A tender for the generation of 496 Megawatts of electricity by solar power was recently issued by the Russian government. Russia’s allocation for power generation by alternative energy sources is still small, but growing.
Is Russia beginning to turn to alternative energy sources? Andrey Malafeev, the PR and Communications director at Bright Capital, a Russian investment bank, and Victor Antonov, the vice president of Solar Energy Holdings answer these and related questions.
What does this mean for Russia?
Victor Antonov: This means that the Government can target to have up to 5% of renewable in the balance of energy sector: hydro, wind and solar. So, they try to stimulate this sector and initiated this auction and this tender, to motivate companies to invest in this sector.
Aiming for 5% allocation to alternative energy sources by when and what way?
Victor Antonov: By 2020.
Andrey Malafeev: At the moment, although the amounts are quite huge, but this is less is less than one 1% of the total power generation in Russia. And Russia is lagging far behind the well developed countries.
For your company, this is a major deal, isn’t it?
Victor Antonov: Yes, we as a developer participated in this tender and gathered together the investors, some guarantors that are required to participate in this tender, and actually the team which started doing this. They’ve been in the energy sector for years and saw the opportunity that arisen in Russia. And to the surprise of some other players on the market, we won the hugest piece of this cake.
It wasn’t only your company, to be fair, there are other Russian companies who have also won part of the major energy allocation. But they are all the Russian companies. And I gather that the reason for that is because the Russian Government wants to localize energy supplies, is that correct?
Victor Antonov: First of all, because of the mechanism that the Government used – through a wholesale electricity and power market. So, to be the participant of that market and to sell power and electricity, you have to be a Russian company, to be the supplier. The second part is because the Government intended to have a new development in the high technology sector. So, they created this program bearing in mind that companies will bring the production facilities into Russia and would use power plants companies in Russia. If you are not, by doing this you have lower tariffs and lower prices.
What will be the impact of alternative energy sources on the Russian consumer? Will they like this?
Victor Antonov: Definitely not. Actually, a couple of companies tried to sue the Government because of this mechanism. They failed, because they said – if you don’t want to buy electricity, you can do whatever you want, go out from the market. The rules are here and we dictate them. But in the end, definitely, the consumers would have some increase in the prices.
We know that gas and oil are getting more difficult to explore. But there are still parts of Russia where you just put a tube in the ground and gas comes out of it. I mean, it is not that difficult.
Victor Antonov: But not a lot of people live there, unfortunately.
Andrey Malafeev: This is the first thing. The second thing is that gas is not renewable.
Back to the Russian consumer. So, now you are going to get a 25% increase in your electricity bill or I'm exaggerating, perhaps. But they are going to be told – that is because we are moving forward into the green age, into solar power. Are people going to accept that?
Andrey Malafeev: We discussed this problem and, basically, what we see is that because of the structure of the Russian economy over 70% is controlled or subsidized, or directed by the Government. And the amount of the private consumers in this pie is very small. Basically, the Government will be subsidizing the renewables on the expenses of this part of industry that is already being subsidized. So, regular people will not experience the dramatic rise in the cost of energy for them.
How long will it take investors to get their money back?
Victor Antonov: We have a program for more than five years. And each year we have an increasing number of power plants we should build. So, actually, investing in the first power plants, we plant to reinvest the return into the next stage power projects. So, if you take this one investor approach, you will not see any money for at least five years, because you are reinvesting them into the next stage.
Five years is an incredibly short amount of time. Most people are thinking about 20-30-40 years.
Victor Antonov: Not for the Russian investors. Even the governmental directive that established these rules guarantees 14% return and it is connected to the Russian bonds. So, if we have some turbulence on the financial market, it is kind balanced. So, if you have efficiencies on capital expenditures or on the operational stage, better figures than it is in the legislation, then you have an additional return. In fact, in five years you can have a total payback.