Russian Energy System and Climate Agenda: Evolution or Revolution
KEY CONCLUSIONS
The energy transition in Russia requires major investments, and banks need to support it
“The decarbonization of the energy sector and the green agenda [requires] huge financial resources. The first programme to support renewable energy, once it’s completed and all the money will be paid to investors, will cost RUB 1.8 trillion. Few programmes can boast of such funds being raised,” NP Market Council Association Chairman of the Board Maxim Bystrov said.
“The energy transition entails significant capital investments. I don’t think it’s likely to happen without banks and financial support for this green transformation because entrepreneurs who work in this market simply don’t have so much idle funds that they could invest at one time. As a bank, we regard the financing of green projects as a priority area of our business,” Sberbank Vice President and Director of the Key Clients Department Olga Kharlamova said.
Green energy is developing at a revolutionary pace
“Since the end of September, for the first time on the Russian market, electricity from a wind generator has cost less than the weighted average price of the wholesale market. The price has come down by more than 85% over ten years. So, of course, we view this indicator as a revolution and believe that it’s inevitable, among other things, to revise the long-term strategy. Our market has fixed prices that will ensure the development of low-carbon generation,” Renewable Energy Development Association Director Alexey Zhikharev said.
“There is also the question of what impact nuclear power has on the environment, including the hotly disputed topic of spent nuclear fuel and radioactive waste. Thanks to the introduction of class 4 reactors and the achievement of a closed fuel cycle as well as the ability to reuse spent nuclear fuel an almost unlimited number of times, burn uranium, and burn the plutonium that is generated, we will move on to the so-called radiation equivalent, when we return to nature the approximate amount of radiation that we have taken from nature when natural uranium was being mined. And these aren’t some distant dreams. These are projects that we are working on in concrete terms today. In no way do we equate spent nuclear fuel with waste. We say that it’s a valuable source of future raw materials,” said Kirill Komarov, First Deputy Director General and Director of the Development and International Business Unit of Rosatom State Atomic Energy Corporation.
“We are on the path towards having low-carbon hydropower plants confirmed and recognized at the international level. We know how to do it. There are methods for measuring greenhouse gas emissions from reservoirs,” said Mikhail Khardikov, Director of the En+ Group’s energy business and General Director of EuroSibEnergo.
PROBLEMS
Shortcomings in the mechanisms for banks to finance renewable energy projects
“The only thing we have now is the ability to provide some sort of discounts, but primarily for the payment of interest on the resources we attract. These discounts are obtained at the expense of the bank’s profits because we don’t currently have any universal programmes that aim to support the industry. I’m referring to government programmes above all. We definitely won’t be able to do this for a long time at our own expense,” Sberbank Vice President and Director of the Key Clients Department Olga Kharlamova said.
“Banks are used to having a guaranteed instrument for return on investment. We can take a broader look here. There are opportunities for this. Apparently, there will be progress in this direction. Several years ago there were barriers. Banks didn’t understand what these projects were and how to finance them. And the technology itself was new to our banking sector. Now these problems have been rectified for leading banks. I hope everyone has already figured out the mechanism for how the investment is compensated. But the key problem remains the interest rate. It’s certainly at 6%. If you look at analogues on the US market, it’s 1% there, while in Europe there is a negative percentage overall in certain sectors,” Renewable Energy Development Association Director Alexey Zhikharev said.
Lack of proficient methods for calculating the carbon footprint
“The carbon footprint will now start being calculated in any product that is produced in any country. And Russia’s low-carbon energy balance is the main support beam for our exporters, from metals to chemistry, to ensure that their products aren’t subject to a carbon tax at the very least, and, at the very most, are bought in developed countries in principle. I think that the theme of the carbon tax is actually the easy bit and the first attempt. Any serious company at any moment will require the entire chain of its suppliers to present a carbon footprint for every process stage. And if this carbon footprint can’t be presented, the product won’t be purchased,” said Kirill Komarov, First Deputy Director General and Director of the Development and International Business Unit of Rosatom State Atomic Energy Corporation.
“We have two instruments that can confirm the origin of energy: the electricity purchase and sale agreement itself and certificates. In the form they’re in now, both of these instruments are recognized as green. It’s another issue that ‘greenness’ is classified into two elements – ‘renewability’ and ‘low-carbon’. Whereas no one has any questions regarding the former as it relates to hydropower, methodological discussions are still ongoing about the latter, including on how to measure the carbon balance of reservoirs,” RusHydro Deputy General Director for Financial and Corporate Legal Management Sergey Terebulin said.
SOLUTIONS
Support investors by subsidizing the interest rate for renewable energy projects
“Compensation for investments in green energy and jumpstarting this process, including by the Central Bank and development institutions, and compensation for interest rates are important. So, we hope that the taxonomy that appeared in September will be followed by concrete measures to approve either a fund or other instruments that will enable banks to provide investors who are actively developing this industry with affordable financing. That’s why subsidizing the interest rate is a key issue,” Renewable Energy Development Association Director Alexey Zhikharev said.
Create new banking products that can support the balance of the energy system
“Banks also need to be more active. The new trends on the market are evident. Banks should also offer certain products for investors who are considering independent projects, of course. And for the micro-retail sector, [there should be] complex products and a package solution,” Renewable Energy Development Association Director Alexey Zhikharev said.
“I believe there should be package solutions not only for renewable energy, solar, and wind facilities. There should be [solutions] for hydroelectric power plants and for thermal power plants that are being modernized. Package solutions should be available for all types of generation. I think Russia has lucked out with its energy balance thanks to our fathers and grandfathers who diversified the energy balance in this manner,” Russian Deputy Minister of Energy Pavel Snikkars said.
“All the market participants who are talking about ESG should form KPIs for themselves not only through money. We fully support a solar panel in every house and more sun because hydroelectric power plants will be even more in demand as a result. Someone has to balance out the system when the share of renewables grows. You can’t come up with anything better than a hydroelectric power station. So [there should be] hydroelectric power plants, hydrogen, storage tanks, or pumped storage power plants if it’s impossible to build a hydroelectric power plant somewhere,” said Mikhail Khardikov, Director of the En+ Group’s energy business and General Director of EuroSibEnergo.
For more, see the Roscongress Foundation’s Information and Analytical System at roscongress.org.
