Fine-Tuning for Renewable Energy

Support measures for renewable energy sources that currently exist in Russia do not ensure either the fulfilment of investment expectations of on-going projects, or any interest of investment professionals in launching new ones. This is the opinion expressed by the participants of a recently held conference titled “Prospects for the development of renewable energy in Russia: new stage of development or a pause?” In order to facilitate the development, the approaches to requirements for renewable energy objects have to become more flexible, both experts and environmental NGOs agree.

The event dedicated to renewable energy was organized by BIPRES – The Bureau of Intellectual Support of Reforms in Energy Sector (http://bipres.ru/) together with the International Financial Corporation (IFC) (http://www.ifc.org).

Market Council (http://www.np-sr.ru/), a non-profit partnership that operates a tender for renewable energy projects, reported on the way they improved their project selection procedure on the wholesale market in 2014. For example, they implemented an additional way of securing commitments for Capacity Supply Agreements (CSA) of renewable energy objects by implementing the use of letters of credit. An electronic application form was introduced as well. According to Market Council, so far this year, 100% of solar energy capacity has already been fulfilled, as well as 20% of wind power and 0% of small hydro.

According to international statistical data (provided by ENEL, Ente Nazionale per l'Energia eLettrica, one of the world’s largest energy companies), 2.9 new jobs are created for every Megawatt of new generating capacities that are introduced. Over 6000 new jobs may be created by the end of 2020 in Russia as the result of implementing the program of wind power development alone.

At the conference, experts discussed innovations in legal and regulatory framework that deals with the support for renewable energy development, along with the anti-crisis measures by the Russian Government and the prospects of the electrical energy market development in Russia, given the current economic and financial turbulence. They also discussed the parameters that are taken into consideration during the selection process of renewable energy projects. According to many participants, they do not help to create a stable investment climate in the sector.

The current downturn and economic instability in Russia, devaluation of the ruble, and limited access to financial markets – these and other factors have led to a significant uncertainty for those who otherwise might consider investing in generating facilities powered by renewables, energy experts say. The main question that determines the sector’s development and that worries everyone now is whether the Government is still willing to support the development of renewable energy in Russia.

The necessary degree of objects’ localization (i.e. the share of equipment manufactured within the country) remains one of most debated issues. According to currently accepted rules, only the fulfilment of the requirement for the level of localization gives one the right to apply for the compensation of all capital investments. Failure to comply with the requirement leads to fines.

Even though the level of localization is not a constant unit and does change from year to year, the current parameters, experts say, are difficult to comply with, both financially and organizationally.

Most of the parties involved in the development of renewable energy in Russia agree that localization, the way it exists right now, is an obstacle. However, there are those who say that strict rules on localization has to be kept, as the means to support local energy producers.

Experts say that in Russia, there are three main obstacles to the localization of efficient wind power plants. They are limited introduction of new capacities, the lack of planning for the period after 2020, and the requirement of a speeded-up localization due by 2020 that are unlikely to be met if one wants to organize the production of highly efficient installations in Russia.

There are other obstacles of a systemic kind: the required degree of localization surpasses even that of China, the world leader in terms of localization. Those parameters are hard to reach and they stand in the way of bringing the most technically advanced foreign wind power installations and their production technology.

This limits the potential use of the newest wind power technology and its use for training local specialists. At the same time, it leads to an increased use of obsolete and less efficient technologies that are by definition not competitive on the world market. This is most likely to result in unjustified waste of human and material resources with no tangible outcome.

Some specialists propose measures of ‘fine-tuning’ the legislation related to renewable energy sources, such as softening the requirements for the localization of equipment, extension of the deadlines for the construction of facilities, changes in the amount of reimbursement of capital investments, etc.

The amount of localization should correspond to the real abilities and interests of Russian producers, claims a recent NGO report titled “The development of renewable energy in Russia’s regions: obstacles and growing points” (http://rusecounion.ru/ang_doc_rseu).

“Two potential and most efficient ways of promoting renewable energy in Russia are the softening of legal requirements in this field and the legislative support of the implementation of incentives for domestic technology development. There has to be a financial support for research and development and engineering efforts. Subsidies for traditional hydrocarbon energy has to be cut and redirected towards the development of green energy, while the requirement to restrict the share of green power generation capacities has to be lowered. We need to reduce the losses and increase the efficiency of the energy grid. Small and micro generation needs to be supported. And while Russia is lagging behind technologically, it is extremely important to maintain international collaboration, including technology transfer, by all possible means, and on all levels of energy policy-making.”