Russia’s energy agency and Greece’s centre for renewable energy recently signed a memorandum of understanding concerning the collaboration between the two institutions in the areas of renewable energy and energy efficiency. The second stage of this collaboration was the forum for renewable energy that the two institutions co-organized at a trade show in Thessaloniki on Sunday.
Russia’s representatives, including the country’s energy minister, aimed to persuade attendants that the business and regulatory environment for renewable energy in Russia is ready to encourage growth.
The main reason for this, said Alexander Pates, director of international business development at Russian-based EPC developer Solar Energy Holding, is the structure of Russia’s wholesale electricity and capacity market, where power generators are guaranteed for return on their investments with fixed revenues. Similarly, payment terms for solar power generators "are established by Russian federal legislation, but not tied to state budget," Pates told the forum.
On the other hand, Pates added, investors often worry that the rules of policy development will not remain the same. Again, Pates said, there is minimum regulatory risk because developing solar energy in Russia is one of the pillars of the country’s published Energy Strategy. As such, key stakeholders are in a strong position to lobby and protect the industry’s interests. Among such stakeholders are Chinese investors, who also participate in intergovernmental agreements between the two countries.
Finally, even if there are some policy mistakes, the effect will be minor on the electricity market because, according to Pates’ information, "total planned development of solar energy projects will bring 2020 capacity to just 0.5% of the total Russian electricity market, up from only 0.025% currently."
1.56 GW of solar PV by 2020
Russia has installed just 60 MW of solar PV capacity to date, however, the country has tendered 1.56 GW of PV capacity which needs to be developed by 2020. Of this, 1.1 GW needs to be built by 2019.
PV parks that use local producers receive feed-in tariffs almost three times higher than projects with components that are fully manufactured abroad. Trial projects that used only foreign PV components, Pates told pv magazine, proved uneconomic.
A question that springs to mind is whether Russian PV manufacturers can support 1.56 GW of PV installations by 2020, however, Pates appeared confident that this is not an issue and referred to his company that is planning a joint venture with an unnamed stakeholder to build PV components locally.
Alexandr Choursin, director of business development at Hevel Solar, a Russian integrated solar company, agreed, adding that Hevel will soon upgrade its manufacturing facility, with the aim of reaching 200 MW of module production capacity per year. Hevel Solar modules use Hetero Junction Technology and the company’s new facility will lead to a reduction in production costs of 20%, according to Choursin.
Capex, PV popularity and the ruble
Russia’s tenders for PV licenses are unique in that the bidding concerns the Capex price and not the feed-in tariff (FIT). Bidders with the lowest Capex price will win the tender and the Russian institutions will assign the winners a FIT that matches the Capex price. The tariff will then remain steady for 15 years.
A typical FIT for a solar plant in Russia is 42 million ruble (USD 647,000) per MW annually, while the government is aiming for tariffs that will lead to an internal rate of return (IRR) of 14% per project, said Pates. His company, Pates argued, can achieve IRRs above 20% due to good project management. The downside, according to Pates’ analysis, is that an individual 15 MW PV project costs around 35 million. This high price is due to the company using local PV content.
Nevertheless, Pates concluded, PV projects are favored by both the investors and the government institutions. One reason for this is that a PV construction can take just 4 or 5 months, while the latter prefer PV to other technologies as the produces can be manufactured locally.
From his part, Choursin stressed that Russia also has the potential to develop 1 GW of off grid hybrid solar and diesel plants for the country’s geographically remote areas.
The forum in Thessaloniki captured Russian stakeholders’ momentum to develop solar PV on Russian soil. An issue that undermines such momentum, though, and which was not addressed at the forum is the risks linked to Russia’s currency, the ruble.
Pates told pv magazine that the government will give investors fixed currency rates if they use local content. But the mechanics of such a scheme do not appear clear at the moment. The appetite for investment from both international and Russian stakeholders will be affected by Russia’s currency and business environment reputation. Such issues might prove a hurdle for the country’s 1.56 GW of tendered PV by 2020.
Pates said Solar Energy Holding has 405 MW of projects under preparation, of which 60 MW of PV (four projects) have secured equity financing.