EUROSOLAR Russia

INTERVIEW: Russia must address localisation rules to meet $17 billion renewables investment target

editor, 11 December 2013

Russia’s Energy Minister Aleksandr Novak last week reiterated the state’s pledge to invest $17 billion in renewable energy, but the government must address the wind power deficit in its recent auction to meet that target, Eurosolar Russia’s Board Chairman George Kekelidze told Clean Energy Pipeline.

“This depends a lot on the wind side – without that, $17 billion is not achievable,” he said.

Russia’s first renewable energy auction this autumn elicited no wind energy bids at all for projects that could produce power by 2014 or 2015, and wind bids submitted for the 2016 and 2017 quotas totalled just 105 MW, compared to 999 MW of successful bids for solar energy projects.

The underlying problem is the discrepancy between Russia’s localisation rules and the country’s non-existent domestic wind manufacturing industry.

“The leader goes into a new market and builds up a factory; then around that, a cluster is formed of the companies that make the raw materials and parts for it,” said Kekelidze. “That very thing happened here and may need more time to fill up to fulfil the obligation for localisation. In other words, it’s very difficult to fulfil the localisation rules in the beginning stage.”

One way to address Russia’s wind energy deficit would be to relax the localisation rules, and another would be to reduce them. Green organisations and the World Bank’s International Finance Corporation’s (IFC) Russian Renewable Energy Program, which aims to mobilise private sector involvement in the country’s energy sector, are considering ways to alter the country’s existing legislation.

“We believe there will be some changes in the near future which will make it more attractive for the participants, especially on the wind side,” said Kekelidze. “It’s mainly has to do with easing up of the localisation rules or giving more time for localisation.”

Stringent localisation demands on solar projects may also impact the amount of money that Russia will eventually spend on the renewables industry.

“It’s not enough that you build the park [and produce power], you also have to provide 50% localisation in terms of crystalline silicon [for 2014],” said Kekelidze. “If you look at the silicon manufacturing, it starts with the crystalline silicon, which has to be 20%; then it goes to tracking of the wafers, which is a 15% share; then it goes to the cell manufacturing, which is 25%; then to the assembly of the battery, which is 55%; then engineering, which is about 23%; inverters is 12%.”

The Russian government originally ratified its commitment to invest $17 billion in the renewables sector in a decree issued on May 28 to help the country fulfil its target to install 4% renewables by 2020.

“It’s expected that in the second round of tenders, which will happen in mid-2014, the interest will be much higher and the three-quarters will be taken, at least, [by] solar,” said Kekelidze.

Kekelidze did not question the government’s commitment to its investment target, but rather the ability of companies to realistically achieve it.

“Government is committed to make that investment and this is the great news,” he said. “The ministry has to fulfil the budget, which is the state law, and it is already included into the budget, so there will be no changes in this rule. Now whether all of the $17 billion will be reached, or only part of it, depends on the companies.”

On the up side, Russia’s renewable energy industry is already showing signs of becoming competitive, with Chinese manufacturers already entering the country and a second renewable energy tender due in mid-2014, according to Kekelidze.

“Definitely there is progress around the projects already starting up; investors are making the contracts with the EPC contractors [and] the silicon manufacturers, so the whole machine has already started to roll,” he said.

“Also, it will be very interesting in the beginning of 2014 when [the EPC contractors will be announced]. Some of the contracts have already been concluded. Some of the approved projects are still in the process of negotiation, but the time is running very short.”

Projects that won the autumn tender are required to start generating power by December 1, 2014. They must also satisfy localisation obligations, and must not exceed government’s quotas for individual technologies.

For more information, George Kekelidze, Chairman of the board at trade association Eurosolar Russia, can be reached at info@go2ru.com.

The reporter, Jessica Mills-Davies, can be reached at jessica.millsdavies@vbresearch.com.

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