Shift to renewable energy in Russia can be achieved by involving the conventional energy suppliers' support on the initial stage.
The competition between renewable and conventional energy in terms of technologies and costs is one of the issues which characterizes the transition to renewables. It is especially important for the countries which hold vast fossil fuels resources. In particular case of Russia the competition is not even an issue, because the dominance of conventional energy is rather strong: 90% of primary energy supply is based on fossil fuels (IEA, 2009). Such situation creates path dependence and lock-in in the system. Thus, it would be hard to achieve any change in an open market conditions. In order to overcome the lock-in the initial significant investments are needed. Such expenses are unbearable for the new players of the weakly developed renewable energy market, but large-scale players of the energy market can afford it. It is important to mention that fossil fuels extracting industry in Russia is partly under control of the government (e.g. 50,002 % of shares in the largest Russian gas company Gazprom are state-owned). Therefore, the government can use its power of decision making in such oil and gas companies for promoting the transition towards renewables. Later on when the deployment of renewable energy capacity will reach the critical amount and the costs of renewable energy become reasonably sufficient for the other market players, the government can promote further change by using traditional support schemes. Such policy option of conventional energy suppliers involvement aims to speed up the transition process on its initial stage and create a stable basis for further development of renewable energy in the conditions of the open energy market.
Link to the causal-loop diagram:
Category of the action
Decarbonizing energy supply
What actions do you propose?
Involvement of financial resources from the conventional energy suppliers (oil & gas companies) for the renewable energy development in Russia
the initial stage of RES deployment
· to increase the share of renewable energy capacity (in order to have scale effect on costs)
· to make renewable energy technologies more competitive and attractive in the energy market
· to prepare the basis for further renewable energy market development
Which renewable technologies should be developed?
According to the IEA Report (2003) on practice almost every region of Russian Federation has renewable energy potential which is economically beneficial. The territory of the country is vast and the environmental, weather conditions change from region to region quite significantly, it also should be taken into account. The choice of particular technology should be based on specific conditions of the region. Therefore, it's hard to point out which technology should have priority for the overall country policy.
The maps of renewable sources potential are shown below (Source: IEA, 2003):
- Wind resources:
- Solar resources:
- Geothermal resources:
Steps to be taken
· to do the economic assessment of this policy option on the country level;
· to develop Strategic Action Plan for renewable energy deployment in Russia, which can include:
o the procedure of attracting the investments from the conventional energy suppliers on the initial stage;
o the description of additional support schemes for the other new market players on the further stages.
· to prepare the legislative framework for the policy option;
· to improve and broaden the understanding among the policy makers regarding the competition between renewable and conventional energy (aiming to show that transition towards renewable energy can hardly be achieved if the conventional energy sector in Russia has such a strong ‘hidden’ support).
The main agents
- The Ministry of Energy as an executive authority can be responsible for the implementation and control as well as planning stage of the suggested policy. Additionally the actions from executive authorities on the regional level as well as legislative one are needed.
- The partly state-owned companies in conventional energy sector, which can implement the suggested policy, are presented by but not limited to the following ones:
- in extractive sector: Gazprom (50,002 % of shares are state-owned);
- in electricity (generation and transmission) sector: RAO UES of Russia (52,35 %).
Why to choose this policy option?
· It can speed up the transition towards renewables. The practice shows that the transition process is very much dampened on the initial stage because of the high costs. Majority of the policies of the European Union has a time frame of 10-30 years (e.g. EU directive 2009/28/EC, EU Energy Roadmap 2050). Apparently the reasons for that also include organizational ones. Some time is needed to test the policies, to adjust them to the current market conditions, to improve the confidence of investors etc. While in case of the suggested policy option for Russia, the government as a shareholder of conventional energy companies plays a role of the major investor into renewables. So the system is more centralized and easier to control, which is very important in the initial stage.
· Financial burden shift. Most of the support schemes for the renewable energy development presume that the financial burden is laid on the final consumers of energy. It can be done in direct way (e.g. in case of subsidies from the budget which have tax payments as its basis) or indirect way (e.g. the additional cost of renewable energy production is included in the energy bill). Therefore, the renewable energy market development is very much dependent on the consumers’ ability to pay, which, in turn, is connected with income and economic conditions of the country. Although the financial burden for the consumers is unavoidable, in case of the suggested policy option for Russia the financial burden of the transition can be smoothed by using a share from net profit of the conventional energy suppliers.
- Economic growth. Russian economy and its growth is considerably dependent on the exports of fossil fuels as well as world primary energy prices. Incorporation of renewable sources into the energy sector of Russia will serve the security and economic sustainability goals of the government. Moreover as soon as initial steps for renewable energy development are taken, the renewable energy market becomes more predictable and less risky, it should cause growth of economic activity in the sector. Additionally as it was mentioned in IEA Report (2003) the renewable energy potential of Russia is significant enough for the energy export to the neighbouring countries. Therefore, in the long term Russia could still benefit from the energy export revenues but the environmental impact of such activity will change in a positive way.
- Unemployment. The development of renewable energy sector will create new job opportunities. The sites, where renewable energy can be produced, are spread around the territory of the country, it can help to solve the unemployment problem in rural areas of Russia.
- Government budgeting. The replenishment of the governmental budget is dependent on the taxes from conventional energy sector. Thus, significant investments of the conventional energy companies into renewable capacity deployment will have negative influence on the tax payments in the short term, while in the long term it will make base for growing tax revenues for the budget.
It is important to mention that additional assessment is needed in order to make precise conclusions about marcoeconomic consequences.
Feasibility of the policy option
There were several precedents when the extractive industry players diversified their activities. Some of the international oil & gas companies have invested into renewables (e.g. ONGC, Chevron) although the reasons for such actions might differ from case to case. Therefore, the suggested policy option can be assumed as realistic one and might serve the interests of the conventional energy suppliers in the long term to some extent. The biggest constraint for the suggested involvement of large oil & gas companies in transition to renewables is the political one. To large extent it is a matter of the political will of Russian authorities as well as a matter of strength of lobbying oil & gas companies’ interests.
Fairness of the policy option
· Conventional energy suppliers are those who for the most part share the responsibility for high CO2 emissions and for the environmental damage. Therefore, besides ‘end-of-the pipe’ initiatives they should contribute to the changes on strategic level.
· As long as oil and gas sector in Russia is partly state-owned, it would be fair if the government as a shareholder pursues the interests of the society as whole (as partial fulfillment of the citizens’ rights for clean environment and etc. granted them by the Constitution).
Who will take these actions?
Government and business
Where will these actions be taken?
What are other key benefits?
· In the long-term the diversification of energy sources will improve the stability and performance of conventional energy suppliers;
· Investments into renewable energy project can enhance the reputation of Russian oil & gas companies as environmentally responsible ones.
What are the proposal’s costs?
Additional research is needed to estimate the costs. Definitely, in the short term they will be rather high, but in the long term the initial investments should pay back themselves if one takes into account the renewable energy potential of Russia.
As it was mentioned before the suggested policy option should be implemented on the initial stage (short term) of renewable energy development in Russia, while later on, the energy market should become more liberalized and other support measures should be taken, which will take much longer period of time (medium-long term).
- Dangerman A.T.C.J., et al. (2012). Energy systems transformation. PNAS.
- Directive 2009/28/EC of the European Parliament and the Council on the promotion of the use ofenergy from renewable sources 2009, 2009 Official Journal of the European Union.
- IFC Russia Renewable energy program. (2011). Renewable energy policy in Russia: waking the Green Giant. Retrieved from: http://www1.ifc.org/wps/wcm/connect/bf9fff0049718eba8bcaaf849537832d/PublicationRussiaRREP-CreenGiant-2011-11.pdf?MOD=AJPERES;
4. IEA. (2003). Renewables in Russia: from opportunity to reality. Retrieved from: http://www.iea.org/media/freepublications/archives/RenewRus_2003.pdf