Regulatory Stability and Renewable Energy Investment: The Case of Kazakhstan

Abstract To protect end-consumers from the financial impact of renewable energy subsidies, it is common for governments to radically change the level of support initially promised to investors. In reaction, investors can sue states before international arbitration tribunals. Based on a detailed analysis of recent (2017–2018) arbitration decisions in the renewable energy sector, this article identifies criteria of regulatory stability that states have to respect when reforming support schemes. The “regulatory stability model” developed in this article is then applied to the specific case of Kazakhstan – a country characterized with high regulatory risk and policy instability. The analysis highlights how a country with a risky investment environment can make stability commitments to mitigate investors’ concern of regulatory change. Paradoxically, too much regulatory stability can prevent the government from controlling the volume of subsidized renewable energy, which in turn can trigger radical policy change. This article concludes that, to limit regulatory risk for investors, it is insufficient to focus only on the protection of existing projects against regulatory change. A certain degree of regulatory flexibility must be integrated in support schemes to help governments limit the number of renewable energy projects eligible for support, and so limit the impact of subsidies on consumers.