Renewable energy sources (RES) are natural resources that are naturally regenerated and can be used for energy production. They include solar, wind and geothermal energy, hydropower, and bioenergy. RES differ from traditional fossil fuels in that they are not exhausted in the long term and have minimal environmental impact. Due to their sustainability and environmental safety, RES play a key role in the global transition to a carbon-neutral economy.
Alternative energy is taking an increasingly important place in the global economy. With the growing global environmental challenges and the need to transition to a carbon-neutral economy, renewable energy sources are becoming key areas for the energy sector. Russia, despite its wealth of traditional energy sources such as oil, gas and coal, is also moving in this direction. In 2024, the issue of transition to renewable sources becomes relevant for our country as well.
Status and potential of alternative energy in Russia
The share of renewable energy sources, including solar, wind and hydropower, continues to grow in the global market. According to the International Energy Agency (IEA), in 2024 about 30% of the world's electricity will be generated from renewable sources, and by 2030 the total capacity will grow 2.7 times to 5,500 GW.
At the same time, the development of RES in the world is uneven: the key regions are developed countries, China, and India. And the leading growth factors will be the Chinese market and the increasing share of solar energy.
As of August 2024, the total installed capacity of renewable energy sources (RES) in Russia is 6.19 GW. The bulk of this capacity is provided by wind and solar power plants, which account for 2.57 GW and 2.22 GW, respectively. Small hydroelectric power plants with a capacity of up to 50 MW, with a total capacity of 1.3 GW, also play a significant role. In addition, Russia operates power plants using biomass, biogas, landfill gas and geothermal energy with a total capacity of over 100 MW.
In Russia at the end of 2023, the share of RES in total electricity generation was less than 1%, which is significantly lower than the global level. However, the country's potential is huge: Russia has some of the best resources for RES development due to its natural conditions and the scale of its territory.
Figure 1: Dynamics of the total installed capacity of RES generation facilities in Russia
Source: Association for the Development of Renewable Energy (ADRE)
SPP - solar power plants, WPP - wind power plants, SHPP - small hydro power plants, BPP (biomass) - biomass-based biopower plants, BPP (biogas) - biogas-based biopower plants, BPP (landfill gas) - landfill gas-based biopower plants, GPP - geothermal power plants, PES - tidal power plants.
Solar energy. Despite the high share of solar irradiation in regions such as the North Caucasus, the Far East and southern Siberia, the development of solar energy in Russia remains limited. In 2023, the installed capacity of solar power plants in Russia amounted to 2.2 GW, which is modest compared to global leaders such as China (217 GW) and Germany (81.7 GW). However, growth is expected in the coming years due to subsidy programs and government support.
Wind energy. Russia has significant potential for wind energy. Especially promising are such regions as Kalmykia, Murmansk Region, Republic of Bashkortostan and Yakutia, where wind load is high. In 2024, the capacity of wind power plants is about 2.5 GW, and it is projected to grow to 10 GW by 2030. The development of wind power in Russia is due to investments by major market players and active introduction of new technologies.
Hydropower. Hydropower is traditionally a developed segment in Russia. As of 2023, it accounts for more than 17% of the country's electricity generation structure. Construction of new HPPs and modernization of existing facilities continues, although the growth rate is significantly lower than that of wind and solar power.
Support for renewable energy development
Wholesale electricity and capacity market
On the wholesale electricity and capacity market (WECM) of Russia, the system of stimulating investments in the generation of renewable energy sources (RES) includes two stages. The first one, implemented from 2013 to 2024, started functioning after the approval of the Russian Government Resolution No. 449 of May 28, 2013 “On the Mechanism for Supporting the Use of Renewable Energy Sources at the Wholesale Electricity and Capacity Market” (hereinafter - Resolution No. 449). Under this system, RES are incentivized through the sale of capacity of qualified generating facilities, which is regulated by the WECM rules. Investment projects are selected on a competitive basis, after which investors receive the right to execute capacity delivery agreements (CDA) with all consumers in the relevant price zone. These contracts ensure payment for the installed capacity over a 15-year period, which makes it possible to return the invested funds and receive a certain rate of margin.
Within the framework of the first stage of the support program (RES DPM 1.0), the selection of renewable energy projects was carried out according to the criterion of minimum capital costs for implementation. Projects with the lowest costs were selected first, followed by more expensive projects until the capacity limit set by the Government for each type of RES was reached. If the volume exceeded the limit by no more than 10%, all bids were included. Cost competition was conducted within each RES type separately.
In order to strengthen the scientific and industrial potential of RES and increase localization of equipment production, the Government in 2021 launched the second stage of RES support for the period from 2025 to 2035 - the RES 2.0 DPM program. The main goals of the program include increasing the competitiveness of the Russian industrial cluster in domestic and international markets, developing competencies and increasing exports of high-tech equipment based on RES. By 2036, it is planned to achieve price parity between electricity and RES capacity and the weighted average unregulated electricity price on the Wholesale Electricity and Capacity Market. The total amount of support under the RES DPM 2.0 program will amount to RUB 360 billion (in 2021 prices).
The main differences between the RES DPM 2.0 and the first stage are as follows:
- RES projects will be selected based on the efficiency of the generating facility rather than on capital costs;
- introduction of annual support in rubles instead of limiting it to annual volumes of commissioned capacity;
- a ballot methodology and new target indicators of equipment localization are used, and penalties for non-compliance with these indicators are strengthened;
- export requirements have been introduced, where export proceeds must be correlated with the electricity produced and an efficiency indicator;
- the capacity of the MHPS project to be tendered should not exceed 50 MW (instead of 25 MW).
The first competitive selection under the RES 2.0 DPM took place in September 2021. Due to the crisis and sanctions restrictions, the selection of projects in 2022 was postponed to 2023 and had to be completed by May 1, 2023. The Russian Ministry of Energy forecasts that more than 6 GW of new RES capacity will be commissioned under the RES 2.0 DPM program, and the cumulative capacity of plants built under both programs will exceed 12 GW by 2035.
Retail electricity markets
The mechanism to support the use of renewable energy sources (RES) on retail electricity markets (REM) became effective after the Russian Government issued Resolution No. 47 of January 23, 2015 “On Amendments to Certain Acts of the Government of the Russian Federation Regarding Stimulation of the Use of RES on Retail Electricity Markets”.
This support is based on contracts for the sale of generated electricity to territorial grid organizations (TGOs) to cover losses up to 5% of their total volume at a regulated tariff, which guarantees investors a return on invested funds for the construction and operation of facilities, as well as a return on invested capital.
The mechanism of RES support at the REM involves a competitive selection of projects to be implemented in various regions of the Russian Federation. Support includes partial compensation of costs for technological connection of a generating facility to the grid, which covers up to 50% of the connection cost. These measures are financed from the federal budget.
Microgeneration
At the end of 2019, Federal Law No. 471-FZ of December 27, 2019 was adopted, which amended the current Federal Law No. 35. It grants individuals and legal entities that own microgeneration facilities the right to transfer surplus generated electricity to the grid. Sales companies are obliged to purchase it. It is important to note that the income received from the sale of electricity from microgeneration facilities is not considered an entrepreneurial activity until 2029 and, accordingly, is not taxed.
Despite the positive expectations of experts, the microgeneration market in Russia has not yet become widespread. Experts consider the following factors to be the main obstacles to the development of this area:
- high cost of connection to the common grid and long application process;
- limited mechanism for application in apartment buildings;
- low purchase price for electricity (energy sales companies offer purchase price about three times lower than the price for end consumers);
- insufficient public awareness of the benefits of this mechanism.
Limitation of greenhouse gas emissions
In addition, Federal Law No. 296-FZ “On limiting greenhouse gas emissions” was adopted in 2021, which provides for the introduction of carbon taxes for large companies. This could be an incentive to increase the share of RES in the country's energy mix, as companies will seek to reduce their carbon footprint by switching to more environmentally friendly energy sources.
International sanctions imposed on Russia are also playing a role. With oil and gas exports declining, the industry and government are looking to diversify the economy and develop the domestic RES market.
The largest companies in the RES sector
RES development in Russia is impossible without major generating companies, which have been actively investing in this sector in recent years.
“RusHydro". One of the largest hydropower operators in Russia with a capacity of over 30 GW. RES account for 81.5% of the company's installed capacity. “RusHydro" is actively engaged not only in the development of hydropower, but also invests in the construction of wind power plants. As part of its strategy until 2025, the company plans to increase the share of renewable energy sources in its portfolio.
PJSC EL5-Energo (formerly Enel Russia). The company has been actively developing wind power projects in recent years. In 2023, the operating capacity is 300MW. Among the ongoing projects: the project of the second wind farm in Rostov region, Saratov region, solar power plant.
PJSC Forward Energy (formerly Fortum.) The portfolio of implemented projects of the company and partners in the field of RES is equal to 1174 MW. Current projects include 151 MW of solar power capacity and 111 MW of wind power capacity.
JSC Rosatom Renewable Energy (formerly NovaWind). A subsidiary of Rosatom, which is a key player in the Russian wind energy market. Since 2020, has launched several wind farms with a total capacity of over 1 GW and continues to expand. The current project portfolio envisages capacity expansion to 1.7 GW of wind power capacity.
“Hevel”. The largest Russian company in the field of solar energy. As of 2024, Hevel operates several large solar power plants with a total capacity of 1.6 GW. The company is actively implementing innovations in energy storage and plans to expand its presence in the domestic and international markets.
Challenges for RES development in Russia
Despite the growing interest in renewable energy sources in Russia, this sector faces a number of challenges:
Economic barriers. High initial costs for the construction of RES facilities are one of the main challenges for their development. In addition, oil and gas prices remain relatively low, making conventional energy more attractive to investors.
Technical limitations. One of the problems is the lack of sufficient infrastructure to integrate RES into the overall energy system. Grids and energy storage systems need to be developed to ensure stable power supply, especially in regions with a high concentration of solar and wind generation.
Legislative difficulties. Despite the availability of state support, the process of licensing and obtaining permits for the construction of RES facilities remains long and complicated. This slows down the development of new projects.
Lack of a developed market for small and medium-sized companies. In Russia, the RES market is largely controlled by large players, which hinders access for small and medium-sized companies that could contribute to the development of the sector.
