Renewables to cover less than 3% of power generation in Russia

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At the end of 2015, Russia’s total installed capacity is estimated to have totalled 243 GW, of which 235.3 GW was part of the nation’s Unified Energy System (UES). Thermal power plants (TPPs) make up 68.1% of the total installed capacity of the Russian energy system, and are followed by hydroelectric power plants (HPPs), with 20.3%, and nuclear power plants (NPPs) contributing 11.5%.

 

According to Ministry of Energy, about 7.6 GW of new generating capacity installations were completed in 2014 and another 4.85 GW were activated in 2015. The completion result achieved in 2014 stands for the best annual performance in more than a decade. Furthermore, 1.76 GW of generating capacity facilities were dismantled in 2014, followed by another 2.36 GW during 2015. According to the Ministry of Energy, almost 61% of the capacity added in 2015 was developed in accordance with Capacity Provision Agreements (CPAs) (65% in 2014), a mechanism which provides the generating companies with a guaranteed return on investment.

                                                

 

After 2008, the rate of growth of electricity consumption in Russia has levelled out. This principally reflected slowing industrial production in Russia and extensive energy-efficiency initiatives. In 2014, consumption increased only by 0.3%, mainly because of the weak performance of industrial production, which expanded year on year by less than 1.7%, and the increasing use of energy-efficient electronic systems. In 2015, consumption decreased by around 0.4% year on year, in part, because of the noticeable decline in manufacturing and in the Russian economy overall.

According to the country’s power sector development scenarios prepared by the Energy Forecasting Agency in October 2011, demand for electricity in Russia was projected to increase from 1,021 kWh in 2010 to at least 1,132 kWh in 2015 and 1,231 kWh in 2020 (according to the pessimistic scenario). However, even the pessimistic scenario appeared to be too optimistic, as consumption likely totalled 1,036 kWh in 2015. The ageing power infrastructure and previous overly optimistic projections for electricity demand growth have urged Russian officials to provide investment stimuli aimed at boosting construction of generation capacities. Today the market is notably oversupplied, which makes investment recovery difficult and risky.

Since 1991, the maximum load of installed capacity in Russia has not exceeded 160 GW, whereas the installed capacity is currently estimated at around 243.3 GW, of which more than 210 GW available. Furthermore, the sizeable oversupply of electricity in Russia, significantly deteriorating economic growth prospects for 2016 and 2017, at least, and, consequently, a less substantial increase in electricity consumption, will force electricity producers in Russia to reduce substantially their original investment programmes planned for the near future.

 

For more than five years, Russia has tried to demonstrate a political will to support the development of renewable energy, in part, by amending legislation in the electricity industry to stimulate the deployment of renewable energy technologies. In 2011, the government approved amendments to the Federal Law on the Energy Industry which anticipates the creation of new opportunities to use the capacity market mechanism to encourage renewable energy growth on the wholesale market and to give priority to the purchase of energy by grid companies on the retail market. In 2013, the capacity market model was introduced in 2013; enabling investors to be compensated for expenses incurred during the construction of renewable energy facilities.

However, non-conventional sources of electrical power are still poorly developed. In 2015, renewable sources of energy accounted for less than 0.5% of the total installed energy capacity in the country. Furthermore, this proportion is not expected to exceed 3% by 2024, at least.

Proposed incentives have encouraged potential investors, but functioning support measures have been slow to develop. Between 2013 and 2015, Russia rolled out competitive selection of renewable energy projects every year, in order to provide subsidies for 1,250 MW of solar power, 1,201 MW of wind and 592 MW of hydroelectric power. However, power investors have secured just 191 MW of wind and 70 MW of hydroelectric capacity offered at the auctions in the last three years. Companies were overwhelmingly interested in solar power projects, with investors succeeding to ink 1,184 MW of the tendered capacity. Potential bidders have been largely impeded by the restrictive requirement to secure a guarantee from a power generating company with installed capacity of at least 2.5 GW, and by the fact that at least 50% of the materials must be sourced from domestic production.

 

 

 


More information on this topic is presented in the PMR report:
Construction sector in Russia H1 2016. Market analysis and development forecasts for 2016-2021