With many green energy projects put under financial pressure by the debt crisis in Europe, EU Member States may have to look further afield for help in meeting their 2020 targets.
Russia has for decades been one of the main suppliers of fossil fuels to the European market. But now, an ambitious new project may see the portfolio of EU energy imports from Russia augmented by wind power produced in the north of Russia and supplied to the European grid through Scandinavia.
The plan, which has been named RUSTEC, may help European countries meet their renewable energy targets by supplying cheap clean energy from dozens of onshore wind farms built across Russia’s Murmansk region and hooked up to a "power bridge" supplying electricity to the European grid through Norway or Finland. The project is the brainchild of the International Finance Corporation (IFC), which believes that renewables in northwest Russia will be even more attractive to investors than the multi-billion-dollar DESERTEC project that inspired it. The IFC has initiated an independent verification study on the RUSTEC project, and will “define further RUSTEC-related activities” based on the findings and recommendations of this study.
Like DESERTEC, the main driving force behind the RUSTEC project is the EU’s target of achieving 20 percent renewables by 2020 and proposed goal of 80 percent by 2050. The EU directive establishing the 2020 target explicitly allows Member States to draw on outside resources if there is a large renewable energy resource base that can be easily interconnected to the EU.
Russia seems to fit the bill. The wind resource in Russia’s northwest is large, and RUSTEC aims to tap this resource and capture the region’s renewable energy resources, which, because they are abundant and concentrated, could be more cost-effective to harness than offshore wind resources in Western Europe.
According to an IFC paper, Russia’s electricity systems are already “interconnected with the network supervised by the European Network of Transmission System Operators for Electricity.” There is already transmission in place between northwest Russia and Norway, Finland, Estonia, Latvia, and Lithuania. RUSTEC would require new capability however, and there are some plans already in place to ensure that this is created.
When dealing with Russian-EU energy relations, concerns about the security of supplies are never far from the surface. Past disruptions to natural gas supplies from Russia to Europe may make some EU Member States wary about deepening European dependence on Russian energy. However, traditionally the greatest risk to fuel supplies from Russia has arisen from disputes between Russia and transit countries. The RUSTEC project plans to supply electricity from Russia directly to the EU, thereby mitigating the transit risk.
The proposers of the RUSTEC plan acknowledge that developing resources outside the EU would prevent EU Member States from reaping all the social and economic benefits of developing domestic resources. Consequently, RUSTEC would need to balance EU economies’ loss of domestic opportunities with improved opportunities to export intellectual property and high-tech equipment.
Doubts also have been expressed about the instability and unpredictability of the Russian investment climate, and that this may have a negative impact on the business aspects of the project. But the authors of the IFC report observe that RUSTEC could result in improved EU-Russian cooperation if strengthened contractual, regulatory and political agreements reinforce power purchase agreements (PPAs) and bilateral investment treaties. They see the building of pilot projects delivered through existing infrastructure as a feasible short-term way forward.
For the longer term, the analysts suggest an agreement between participating nations to take ‘‘appropriate steps’’ toward further development of interconnection capability. They also suggest the possibility of using proceeds from the EU’s Emissions Trading Scheme (ETS) to fund intermediate steps.
The investment climate, however, is not the only hurdle that will have to be overcome in Russia itself. With fossil fuels playing such a significant role in Russia’s economy, and fossil fuel producers wielding significant domestic economic and political clout, there has been a certain amount of ambivalence about renewable energy projects in Russian political circles in the past. Speaking at a party conference when he was serving as prime minister back in 2010, Russian President Vladimir Putin noted the threat to birds and other wildlife posed by wind turbines and generally sounded dismissive about the future of alternative energy. However, there have been some signs recently that the Russian authorities are softening their stance on renewables.
Russia’s Energy Ministry, along with the Russian Regional Development Ministry, has finalized a draft set of measures to stimulate the development of electricity from renewable energy resources. This document has been submitted to the Russian federal executive for approval and subsequent submission to the Russian government. The set of measures includes suggestions for changes in federal legislation and regulatory acts to enhance the investment attractiveness of renewable energy.
Russian Deputy Energy Minister Anton Inyutsyn said back in November that draft decrees to clarify the legal status of renewables should be ready for publication by the end of 2012, and that these would address a long-standing complaint amongst would-be wind entrepreneurs that the law simply ignored their technology, and make it easier for them to hook up to the grid.
Anatoly Kopylov, vice president of the Russian Wind Energy Association, which represents both Russian and foreign wind energy firms, has been reported as saying that a preliminary agreement between government and business over the shape of the renewable market has already been agreed. He said that the law would not copy the European model of higher feed-in tariffs for renewable electricity to cover the higher costs of alternative energy generation. Instead the government will set a quota for renewable energy to be fed into the national grid each year. Alternative generators would then bid to supply a proportion of that quota and the government would sign contracts with the lowest bidders.
A recent EWEA report on emerging European wind power markets identifies Eastern Europe as one of Europe’s new wind energy frontiers, and sees these markets as necessary to offset anticipated declines in the near future in some of the more mature Southern European markets. The report, however, also points out the lack of political appetite for renewables in Russia.
That said, Russia’s current electricity generation portfolio is estimated at more than 220 GW of installed capacity, of which 67 percent is thermal. Some forecasts predict that, without significant upstream investment, Russian gas supply could fall short of projected domestic and export demand within the next few years. Despite a four-fold increase in the domestic tariff for natural gas between 1999 and 2006, domestic gas consumption in Russia has continued to grow. In these conditions there may be increased political appetite to accelerate the development of alternative energy sources, and RUSTEC and other renewable energy projects stand to reap the benefit of this change in attitude.