The Ministry of Energy of the Russian Federation proposes modifying the selection procedure for projects under the Renewable Energy Program in the period of years from 2025 to 2035, in the amount of 400 billion rubles, as stated in the Russian government’s draft resolution of October 2, 2020.

The Ministry considers it necessary to depart from its prior practice of considering projects in terms of unit capital costs to evaluating the minimum price per kilowatt hour (including investment and operating costs). Under the new rules, the first selection round could take place in early 2021.

According to Kommersant, investors will continue to enter into long-term capacity supply contracts with consumers (RES CDA), which guarantee payments from the market. However, the method of calculating payments will change. Specifically, the investor will receive revenue from the sale of electricity on the day-ahead market (DAM), and the remaining portion of the payment will come from consumer payments for capacity.

The new program provides for fines for insufficient local ingredients in renewable power plants (85 percent of payments for solar installations and 75 percent for wind farms and small hydropower plants) and for missing the 20-percent target for equipment exports.

The NP Market Council performed model calculations to compare old and new selection procedures. The results show that projects which are more expensive in terms of capital expenditures will be able to win the competition. An SPP (solar power plant) with a peak value of 90,000 rubles per one kW, for example, will have a flat price of 20.5 rubles per one kWh. A more efficient SPP with a peak value of 100 thousand rubles will reduce the unit price to 19.3 rubles per one kWh by increasing load and production.

The Market Council reported that the project selection method based on a single price (LCOE) tracks the key indicator of the effectiveness for any technology, including renewable energy sources. It is already being applied in the selection of the modernization of obsolete combined heat and power plants. The organization expects the second stage of the program to become a steppingstone for renewable energy installations so that they can compete on an equal footing with other forms of electricity generation in the future and no longer require support.

The Association of Energy Consumers also believes the transition to flat price selection will encourage suppliers to maximize production and develop technologies, bringing Russia closer to a universally accepted global practice. However, the proposed deadline for reaching a competitive price level for renewable energy by 2036 is too far, as foreign renewable energy projects are increasingly competing with conventional energy in terms of price and do not benefit from subsidies.

Green energy experts have criticized the Ministry’s proposals. According to Alexey Zhikharev, director of the Russian Renewable Energy Development Association, the published draft resolution is full of contradictions.

He said, “The principles set out in the document have significantly increased the risks to investors; in particular, the fines for non-compliance have increased significantly. Previously, all fines related only to payments for capacity, but now, with the transition to a single price, the proposed sanctions are even jeopardizing DAM revenues. We hope the observations made during the public hearings will be addressed by the authorities.”