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Russian Renewable Energy Bill Disappoints, Regions Pick Up the Slack

Russia’s Renewable Energy Source Development Measures (RESDM) that went into effect at the end of May have gotten off to a tepid start. Many Russian energy pundits are convinced that the renewables goals set in the trimmed bill will soon inevitably bump into major roadblocks on the path.

“Definitely, we have not yet seen a tangible impact on Russia’s solar power sector. It is too early to draw any conclusions as to how the measures will work, or will they (work),” said Oleg Basenko, director of the Solar Power Development Department at Russia’s Solar Power Energy Association (RSPEA).

To the disappointment of renewables developers, the Russian government has stopped short of introducing feed-in tariffs for renewable energy sources (RES), which had been seen as a major boost for alternative energy development in the country.

“Now it remains unclear what will happen with renewables facilities after their construction is over. With the absence of green tariff, there is a big uncertainty that poses big risks for RES investments’ payback. Namely that had to be scrutinized and worked out more thoroughly,” said Alexander Kostiukov, analyst of Investment Company VELES Capital LLC. “An economic mechanism spurring private investments into alternative energy has not been created,” he added.

Now the RES-produced self-cost energy price is at US $0.13-0.16 (some 4-5 rubles) per kWh, but to have the green investment paid off the purchase price should be around US $0.51-0.64 (16-20 rubles), and that’s where the green sector counted on state support.

Nevertheless, the Russian analyst largely described the bill as “an important stride forward in developing renewables in Russia.”

“A positive thing, for example, is setting the limits on capital expenditure for producing 1 kW of capacity. However, the drawbacks, like no word on a green tariff, ought to be fixed,” emphasized Kostiukov.

The RESDM is one of Russia’s most important provisions of the recently approved state program “Energy Efficiency and Energy Development in Russia during 2013-2020.”

Lilia Bruyeva, business analyst of InvestCafé, a Russian independent analytical and consulting company, also believes the RESDM have not been fully worked out.

“The bill is too unilateral and does not take into consideration the peculiarities of Russian energy system’s status quo,” Bruyeva pointed out.

Unlike other European nations, she said, Russia has made with the bill only the first stride in reorganizing its wholesale energy market, which keeps energy prices under state control.

“The RESDM and other RES-related legislature, unfortunately, do not foresee a mechanism securing the fixed-prices and the certain level of energy safety through guaranteeing the necessary reserve energy capacity as well as sources through which private investments into RES facility construction would be made,” Bruyeva emphasized.

In the RES Law, the Russian government aims for 6 GW of new renewable generation capacity and expects to generate 4.5 percent of its energy needs from renewables by 2020.

Some, however, believe that a more realistic number is 2.5 percent, or 6 GW, down from the planned 11 GW, in both cases a considerable lag compared to the developed Western countries.

The World Bank’s International Finance Corporation (IFC) estimates Russia aiming at 4.5 percent by 2020 would require 22 GW of new capacity and around US $250 billion to US $300 billion of investment over that period.

Meanwhile, Russia has pledged to allocate nearly a hundred-fold less for the purpose for the period, some U.S. $ 2.8 billion.

Fossil fuel-rich Russia surely can catch up with the financing, but it may be a whole lot harder to overcome the roadblocks on the green path in the realm of public opinion from both Russian grassroots and officials.

“First, the widespread public opinion of RES [is that it’s] too expensive and, second, the abundance of fossil fuels do not necessitate renewables development,” the RSPEA representative noted.
The opinion that renewables are “a toy for the riches” and Russia’s poor investment environment are among other facets to take into account.

Kostiukov of VELES Capital said that in terms of profitability the Primorye Kraij (Region), Amur Oblast (Region), Trans-Baikal and the south-central Republic of Tyva top the list.

“In these regions, the solar insulation level is the biggest in Russia, reaching some 1640-1825 kWh/m2 per day, which is equal to the level of Italy or Ukraine,” he noted. Slightly smaller solar insulation is found in Sakha, Irkutsk Oblast, Altai, Krasnodar Kraij (Region) and the Republic of Buryatia.

Basenko of RSPEA agreed on the regions being trailblazers in harnessing solar power in Russia.

“For example, the Republic of Altai and Belgorod Oblast (Region) boast the largest hybrid diesel-solar facilities, each of 100 kW,” he said.

The Russian Far East has a particularly unique situation when it comes to RES development, especially Sakha, where renewables growth has been exponential over the last few years.

“The Russian Far East is utterly isolated from the unified national energy system.  With the high fossil fuel transportation costs, power capacity deterioration and extremely large dependency on brought-in coal and diesel-generated power, RES under the circumstances come [to the] rescue,” Bruyeva said.

Operating four solar plants in Sakha has already saved over 14 tons of expensive diesel fuel, she noted.

“The PV production cost-price averages some US $180-240 (6000-8000 rubles) per 1 kW. Meanwhile, the figure for diesel fuel-powered generators is 3-4 time higher. Most of solar PV power capacity growth we will certainly see in the Far East in the near future,” said Bruyeva.

“Renewables in the Russian Far East definitely help tackle the problem of power deficit,” agreed Kostiukov.

In the recent first-ever international conference Renewables in Russian Far East’s Isolated Systems held in Sakha, Sergej Tolstaguzov, director general of Sakha-based RAO Energy System of East, confirmed the region’s determination to exuberantly pursue renewables: “Although many still deem the topic until now un-seriously, we take it very seriously.”

Lead image: Moscow via Shutterstock

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