April 30, 2013

Russia Unveils Draft Renewable Energy Law

Russia’s Energy Ministry submitted a draft renewable energy law to Prime Minister Dmitry Medvedev for approval on 15 April. It is aimed at supporting the deployment of renewable energy sources including solar, wind and hydroelectric power plants across the country.

If approved, RUB 85 billion (around US$2.8 billion, €2 billion) will be made available to support renewable energy projects in Russia. According to Deputy Prime Minister Arkady Dvorkovich, the draft was scheduled for approval on April 18. However, the deadline has now been shifted back until April 25.

The incentive scheme is expected to be implemented through power purchase agreements and will prioritize projects in line with a local content requirement. According to the draft, the new law guarantees a 14% return on investment. No specific details have been released regarding the tariffs for the individual technologies.

The draft law is one of the major provisions of the recently approved state program, "Energy Efficiency and Energy Development in Russia" for the period 2013 to 2020. It has been devised in an attempt to reduce Russia’s reliance on oil and gas.

The law has been based on the Russian Energy Ministry’s renewable energy program launched in 2009. Originally, the goal was for renewables to cover 1.5% of Russia’s electricity demand by 2010, 2.5% by 2015 and at least 4.5% or 11 GW of installed capacity by 2020. However, in 2011, only 8.5 billion kWh of energy – less than 1% of Russia’s total electricity output – was produced from renewables.

This underachievement was not unexpected, given that the industry suffered from extremely low investment attractiveness, reports Russian newspaper, Kommersant. It cites the lack of local legislation, compensation rules, grid connection and experience for production of equipment for renewable plants, as well as the high cost of electricity, as the major problems, which impeded the development of the renewables industry in Russia.

Consequently, the government is now said to be targeting around 2 to 2.5% of renewables, or 6 GW of installed capacity by 2020.

Local consumer associations and conventional energy producers have opposed the proposed law, specifically due to the investment volume and the subsidization of renewables, continues Kommersant.

According to the newspaper, they claim the incentive program could lead to weaken the position of solar thermal generation, and cause a significant rise in electricity bills. It is not unacceptable to subsidize renewables at the expense of other consumers, they reportedly argue.

Last October, it was reported that Russia was said to be considering the introduction of an auction, in order to select solar projects. At the time, it was expected that no more than RUB 50 billion would be made available until 2020.

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