with Anton Usachev, President, Solar Energy Assocation (RASE)
Russia’s economic policy and energy mix have traditionally been very focused on the oil & gas sector. While set to grow, the solar energy industry is still new to the country. Where does the sector stand today?
According to the current targets of the government of the Russian Federation, the share of renewables will increase up to 1.5 % by 2015 and up to 4.5% by 2020. Russia has considerable potential in wind, solar, biogas and small hydro-stations, but amendments in the current legislation are required to unlock this potential.
Today, between 5 and 10 MW of solar energy is already installed at Russian households. These have been installed in regions where access to the grid is very limited and where households have traditionally been facing electricity problems. People in small villages in Southern Siberia –Krasnodar & Altai Republic– cannot wait for the grid to develop and have taken these initiatives without any government incentives.
Another line of systems worth emphasizing consists of the so-called ‘solar diesel systems.’ Such systems are worth being installed in areas with high levels of diesel generation. Existing diesel generation in several regions have a high cost burden: USD 3 for normal diesel generation versus USD 0.30 for energy generated through a solar diesel system. The authorities now understand that there are significant cost savings to be made.
As for the main grid, we also expect to see large scale PV-parks being installed in Russia over time. First, however, Russia will need to implement incentives that will guarantee the payback of such investments. The question is therefore not only related to how rich Russia is in terms of fossil fuels. Considering the size of the country and the sometimes limited road infrastructure, transportation can become expensive. In this regard, it therefore often makes more sense to build electricity generation systems closer to the end users.
The cost of wind energy has decreased over time, but solar energy still remains an expensive investment. Do you see this changing?
Since the industry is still new in Russia, it is hard to follow any trends. Looking at the world markets, however, costs in PV markets have been reducing. In ten years, PV prices have decreased by six to eight times. In countries such as Italy, for instance, grid parity has been achieved. Grid parity is the term to indicate that the cost to generate electricity from solar is equivalent to the cost of electricity generated from traditional energy sources. We therefore do not expect any exceptions for Russia, especially since we already have achieved such grid parity with our solar diesel systems. Based on the increasing tariffs for industrial customers of the main grid, we expect these to match the prices for PV by 2015. For residential consumers, in turn, we expect to match grid prices by 2020.
You mentioned amendments in the current legislation are still needed. What changes are you now lobbying for?
For traditional electricity generation in Russia today, we do not have tariffs as in Europe where the end users pay for electricity usage. Instead, we have the so-called BPM, which are agreements of capacity supply. We aim to use a similar mechanism for renewables in Russia too, as such systems reduce the influence on tariffs and are attractive for both foreign and Russian investors.
Is this very different from the system in Ukraine, where the solar industry is more developed today?
In comparison with Russia, Ukraine has its own energy policy and –infrastructure. The classical –call it ‘European’– tariff system works well for them and has already led to the development of 200 MW of solar capacity with further plans to increase this to 1 GW. Quite interesting is also the aspect that they use the additional capacity to cover energy-deficient regions. Russia, however, is a different country requiring a different approach.
How are traditional generation companies in Russia now looking at opportunities in solar?
The interest of traditional generation companies to develop renewables in Russia is on the rise, and will be able to materialize once the necessary payback systems and other requirements are in place for the sector to develop. It is to our understanding that no less than 2 GW in solar will be installed in Russia.
Beyond generation, you also lobby for the localization of solar module component manufacturing in Russia. Can you elaborate on this potential as well as the stimuli needed to unlock such opportunities?
In Russia, we already have some large and middle sized manufacturers of solar modules, but we are still missing production localization of other components needed for PV systems, such as inverters and fittings. At present, the largest manufacturers of solar modules in Russia are Hevel, Telecom STV and Dag & Kramny. In terms of production capacity, Hevel will be starting production in the middle of 2013 and manufacture 130 MW per year. Telecom STV, in turn, is already manufacturing 10 to 15 MW per year, while Dag & Kramny is currently at levels between 5 to 10 MW.
As for the other components, we are already in negotiation with a German company to produce inverters in one particular region of Russia. Taking into account that we will have a significant market in a few years from now, it will be better to have the entire supply chain in Russia. This does not imply that everything should be done by Russian companies however, but by companies on the Russian territory. Foreign companies too may have an interest in manufacturing these components in Russia rather than abroad.
How do you place these Russian players within the competitive landscape, both in Russia as well as abroad?
As for the domestic market, joint-ventures are not entirely unlikely for EPC and engineering services of PV solar parks, considering the limited expertise of Russian players in the sector. As for the manufacturing of solar modules and other components, there will be some required localization of 40 up to 70 percent. While it is clear that the Russian market will be mostly developed by Russian companies, it could be partly done in joint interest with foreign players.
As for Russian companies expanding abroad, our chances are still limited at the moment. Russian companies still have little experience in the sector, while many European players are ahead of us. There are particular areas of interest though, such as the aforementioned diesel solar systems. We have understood that the South African market faces similar challenges in this regard. If we manage to build our competence in this particular area, we can start looking at exporting our expertise to similar markets as ours, such as South Africa.
Europe is a well developed market where it will be hard to compete now. But what potential do you see in the CIS countries, where Russia can perhaps leverage its historical ties?
Countries such as Kazakhstan tend to procure their equipment more easily from China, in this sector. Russian companies have been analyzing other historically close markets such as Azerbaijan and Armenia too. However, as long as the legislation and incentives are also not in place there, the opportunities will remain limited. Belarus has launched certain incentives already, but does not have the necessary payback mechanisms for investors.
Thank you! Would you like to add anything we did not cover?
As a geography, Russia has nine different time zones and several different climates, which makes the testing of PV installations very important. We already have committed to a 100 KW PV park in Beograd in Southern Russia, 70 KW in Anappa on the roof of a railway station, as well as 60 to 70 KW on an island in the Republic of Karelia in Northern Russia. We have already committed to these small plants and results –so far– have proven to be excellent.