STUDY Russia has the potential to produce and export renew- able electricity, green hydro- gen and other products with a low carbon footprint. CLIMATE CHANGE, ENERGY AND ENVIRONMENT 2020 was the year of wind generation in Russia, when, RUSSIA’S WIND despite the COVID-19 pandemic, it was possible ENERGY MARKET: to launch a large number of industrial wind power Potential for New Economy Development plants. The main obstacle to wind energy in Russia is the small domestic market, guaranteed by the program of state support, due to the lack of a climate and envi- ronmental agenda in the country. Tatiana Lanshina March 2021 The study pays much atten- tion to promising market niches for wind power in Russia, such as retail elec- tricity markets in energy- deficient areas (creation of energy cooperatives). CLIMATE CHANGE, ENERGY AND ENVIRONMENT RUSSIA’S WIND ENERGY MARKET: Potential for New Economy Development Tatiana Lanshina Ph.D. in Economics, CEO of the Goal Number Seven Association, Senior Research Associate, Russian Presidential Academy of National Economy and Public Administration (RANEPA) March 2021 in cooperation with 2 Vestas Manufacturing Rus LLC plant in Ulyanovsk, Russia 3 FES MOSKAU – RUSSIA’S WIND ENERGY MARKET: POTENTIAL FOR NEW ECONOMY DEVELOPMENT CONTENTS Preface .........................................................5 Summary for decision makers ......................................6 Introduction .......................................................8 1. Current State of Wind Energy in Russia 1.1. Regulatory Issues ...........................................9 1.1.1. Overall Objectives in RES .....................................9 1.1.2. Support for RES in the Wholesale Electricity and Capacity Market ......10 1.1.3. Support for RES in Retail Electricity Markets ......................12 1.1.4. Support for RES in Isolated Areas ..............................13 1.2. Localization of Equipment Production for Wind Energy. 13 1.3. Wind Power Generation .....................................15 1.4. The Impact of the COVID-19 Crisis on Wind Energy in Russia and Around the World ......................................18 2. Competitiveness and Development Potential of Wind Energy 2.1. Cost of Wind Power Generation .................................22 2.1.1. Calculation Methodology and Data .............................22 2.1.2. Results of Calculations .......................................24 2.2. Technical and Economic Potential ................................26 3. Possibilities for Wind Energy Development in Russia 3.1. Production and Export of Equipment .............................29 3.2. Electricity Generation .........................................30 3.2.1. Federal Level ..............................................30 3.2.2. Regional Level .............................................31 3.2.3. Isolated Areas .............................................31 3.3. New Market Niches ..........................................32 Conclusion .......................................................35 List of interviewed experts .......................................36 4 FES MOSKAU – RUSSIA’S WIND ENERGY MARKET: POTENTIAL FOR NEW ECONOMY DEVELOPMENT PREFACE After the Paris agreement has entered into force, the of good jobs across the supply chain. In addition to the world is moving towards climate neutrality. Many market for grid-connected wind turbines, Russia has countries including China, the USA and the European the potential to develop the market for off-grid wind Union, have officially declared their goal to reach cli- and to become the world market leader in this previ- mate neutrality in the coming decades. Russia hasn’t ously unoccupied market segment. officially declared this goal yet, but it has shown prom- ising signs with the ratification of the Paris agreement Another interesting option is the production of and several roadmaps, e.g regarding the future of en- “green” hydrogen from wind and other renewable ergy or hydrogen. As the energy sector is the primary sources. Current customers of Russian natural gas will source of greenhouse gas, this will have a deep impact sooner or later have to decide whether to produce on the way the world uses energy, and it will drive the their own hydrogen or import from other countries. switch towards renewable energy. While some coun- Given the existing infrastructure, Russia would have a tries, including China or Germany, have already made pole position in this race for the future world market big steps towards a renewable and climate neutral leader in the supply of green hydrogen. economy, Russia has just recently started to move in this direction. After the results of the previous FES/WWEA study on wind energy a few years ago showed that Russia has However: Four years after the first comprehensive an enormous wind power potential, this study now analysis of the Russian wind energy market was un- presents an in-depth analysis of the current wind sec- dertaken, interesting new developments have hap- tor and its strengths and weaknesses. pened. With today a total installed wind power capac- ity of around 1 Gigawatt, Russia has appeared on the If the country makes wind and other renewable en- global wind power map, although the country is not ergies a core of its national energy strategy, not only yet amongst the big wind power nations. In particular can Russia and its citizens and communities thrive, the past year 2020, the year of COVID-19, brought an but the whole world can benefit, directly and indi- impressive 700 Megawatt of new installations. rectly. Yet the market size is small accounting for less than The study was supported by the Friedrich-Ebert-Foun- 1% of the global market. And the wind power market dation and the World Wind Energy Association. has been dominated by a few players, both on the equipment and on the investment side. Russia has Given the potential effects of decarbonizing world managed to set up some wind equipment production economies on Russia, the search for a socially just eco- facilities on its territory, but the country has still not logical transition is one of FES main focuses. Develop- started developing its own technology. ing industries based on renewable energies could play an important role in this transition. To fully understand the challenge Russia is facing, it is important to emphasize that the Russian wind power sector is still very small not only in terms of Russia but also in terms of Russia’s role in global energy markets. Stefan Gsänger, Given the global situation where the demand for fossil World Wind Energy Association fuels is gradually but completely disappearing, Russia has now taken steps in the right direction by creating Peer Teschendorf, a wind power market and starting to harness its enor- Friedrich-Ebert-Stiftung mous wind potential. Lisa Gürth, It will be crucial that the wind power sector in Rus- Friedrich-Ebert-Stiftung sia can continue to grow sustainably, and that Russia uses its great innovative spirit to create its domestic wind industry as well, including potentially thousands 5 FES MOSKAU – RUSSIA’S WIND ENERGY MARKET: POTENTIAL FOR NEW ECONOMY DEVELOPMENT SUMMARY FOR DECISION MAKERS As of early 2021, more than 1 GW of wind power wind power generation, as despite the COVID-19 pan- plants are in operation in Russia, with more than 700 demic, numerous industrial WPPs were put into opera- MW of that commissioned in 2020 despite all the dif- tion for the first time and with a high localization rate ficulties and restrictions caused by the new COVID-19 (65%). Unlike many countries around the world, where pandemic. On a global scale, 1 GW of wind power ca- the pandemic has accelerated the energy transition and pacity is insignificant as this is only 0.15% of the world’s increased interest in renewable energy, the pandemic installed wind power generation. In Russia, wind power situation has not resulted in any positive long-term stra- accounts for only 0.4% of the capacity of all the en- tegic implications for the energy sector in Russia. ergy system and 0.13% of generation. Russia is the only major economy in the world where wind energy is just The main obstacle to the development of wind energy beginning to take its first steps. in Russia is the insignificant volume of the internal mar- ket, which is guaranteed by the government support Currently, Russia supports renewable energy sources program due to the de facto absence of a climate and (RES) in the wholesale electricity and capacity market environmental agenda in the country. In order for the (WECM), as well as in the retail electricity markets, in- enterprises established under the first government sup- cluding isolated territories. Significant volumes of wind port program and manufacturing wind power equip- power plant (WPP) construction are observed only with- ment to maintain the required minimum production in the framework of support for RES in the wholesale volume, it is necessary to build at least 4 GW of wind market, which is implemented through capacity supply power plants in Russia in 2025-2035, and for progres- agreements (CSA). By the end of 2024, this mechanism sive technological development, deeper localization, will ensure the construction of 5.86 GW of renewable and the arrival of new vendors, the construction of energy power plants, of which 60% will be WPPs. In at least 7 GW of wind power plants will be required. Russia, the share of renewable energy sources, exclud- For the second scenario, the total volume of the sec- ing large hydroelectric