.

(i) Capacity Availability Service
The centerpiece of the reform is the introduction of a new "service for the availability of capacity of the electric energy storage system", remunerated through an individual tariff awarded in a dedicated auction for ESS projects, separate from renewable energy auctions. The proposed tariff would apply for 15 years and follow a cost-of-service model, allowing recovery of capital expenditure, financing costs, operating expenditure, and an indexed return on invested capital. This would, for the first time, provide a standalone capacity-based revenue stream for BESS independent of any co-located generation asset.

(ii) Energy Price Arbitrage
The Draft Law also introduces a regulated energy price arbitrage mechanism for ESS commissioned outside the auction framework. Rather than allowing unrestricted market trading, it appears that the authorised body would determine the maximum permissible spread between electricity purchase and sale prices. This would represent legal basis for a regulated buy-low/sell-high revenue model for standalone storage.

(iii) Participation in Wholesale, Balancing and Ancillary Services Market
Finally, the Draft Law creates a new category of wholesale market participant - a "subject using an electric energy storage system." This category would include renewable energy producers, consumers, digital miners, and other legal entities operating BESS either for their own needs or for participation in the wholesale electricity market, balancing market, and the market for system and ancillary services.⁸ By formally recognising BESS operators as market participants, the proposed amendments would open additional revenue opportunities from balancing and ancillary services that are currently unavailable under the existing regulatory framework. The Draft Law, however, provides only the legal basis for ESS participation in these markets. It does not establish, for example, how ancillary services would be remunerated or the applicable pricing methodology, leaving these matters to be addressed in future secondary legislation adopted by the authorised body.

Future outlook

Bankability
From a project finance perspective, BESS projects require a stable contractual framework capable of supporting long-term financing. Internationally, this is commonly achieved through long-term capacity or flexibility agreements with a system operator or another creditworthy offtaker, providing a predictable revenue stream. In Kazakhstan, such agreements would typically be expected to be concluded on the basis of model contracts approved by the competent authorities. To be bankable, those contracts would need to allocate the principal project risks in a manner acceptable to lenders, including risks associated with technological performance and degradation of the storage system, changes in the applicable regulatory framework, payment security, force majeure and change in law. Kazakhstan's proposed 15-year capacity availability mechanism represents an important step towards establishing such a framework, although its bankability will ultimately depend on the detailed contractual terms adopted in the implementing legislation.

It is also worth noting that Taxonomy of ‘Green’ Projects Eligible for Financing through ‘Green’ Bonds and ‘Green’ Loans’ ⁵ does not include energy storage systems as a standalone category. The inclusion of BESS within the Green Taxonomy would facilitate access to green financing by enabling eligible projects to qualify more readily for financing through green bonds, green loans and other sustainable finance instruments.

Investment incentives
ESS is not currently included in the list of priority activities for investment projects approved by the Government. Adding ESS to that list would make the sector considerably more attractive to investors, unlocking the standard package of support measures available to priority projects: exemption from customs duties, government in-kind grants, and relief from corporate income tax, land tax and property tax.

Augmentation and degradation
As Kazakhstan develops its regulatory framework for BESS, two technical issues are likely to become increasingly important from a contractual and project finance perspective: augmentation and battery degradation.

Augmentation refers to the addition of battery capacity during the operational life of a project. In practice, augmentation is commonly used to offset the gradual loss of storage capacity resulting from battery degradation, although it may also be undertaken to increase the project's installed storage capacity or to retrofit storage to an existing renewable energy facility. The current regulatory framework and Draft Law do not expressly address augmentation, leaving uncertainty as to how additional capacity would be treated under capacity availability agreement or auction award.

Battery degradation raises a separate set of issues. Unlike conventional generation assets, BESS performance declines not only in terms of efficiency but also through reduced storage capacity, charging capability and energy retention over time. The rate of degradation depends on operational factors such as charging and discharging patterns, depth of discharge, the provision of ancillary services and environmental conditions. Recognising these characteristics, the current regulatory framework already requires operators to account for electrochemical degradation and limits battery cycling to 400 full charge-discharge cycles per calendar year and without restrictions per day ⁶. As Kazakhstan's BESS market develops and new battery technologies are introduced, these technical considerations are likely to require more detailed regulation and treatment in procurement documentation, model contracts and project finance documentation than is currently the case.

Conclusion
Kazakhstan has taken important steps towards establishing a legal framework for BESS, reflecting the growing recognition of their role in supporting renewable energy integration, grid flexibility and energy security. At the same time, the business community and industry associations continue to advocate refinements to the proposed reforms to ensure clear market rules, commercially viable revenue mechanisms and proportionate technical requirements ⁷. Establishing such a framework will be essential to making BESS projects bankable, attracting private investment and unlocking their full potential in Kazakhstan's energy transition journey.

Footnotes

1 Draft Law On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan Concerning the Development of Alternative Energy Sources, under review by Majilis, lower chamber of Parliament, version as of 12.12.2025 available at: https://mazhilis.parlam.kz/ru/all-bill/861

2 Par. 12-2 of the art.1 of the Law of the Republic of Kazakhstan No. 165-IV dated 4 July 2009 ‘’On Support for the Use of Renewable Energy Sources’’

3 Par. 1-1 of the art.1 of the Law of the Republic of Kazakhstan No. 165-IV dated 4 July 2009 ‘’On Support for the Use of Renewable Energy Sources’’

4 Par.28 of the Rules governing the organisation and conduct of auctions, including the eligibility requirements for auction participants, the content and procedure for submitting bids, the types of financial security required for bids to participate in the auction and the conditions for their deposit and refund, and the procedure for tabulating results and determining the successful bidders approved by Order No. 466 of the Minister of Energy of Kazakhstan dated 21 December 2017

5 Decree of the Government of the Republic of Kazakhstan No. 996 of 31 December 2021 ‘’On the Approval of the Classification (Taxonomy) of ‘Green’ Projects Eligible for Financing through ‘Green’ Bonds and ‘Green’ Loans’’

6 Par. 957-8 of the Rules for the Technical Operation of Power Plants and Electric Networks approved by Order of the Minister of Energy of the Republic of Kazakhstan No. 246 dated 30 March 2015

7 Kazakhstan’s first White Paper on energy storage systems presented in Astana, https://qazaqgreen.com/en/journal-qazaqgreen/industry-news/2787/

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