Russian Government Push ‘Green’ Energy on Power Companies / Citizens……Like the West

Posted: February 17, 2015 in Econ 101, Technology and Energy

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Russian government obliged grid companies to buy green energy

The Russian government has approved amendments to the existing federal law “On Electric Power Industry”, which provide support for the national renewable energy in the national retail market.

The new support mechanism applies to almost all types of renewables, and in particular biogas, biomass, landfill gas, solar, wind, and small hydropower.

According to the new amendments, grid companies become obliged to buy electricity, produced from renewables, in order to compensate losses on tariffs, which guarantee a return on investments for the construction of power plants. “Losses on tariffs” in this case means that grid companies will buy green energy, while there is a high green tariff and after this will sell it to their consumers at prices for conventional energy, which is around 3.5 times lower than green tariffs.

The debates about the need of purchase of green power by grid companies have been taking place in Russia since 2013. The majority of local electricity consumers have opposed this decision, believing that it will result in a significant increase of tariffs. At the same time, grid companies believe that it will result in a significant increase of their costs.

On the other hand, the developers of renewable energy call for a raise of the limit of capital expenditures. As a result of the debates, the government decided to limit the volume of purchases of renewable energy by grid companies and imposed new requirements of local content for renewables’ equipment.

According to the latest state amendments, in order to get a green tariff, each renewable energy facility must obtain a certificate of competency and be included in the scheme of development of electric power of a particular region of Russia.

In the latter case, each region of Russia will organize a tender among potential projects, while the winners will be selected on the basis of such factors as capital costs, payback period, the base level of profitability and some others.

The amendments include that the purchase volume of electricity from renewable plants should not exceed 5 % of the forecasted amount of electricity that grid companies lose while transporting it from power plant to customer. The tariff for renewables will be established by regulators of each region of Russia, using the method of long-term indexation, based on the established limits.

For renewables’ facilities, commissioned from the beginning of 2017, the level of the tariff depends on the requirements for local content of the equipment. In the case of reduced local content, the tariff will be reduced by more than half.

Payback period of the projects is 15 years, the rate of return is 14 % for objects commissioned before January 2017, and 12 % for facilities commissioned later.



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