Country Profile: Russia

Its vast geography includes every type of condition favourable to renewable generation, including windswept steppes, areas of high insolation and forestation and significant geothermal regions. Yet that potential remains almost completely unrealised. At the end of 2009 just 13 MW of wind and negligible solar capacity was present in a country with a total installed generation base of 220 GW. And, if large hydropower is excluded from the equation, only around 1% of Russia’s power is currently generated from renewables.

Energy in Russia is dominated by oil, coal and above all, gas. The nation has huge reserves, allowing it to supply its consumers with relatively cheap energy and wield the power that comes from being a key exporter to Eastern Europe and beyond. Indeed, the drive to develop domestic renewable sources by many states in Central and Eastern Europe is motivated by a desire to reduce dependency on their giant neighbour. Nonetheless, compared with progress in the former Soviet sphere of influence and in Western Europe, Russia’s enthusiasm for renewables has appeared lukewarm at best.

Prime Minister and former President Vladimir Putin has on occasion sounded dismissive. According to local reports, in a speech last year he chose to focus on the environmental risks of wind, claiming that turbines pose a threat to birds and other wildlife. Hardly a ringing endorsement, but there are signs that the Russian authorities are softening their stance on renewables.

A decree supported by current President Dmitry Medvedev, Putin’s successor, set a target for a 4.5% share in electricity generation by 2020, a goal confirmed in its latest Energy Strategy, which talks about ‘an increasingly important role for renewables.’

Medvedev’s public statements have been less sceptical than Putin’s and the decree has at least put renewables on radar, albeit still at its margins. The president is especially keen on the high-tech, high-value elements, such as wind turbine manufacture and PV. As part of the decree, Russia’s energy ministry is charged with developing support mechanisms to bring renewables into a power economy that needs massive investment to bring large parts of its creaking, Soviet-era, infrastructure up to date. KPMG estimates that Russia will require US$320 billion of investment in generation alone, creating a significant market for renewables to chase.

Those promoting renewables in Russia are convinced that the sector is tantalisingly close to lift-off, and that if it could just be given a sufficiently robust kick-start it would soon gather momentum.

The International Finance Corporation (IFC), part of the World Bank group, hopes to provide a significant part of that momentum jolt through its new advisory programme, the Russia Renewable Energy Program (RREP). Supported by the Global Environment Facility, RREP was launched in December 2010 and IFC hopes that it will create a platform that can support at least the beginnings of a significant share for renewables in Russia. Its work will see the programme team co-operating with the Russian Energy Agency, RusHydro and other key players to develop favourable policies and instruments. It will work with the private sector to encourage project development and generally raise the profile of renewables, especially in regions where it could have a significant early impact.

Russian renewables policy is changing (Source: David Appleyard)

RREP hopes to be the catalyst for the addition 205 MW of renewable capacity over the five years of the programme. The IFC says it will have around $150 million to invest when the time is right.Before committing investment capital, however, Patrick Willems, programme manager for RREP, says the most urgent task is to get the basics in place, beginning with a legislative framework. ‘When we talk about the legislative framework, we don’t mean only laws, but the whole framework required to get renewables off the ground needs to be tackled before anything can be done,’ he says.

The presidential decree and 4.5% renewables target is highly promising as far as it goes, adds Willems. But unless it is underpinned by rigorous, specific policies of the type seen elsewhere, it is more likely to remain a figure on paper than a reality. Willems cites grid access as an example of the type of measures he has in mind. ‘In most European countries there is priority access for renewables and an offtake obligation on the part of wholesalers to get electricity produced by renewables to the end consumer,’ he says. Although he does not necessarily expect a full, European feed-in tariff system to emerge in Russia, he is looking for some sort of feed-in support system, perhaps based on generation capacity.

The bottom line is all about sufficient political goodwill, and Willems believes it has so far been lacking. ‘There is an attitude that says “we’ll have to do something about it sometime,” but there is no real hurry to get down the road to renewables.’ He points out that the first stage of the 4.5% by 2020 target required Russia to achieve 1.5% by the end of 2010. This was not met, yet Willems still notes a lack of urgency by the authorities. He says more arguments need to be made to answer a question that is frequently asked by those sceptical of renewables (and not just in Russia): ‘Why should a premium for renewable generation be paid in a country where conventional sources are abundant and, at least for now, relatively cheap?’

Despite the obstacles, the head of the RREP sees grounds for hope. Renewables can form part of a general policy designed to encourage modernisation and technical innovation in Russian industry, a cause dear to the heart of a number of senior Russian politicians. The credentials of renewable energy as a ‘new industry’ could be a significant aid to its prospects in Russia, the RREP team hopes. ‘That is a message we are trying to get across,’ says Willems, adding: ‘Many Russian cities are dominated by monolithic outdated industries and employers.’

Willems believes it is possible to make equally pragmatic arguments about the role of renewables: ‘Too often we hear that renewable energy needs support from government organisations, yet at the same time fossil fuels in Russia get as much if not more subsidies from governments. It’s a question of what strategic choices are made,’ he says.

Wind and biomass have a ‘tremendous opportunity’ to make an impact within 10 years, claims Willems, especially for the 10% or so of Russians who are not connected to the grid. And when allied with state-of-the art transmission technology, even its vast geography need not be an obstacle to wind contributing to the Russian grid system as well. Large hydropower can also play a key role, providing its overall environmental impact is demonstrably not a negative one.

Above all, RREP is keen to highlight that the choice is not one of making major investment in renewables or of saving the money by staying as it is: ‘Russia will have to make substantial investments in its oil and gas sector if it wants to keep meeting domestic demand in the way that it does now,’ says Willems.

The man from the RREP is generally optimistic about the future of renewables in Russia — though he admits that optimism is almost a prerequisite in a job with so many challenges. He does not expect dramatic progress within the next few months, but beyond that he thinks there are grounds for hope.

‘I believe we will see significant progress within the next two years, with a basic framework in place in the next year,’ says Willems. ‘There are now people starting to put projects on the table and using their contacts to get the ball rolling. Those people know that they cannot afford to just ignore it, that this is going to come to Russia whether they like it or not.’

The Sayano-Shushenskaya hydro plant in southern Siberia (Source: RusHydro)

Willems believes one early win for Russia could come in the promotion of energy saving as a way of demonstrating the economic benefits of cleaner, more efficient energy consumption.

Elena Merle-Béral, an energy analyst at the International Energy Agency who specialises in renewables’ potential in Russia, shares the belief that efficiency measures can play a major role in boosting renewables’ overall share of the mix. ‘There is huge energy efficiency potential in Russia,’ says Merle-Béral. ‘If Russia manages to reduce its energy intensity it will need much less energy overall,’ she says. Merle-Béral is excited by the potential of local renewable resources to increase self-sufficiency within the Russian Federation. She points out that Russia’s national status as an exporter of energy belies the fact that whole regions of the vast country are heavily reliant on ‘imports’ from internal region which are energy-rich, especially western Siberia for instance.

If you are a region far from the source of production, transportation costs will inevitably make your energy more expensive. Merle-Béral cites the central-Asian republic of Tyva, deep in the south of the Russian Federation on the border with Mongolia, as an example of a territory that spends more than half of its budget on fuel.

In such cases, she argues, an appropriate programme geared around local renewables could quickly make an impact, for example via biomass deployment in north-western Russia where the well-established pulp and paper industry ensures favourable conditions.

She points out that regions remote from the power network rely on local petroleum-based generation systems, with fuel needing to be brought in by road, rail or even by helicopter. Renewable generation could be price competitive with this, especially if subsidies for the ‘imported’ fuel were removed, says Merle-Béral.

Heating is another highly promising renewables application in a country with a notoriously cold climate, she adds, for example via conversion of district heating boilers from oil to biomass. This has already happened in some parts of Russia and is common in other eastern European nations.

Last year brought signs of new life in the Russian renewables sector, with the announcement of planning approval for significant projects in both wind and solar. Its energy ministry said suitable sites had been identified for the country’s largest planned wind facility near the city of Yeisk, on the shore of the Sea of Azov, which adjoins the Black Sea. The government will invest $200 million in the grid connected project, which would begin operations with a capacity of 50 MW rising eventually to 100 MW.

According to the Russian Association of Wind Industry (RAWI), wind is gathering momentum more generally and is ready to roll once the correct legislative framework is in place. RAWI says the development phase has been completed on projects totalling 1700 MW, with a further 3 GW announced. Russia also unveiled plans for its first significant solar plant, a 12 MW facility at Kislovodsk in the Northern Caucasus, in a project led be state-owned Rusnano.

Foreign businesses operating in the clean energy sector are well aware of the potential of Russia as a market for their technology and expertise. This is especially true in hydro energy. Large hydropower’s status as a renewable energy source may be contested by some, but in a nation so dominated by fossil fuels, hydro is as about clean as it gets and accounts for around 20% of installed capacity.

Russia was a hydropower pioneer in the Soviet era, but the industry languished in the period of political reform in the 1990s and now faces the need for huge investment in overhaul and upgrade.

To this end, in the latter part of 2010 RusHydro — the majority state-owned company that dominates the sector in Russia — signed agreements with foreign businesses including Alstom of France and Voith Hydro of Germany. The wide-ranging agreements cover upgrades to existing plant, exploring new development opportunities and establishing local hydropower equipment manufacturing and supply facilities within Russia.

Technology and equipment manufacturing is central to the nation’s wider economic goals in pursuit of Medvedev’s modernisation agenda. For that reason, an agreement last year between Siemens, Rostechnologii and RusHydro setting up a joint venture for wind turbine component manufacture was especially warmly welcomed in Russia.

In the face of scepticism from a nation so rich in fossil resources, the jobs, exports and other economic benefits that flow from the new energy industries may turn out to be the strongest card that renewables can play.

Sidebar: Russia Rocks

At the far eastern edge of Russia, the Kamchatka peninsula hosts one of the country’s most promising renewable resources in the form of abundant geothermal energy.

With 90 volcanoes and hundreds of hot springs, Kamchatka is estimated to possess geothermal potential equivalent to 2 GW of power production, including 300 MW at the high-temperature Mutnovskoe field alone.

RusHydro, which is responsible for strategic development of geothermal energy in Russia, operates two plants in Kamchatka with a combined capacity of 62 MW, one of which recently signed a deal to supply local mining operations.

In October 2010 energy minister Sergei Shmatko signalled the country’s intent to develop its geothermal resources further. This will include co-operation with Iceland, widely acknowledged as the global leaders in geothermal exploitation, which could see the two countries launch joint projects in Kamchatka.

Crucially, geothermal seems to enjoy significant political goodwill, with even Prime Minister Putin signalling his support for the expansion of operations in the area.

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