Solar, Utility Scale

Solar Projects Cancelled in Southern, Central Russia

Implementation of several renewable energy projects in Russia initiated in 2013-2014 has been postponed, according to investors, as the devaluation of the Russian ruble against hard currency made the projects too expensive.

“At the wholesale energy market we see termination of contracts for the supply of power from renewable energy sources, with number of such precedents also taking place this year,” said Maksim Rusakov, head of the development of competitive pricing at the country’s energy market regulator Russian Market Council.

“In the first place, we are talking about renewable energy facilities scheduled to be commissioned in 2014,” Rusakov said. “Contracts are terminated automatically in case if the investor did not use the opportunity in advance to take the delay for a year [for commissioning of the project] within the so-called grace period,” he said.

In particular, contracts have been cancelled for two projects for the construction of solar power plants with the overall capacity of 30 MW in Astrahan Oblast, initiated in 2013 by local company Sun Energy. Pavel Shevchenko, member of the board of Sun Energy, explained that the main reason for this situation was devaluation of the ruble.

“Planned investments into the projects amounted to RUB 1.5 – 1.7 (US$ 44 – 45 million), but 50-70 percent of this amount was currency component,” Shevchenko said, adding that, due to the devaluation of the Russian ruble, the cost of the project increased nearly two times.

Problems with bank lending and weak ruble affected most Russian renewable energy projects, so government agreed to reimburse part of their expenses for construction. However, this change did not affect projects with the start of power supply prior June of 2015. As a result, investors are holding off on any further development.

MEK-Engineering also has a contract for commissioning of a 5 MW solar plant in the Republic of Dagestan in 2015. However, so far construction is not ended, so the company has been fined.

“After devaluation, investors in renewable energy sources themselves agreed to terminate contacts on energy supply to avoid expensive foreign currency loans and raised costs,” Fyodor Kornachev of Raiffeisenbank said. “Giving an excess of power from traditional sources, commissioning of other renewable energy capacities and stagnating demand for power, [support of] renewable energy projects with the planned commissioning in 2014, obviously, is not a priority for the state.”

At the same time, according to Rusakov, power supply contacts are terminated after a year of delay in delivery of energy, and theoretically investors may announce these projects once again, negotiating with the state on new terms. However, some former investors do not have confidence in the prospects of renewable energy in Russia in new market conditions.

One Russian renewable energy investor said: “With continuing fluctuations of the Russian ruble, inconsistency of the state policy in this area, and weak demand, implementation of renewable energy projects today seems less attractive now than it was two to three years ago.”

Lead image: Ruble devaluation. Credit: Shutterstock.