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Renewable Power Generation in Russia: Any Future after 2024?

07 June 2018

The future of renewable power generation in Russia may be decided in the next six months. In that time, the national authorities should decide who is to fund the development of the industry.

The proportion of renewable energy sources in Russia’s energy mix is only about 0.2%. That was the figure given in answer to a question from DW by Anatoly Chubais, who participated in the conference “Renewable Energy—XXI Century” (REENCON-XXI) currently being held in Moscow. Meanwhile the equivalent proportion in Germany is 36%.

In a favorable environment the proportion of renewables in Russia may rise to 5% by 2035, but this would require significant demand for “green” power generation. The conference attendees discussed the factors that stand in the way of that demand.

“Modest Progress”, or, the Development of Renewables Is Not a Priority

The IV International Congress REENCON-XXI, a two-day event, began in the Skolkovo School of Management in Moscow on Tuesday, June 5. During his opening speech, the dean of the School of Management Andrei Sharonov shared some figures. In 2017, conventional sources accounted for 30% of the increase in global power generation, while renewables accounted for 70%. The capacity of commissioned solar cells was 98 GW, and the capacity of commissioned wind farms was 52 GW. Around the world, renewables accounted for a total of 2,200 GW of capacity as of the end of 2017.

Information about Use of Renewables in Russia

“Our achievements in Russia in this area are very modest,” regretted Mr. Sharonov and yielded the floor to the First Deputy Minister of Energy of Russia Alexey Texler. Mr. Texler said that about 140 MG from renewables were commissioned in Russia in 2017. “The figures are clearly quite moderate, but the trend shows that this volume is doubling every year. This year over 300 MW may be commissioned.” The Deputy Minister said: “We are not aiming for huge amounts of capacity. This is not a priority task in Russia for an obvious reason, we have conventional energy.”

Energy Security for Some and Import Substitution for Others

Andrei Sharonov replied that conventional energy sources in other countries are also cheaper, but those countries still consider the development of renewables to be a high, if not top, priority task. “Every country addresses its problems in its own way,” said Mr. Texler, “and if we take Europe as an example, it is all about cutting reliance on exports and ensuring energy security. We are well aware of that, although we believe that our gas will remain in demand in Europe and we see no reason to decrease our supplies.”

By developing renewable power generation, Russia is also addressing other problems such as promoting technological development based on our own resources, and developing high-power engineering. “In terms of solar power generation we already rely mostly on Russian manufacturers. Progress has also been achieved in the generation of wind power. In January 2018, Fortum, together with RUSNANO, launched a major 35 MW wind farm in Ulyanovsk Region,” said the Deputy Minister.

A Cluster Could Be Created but Then Straightaway Cease to Exist

However, when the head of RUSNANO, Anatoly Chubais, took the floor, it became clear that Russia’s technology independence in the area of renewables is exposed to major threats. According to Mr. Chubais, an integrated cluster will be created in the country by 2024, which will combine a number of functions: power generation, manufacture of equipment, scientific work related to such manufacture, and education. Solar power generation has already proved to be hugely successful, as not only have generation facilities been built but the required equipment is being manufactured and western technologies are even being upgraded using the results of Russian R&D.

As Mr. Chubais said, those changes have become possible due to the “effective” support provided by the regulatory authorities to renewable power generation. That support takes the form of long-term capacity supply agreements (CSA) for renewables (the state guarantees nearly 12% return on invested capital, as long as the contractor complies with the terms and conditions of the agreement). This instrument may no longer be effective after 2024.

According to the head of RUSNANO, the future of renewable power generation depends on the Ministry of Energy, which has to decide whether or not the CSA mechanism should be extended beyond 2024. “According to our estimates, the capacity of renewable energy in 2024-2035 should be at least 10 GW (editor’s note: i.e. CSA agreements should be in existence for this volume of capacity) if we do not want to see the cluster destroyed. Any less will be useless. We will have created the cluster and then destroy it with out own hands.” According to RUSNANO’s estimates, assuming that the state does cooperate, the proportion of renewables will reach 5% of the total domestic capacity by 2035 thanks to the commissioning of an additional 10 GW.

Arguments for Extending the Current Support for Renewables

According to Mr. Chubais, the lack of such support as CSAs will be a blow to both production and science, because they are focused on power generation, which, in turn, depends on demand. It is the agreements that drive the demand. Moreover, the head of RUSNANO says that if demand drops below 10 GW, the industry will suffer a series of bankruptcies. “We will lose it, we will waste our research and development, and we will be fully dependent on importing equipment for renewables into Russia. Our friends from China and other countries will be very happy to enter our market.”

The Proportion of Renewables in Russia’s Energy Mix Does not Exceed 0.2%

Mr. Chubais delivered his speech facing Alexey Texler, his closest neighbour on the discussion panel. When addressing him, he made a point of reiterating that the figures provided by the Ministry of Energy (which incidentally were not read out) did not resolve the problem and it was now entirely up to the policymakers within the Ministry to decide “whether or not Russia will continue to have a strategic integrated renewable power cluster.”

Arguments Against Renewables: Lack of Demand, and Lack of Funding

When Mr. Texler was given the microphone he presented the arguments of the Ministry of Energy. He believed the main problem was that the growth in energy consumption in Russia is slowing down. According to the basic scenario, consumption will only grow by 0.5% a year. This will lead to an excessive supply of capacity.

“The CSA programme was based on an annual growth in demand of 3-4%. This never happened. We have built state-of-the-art generation facilities while having 20 GW of excess capacity. The main question is, who will pay for that?”, said Mr. Texler.

If the CSA mechanism is extended, it will be the energy consumers who will have to pay (as the return on investments will be paid using the money collected from purchasers of energy). Valeriy Dzyubenko, the Deputy Director of the Association of Energy Consumers, a non-profit body, told DW that payments for renewables under CSAs signed up till 2024 would cost the industry about RUB 2.5 trln roubles.

According to him, the use of this instrument guarantees a purely “fictitious demand”. According to Mr. Dzyubenko, the state should explore other ways to promote demand. “It is strange that state support, rather than being based on budget-related or regulatory decisions, is based on making users pay from their own pockets for the creation of privately-owned assets for third parties,” he said.

The next six months will show who has the stronger lobby—energy consumers or the energy companies themselves. According to the information presented by Mr. Chubais, that is the period within which the Ministry of Energy should deliver its final decision on this issue.

Source: Deutsche Welle, 06.06.2018