Renewable Energy Policy in Russia: Waking the Green Giant
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IFC Advisory Services in Europe and Central Asia IFC Russia Renewable Energy Program In Partnership with the Global Environment Facility (GEF) Renewable Energy Policy in Russia: Waking the Green Giant The green paper “Renewable Energy Policy in Russia: Waking the Green Giant” was prepared by the IFC Russia Renewable Energy Program. The conclusions and judgments contained in this publication should not be attributed to, and do not necessarily represent the views of, IFC or its Board of Directors or the World Bank or its Executive Directors, Global Environment Facility or the countries they represent. IFC and the World Bank do not guarantee the accuracy of the data in this publication and accept no responsibility for any consequences of their use. The material in this work is protected by copyright. Copying and/or transmitting portions or all of this work may be a violation of applicable law. IFC encourages dissemination of this publication and hereby grants permission to the user of this work to copy portions of it for the user’s personal, non-commercial use. Any other copying or use of this work requires the express written permission of IFC. Copyright © 2011 International Finance Corporation 2121 Pennsylvania Ave. NW, Washington, DC 20433 United States of America A Member of the World Bank Group Renewable Energy Policy in Russia: Waking the Green Giant “Green” paper for discussion “Green” paper for discussion Table of Contents Introduction ............................................................................................................................................................. 4 1. Renewables on the National Policy Agenda .......................................................................................................... 5 1.1. Overview ............................................................................................................................................................... 5 1.2. National renewable energy target ........................................................................................................................ 6 1.3. Economic, social and climate change policy ...................................................................................................... 10 2. Russian Energy Sector: Opportunities and Challenges for Renewables ................................................................ 13 2.1. Electricity sector reform ..................................................................................................................................... 13 2.2. Opportunities for renewable energy sources ..................................................................................................... 15 2.2.1. Power sector investment requirements ................................................................................................. 16 2.2.2. Isolated zones ......................................................................................................................................... 17 2.2.3. Momentum for “greening” the heat supply .......................................................................................... 18 2.2.4. Export potential ...................................................................................................................................... 22 2.3. Challenges .......................................................................................................................................................... 23 2.3.1. Unlevel playing field ............................................................................................................................... 23 2.3.2. Externalities ............................................................................................................................................ 25 2.3.3. Price control ............................................................................................................................................ 26 2.3.4. Variability ................................................................................................................................................ 28 3. Financing Renewables in Russia .......................................................................................................................... 31 3.1. The national support scheme for renewable energy.......................................................................................... 31 3.1.1. Historical background ............................................................................................................................ 31 3.1.2. The electricity premium scheme ............................................................................................................ 33 3.1.3. The new capacity-based scheme .......................................................................................................... 38 3.1.4. The premium and capacity schemes: exclusive or combined support? ................................................. 43 3.1.5. The compensation of connection costs .................................................................................................. 44 3.2. Regional support ................................................................................................................................................. 46 3.3. Kyoto Protocol mechanisms: joint implementation ........................................................................................... 46 4. Assessment of the Russian Support Scheme from a Public and Private Perspective ............................................ 48 4.1. Government perspective .................................................................................................................................... 48 4.1.1. Effectiveness of support / cost-efficiency ............................................................................................... 48 4.1.2. Reinforced Government control ............................................................................................................. 49 4.2. Investors’ perspective ......................................................................................................................................... 50 4.2.1. Regulatory instability and unpredictability ............................................................................................. 50 4.2.2. Investment / project risks ....................................................................................................................... 53 4.2.3. Contractual guarantees and investment protection .............................................................................. 54 4.2.4. Connection and access to the network infrastructure ........................................................................... 55 4.2.5. Reliability issues ...................................................................................................................................... 56 4.2.6. Lack of international experience with capacity-based support schemes ............................................... 56 4.2.7. Lack of independence from short-term political interests ..................................................................... 57 5. Waking the Green Giant: Possible Way Forward ................................................................................................. 59 5.1. Fine-tuning the national support scheme: issues for consideration .................................................................. 59 5.1.1. Stability and predictability of support .................................................................................................... 59 5.1.2. Reliability ................................................................................................................................................ 60 5.1.3. Mandatory targets .................................................................................................................................. 60 5.2. Making the wholesale market architecture renewable energy friendly ............................................................ 61 5.2.1. Guaranteed access to the network: prioritisation of electricity produced from RES ............................. 62 5.2.2. A renewable energy friendly long-term competitive capacity market ................................................... 63 5.2.3. A renewable energy friendly balancing market ...................................................................................... 64 5.3. Regional approach .............................................................................................................................................. 65 5.4. Greening the Russian CHP sector ....................................................................................................................... 65 5.5. Improving the investment climate for renewable energy investments ............................................................. 67 5.6. Environmental legislation ................................................................................................................................... 67 5.7. EU joint renewable energy projects: a Russian WINDTEC to green Europe’s electricity consumption .............. 67 “Green” paper for discussion Introduction In Russia, the subject of renewable energy is far from straightforward. On the one hand, Russian leaders have shown a strong political will to support the development of renewable energy by adopting a target of 4.5 per cent