The eternal pendulum of Russian energy reforms

The authors of the Report entitled “Liberalization of the market and decarbonization of the Russian power sector: an eternal pendulum” consider it positive that Russia has managed to abandon the state-controlled economy and start development of renewable energy production (RESs). However, the experts claim that the Russian Government tends to choose administrative leverage rather than market mechanisms.  

In the experts’ opinion, the major mistake of the Russian energy reforms was an overstated forecast for power demand put in the basis of the 2008 state program of “Energy saving and enhancement of energy efficiency for the period up until 2020.” The experts attributed this as a signal to the “market distortion”: in their opinion, all following decisions regarding locations and capacities of the new power plants to be built and amounts of money to be allocated on them were based not on the market demand but governmental decisions.  

The “Power Delivery Agreements,” which also had initially been conceived as an element of the market economy, in the reality caused the development of particular (mostly, fossil-based) types of power production. Authors of the report consider such approaches as side effects of the era of “centralized planning” disrupting flexibility of the Russian energy system and its capacity to absorb market’s signals. Authors criticize the very approach to the power production development based on compensating the developers in the amount of installed capacities and not the actually produced electricity.  

The analysts pointed out that working on the new legislation intended to overcome the barriers for RESs development has recently started in Russia. However, the experts believe that the true barriers for the progress of RESs still remain: the priority of the fossil fuels, lack of the necessary infrastructure, researches and highly qualified personnel.

Authors of the report published in Oxford consider measures on the development of renewable energy in Russia insufficient. “In 2009, the national target indexes on renewable energy sources were set at the level of 4.5% of the total power production by 2020 (later on, this landmark was postponed till 2024). However, RESs production in Russia remains within the frame of 1%, the  major HPSs not taken into account,” they pointed out.

The experts claim, the total amount of renewable power production in Russia is expected to be brought to the level of 5.5 GWt within 10 years, and this is not enough for the development of the sector.  Also, the analysts consider the lack of evaluation of Russia’s capacities to export renewable energy and equipment for its production in the national plans as a drawback.  

The analysts refer to Vladimir Putin’s statement at the State Duma in December 2016, when the President stressed the necessity to provide environmentally sustainable development of Russia on the basis of energy efficiency of the Russian economy and development of renewable energy sources. It was the first time that from the high rostrum it was spoken about the support of micro generation.  The experts pointed out that so far this sector remained virtually non-existent due to the high costs of installation, lack of financial incentives and clear technical procedures allowing the owners to contribute energy to the network. The experts see good prospects for the development in this area: there are nearly 17 million individual house holdings in Russian regions.  Analysts see another possibility for the development of RESs in the remote regions of Russia where from 10 to 20 million people live with no centralized power supply.  

Since the end of the last year, the future of the Russian power supply system has been under discussion at field-specific departments and among specialists, the authors of the report wrote.  Most importantly, this was caused by the issue of the aging equipment. With no modernization, the gradual decommissioning of old power production stations (nearly 70 GWt till 2035) might cause an energy deficit. The authors of the report stated that the priority for the Russian power production remains not the RESs and energy efficiency development but modernization of the plants operating on fossil fuel.   

The experts identified the causes of the present situation. “As long as the initiative on RESs was launched with the purpose to develop national competencies in this sector and not for decarbonization, it clearly has fewer chances to win in this situation. The renewable energy sources in Russia might get certain support but from the very inception, its level is lower than that of fossil fuel power production,” the authors of the report pointed out. “And neither liberalization of the market, nor decarbonization have so far got the proper support in Russia.” The traditional system becomes obsolete and expensive, while elements of the new power system (distributed power sources, energy efficiency, and micro generation) may transform the energy landscape without any direct support of the authorities.

Activists of public environmental organizations agree with the experts’ conclusions. In their Position, representatives of the Russian Social and Ecological Union appeal to the Russian Government to “develop and adopt as soon as possible the Federal Law ‘On the Carbon Control,’ start practical actions on stimulating energy efficiency enhancement, RESs development, and implementation of new technologies using the carbon control.”