Analysis
Russia Renewable Energy Update – Are the Hurdles Too High For Russia’s Renewable Energy Sector?
Russia is one of the world’s largest carbon emission producers. The country is responsible for almost 5 % of the annual global CO2 emissions, with only the U.S., India and China producing more. Differing from these nations, Russia denunciates the most limited commitment to reduce their output.
Moscow’s current targets to reduce carbon emissions are so low that it would require no governmental action to achieve those goals.
Multiple reasons explain Russia’s limited policy on pursuing more aggressive emission standards. There is an equal range of opportunities that contribute to the global climate accord. The renewable energy sector holds the most opportunities, yet Russia’s energy sector is largely dominated by fossil fuels. This research examines the opportunities and obstacles of the Russian renewable energy sector.
Opportunities for Russia’s Renewable Energy Sector
Russia’s energy industry is one of the largest and most advanced technologies in the world, incorporating hydrocarbon resource extraction and export. For decades, oil, gas and coal resources in Russia seemed to be limitless in Russia, then it became more and more difficult for drilling companies to extract the resources. The potential for renewable energy in Russia is abundant, yet untapped. The notable exception is the hydropower sector, which is to a large degree a relict from the Soviet past.
Russia is the world’s fifth-largest producer of hydropower. Its state-owned company, RusHydro, is the world’s second-largest hydropower company. Most hydropower plants are remnants of the Soviet era, but the hydropower sector in Russia is growing in quality and quantity. RusHydro plans to open three new small-scale hydropower plants in 2019. The hydropower sector is a beneficiary of one of Russia’s renewable support policies. Other renewable energies, such as wind and solar energy, on the other hand, have been ignored. The main reason is that the technology is not ample available in Russia.
Recently, the Russian government has become increasingly aware of the urgency of the pursuit of international sustainability. Russian President Vladimir Putin recognizes the “danger” of climate change and the development of renewable energy as “the right path”. As a result, Russia ratified the Paris Climate Agreement on September 23rd, 2019.
Russia’s approach to supporting renewables is a replica of Western countries’ successful policies. The progress in Russia, however, is slower than anticipated. One of the reasons, for the unsuccessful implementation, is the number of hurdles that the Russian government has created for foreigners to invest in Russia’s renewable sector.
Russia’s policy to specifically support the renewable energy sector is expressed in the Decree 449. Decree 449 passed in 2013. This represents Russia’s most evident attempt to improve its effort to encourage investments in the renewable energy sector. The decree allows renewable power producers to obtain long-term supply contracts, which provides producers with some economic security. Those efforts have proven successful in specific, but only in the domestic hydropower sector.
Obstacles for Russia’s Renewable Energy Sector
By far the biggest issue for the renewable sector is Russian dominance in its conventional energy sector. The abundance of hydrocarbon energy resources, such as oil, gas, and coal, denies the basis for renewables to flourish. The government has little interest in supporting renewables as the economy is highly dependent on revenues from oil and gas extraction and export taxes.
Although Putin has urged the importance of the renewable energy sector, the government is keen to protect the interests of the state-controlled oil and gas producers. Major energy companies might not oppose the production of renewable power, but the idea to replace hydrocarbons by renewables is highly unlikely.
Russia struggles to implement climate change policies, similar to almost all fast-developing economies of the so-called BRIC countries (Brazil, Russia, India, China). Climate-friendly policies are harder to achieve, due to underdeveloped democratic institutions and volatile economic structures. Within the BRIC societies, the growing middle class is developing a sentiment towards climate-friendly politics. Responsible and sustainable policies for future generations are thus no strangers, in which Russia is not exempt.
More influential on Russia’s climate politics is the international audience. The internationally popular “Friday’s For Future” anti-climate change protests, initiated by the Swedish teenager Greta Thunberg, have gained momentum in Russia as well. Although the general acceptance of these policies in Russia’s society remains lower than in other industrialized nations, the younger and more educated generations primarily in urban areas, recognize the necessity for these policy change and have gained more political influence over the last years.
Fridays for Future in Moscow
At the current the movement has only a single student, Arshak Makichyan, from Moscow, protesting on Fridays against Russia’s climate policy. Every Friday, since March 2019, mostly in Moscow’s lively area in front of the Pushkin Monument, Arshak is holding up a sign that says “Climate Collapse is coming”. This does not sound like a lot of activism. He is Russia’s Greta Thunberg. In Russia, not-to-be-authorized protest is only allowed by a single person – two or more require a permit for rallies, which in Russia is hard to come by, no matter what you are protesting. Thus, for Arshak, to avoid being arrested, he appears in public alone, but he believes to have millions of Russians supporters and the truth behind him.
Putin, unlike other autocratic leaders, is not a denier of climate change. His ratification of the Paris Climate Agreement, is possibly a result of the attempt to avoid further international isolation and domestic disapproval, at the same time to buy some grace period before actively pursuing climate change policies.
Despite benevolent governmental efforts, the renewable sector also faces systematic obstacles. Those obstacles are widespread amongst most industrial sectors and reflect the country’s negative experience of the 1990s predator capitalism. Russia is very keen to protect its key industries, especially the energy sector, against privatization, foreign acquisition, and foreign investments. These protective economic policies, developed under Putin’s early presidential terms, remain in place today and encompass the renewable energy sector.
The main obstacle for Decree 449 to deploy its purpose, is the local content clause for the renewable power producer. According to the decree, 65% of the equipment for wind farms and hydropower, and 70% of the equipment for solar power must be produced in Russia. As most advanced renewable equipment is developed and produced outside Russia, foreign investors would have set up local manufacturing, which makes investments into Russia’s renewable sector less likely.
Optimistic Future of the Russian Renewable Sector
Despite local content requirements, some foreign investment projects have emerged in Russia. The most prominent example is the Italian renewable energy producer, ENEL Green Power. ENEL Green Power has created a footstep in Russia’s renewable sector by establishing a Russian listed subsidiary in Russia, ENEL Russia. ENEL Russia was awarded its third wind power project near Stavropol in June 2019. The company plans to commission its first wind farm in the Rostov region in 2020 (90 megawatts (MW)), and its second wind farm in the Murmansk region in 2021 (291 MW). The wind turbines for ENEL’s wind farm near Rostov are supplied by the Spanish engineering company Siemens-Gamesa Renewable Energy. To abide by the local content requirements, Siemens-Gamesa partners with the Russian electric motor producer Ruselprom.
The second example of successful foreign investment in Russia’s renewable sector is the Finnish solar power company, Fortum. Fortum partners with Russia’s nanotechnology company RUSNANO to fulfill local content requirements. Fortum owns three solar power plants in Russia and plans to commission the fourth in 2023. At least three of Fortum’s solar plants will produce power under off-take contracts for fifteen years granted by Decree 449. Fortum claims to produce 4,912 MW (~5 gigawatts) of power in Russia.
The examples of ENEL and Fortum are indicators for the incentives provided by Decree 449 to be eventually functional, although showing slow progress. The scale of anticipated renewable power production, therefore, remains low. The probabilities that foreign investments into the renewable as well as domestic development of the renewable sector are increasingly optimistic. On the upside, the local content ratio for renewables of 65% and 70% is up for revision in 2020.