An extract from The Renewable Energy Law Review, 3rd Edition
Renewable energy project developmenti Project finance transaction structures
Projects are usually financed by foreign investors at the outset. However, as Russian market participants are large reliable companies, they also participate in the financing of projects.
After a tender, the initial investors make efforts to attract borrowed financing, typically using standard project financing such as bank credit facilities; for example, it was announced that Gazprombank would finance the construction of wind farms by Rosatom, with investment of approximately 64 billion roubles.
As mentioned above, pursuant to Decree 449, the main mechanism guaranteeing investors a return on their investment (thus allowing them to repay the borrowed financing) is the application of beneficial tariffs, fixed for 15 years under the relevant energy capacity supply agreements.
In addition to the incentives provided by Decree 449, suppliers are also entitled to apply for subsidies from the Russian federal budget, provided that they meet certain criteria. These subsidies could include reimbursement of costs for the technological connection of the generating facility to the electrical power networks. Such reimbursement currently amounts to up to 50 per cent of technological connection costs but not more than 30 million roubles per generating facility.
New incentives are currently being sought to increase competition on the market, in particular by increasing the sales of electricity (capacity) produced using renewable energy sources. At present, grid operators are primarily required to acquire electricity generated by qualified renewable energy facilities on the retail market only in order to compensate for circuit losses.ii Distributed and residential renewable energy
Distributed (on-site) and residential renewable energy is not widespread in Russia and thus it does not play any significant role in the national economy.
As mentioned above, in 2019, new legislation was adopted to support micro-scale generation in Russia. It provides that the owners of micro-scale generation facilities (up to 15kW) may sell any excess electric power produced to retail consumers (in this case, suppliers of last resort) and the latter may not refuse to purchase such electric power. In addition, during the period between 1 January 2021 and 1 January 2029, any proceeds from selling electric power generated by micro-scale generation facilities will be exempt from personal income tax.
Traditional energy sources such as oil, gas and coal are commonly used to supply power to isolated territories. However, relatively small generating companies, using renewable energy sources, are now emerging in these territories. To support such companies and to encourage the replacement of existing diesel power plants with autonomous hybrid power facilities that partially use renewable energy, the government implemented new rules in 2019. This new regime provides for the conclusion of energy service contracts (ESCs) for a period of 10–15 years under existing legislation on energy saving and energy efficiency. It is envisaged that, under an ESC, an investor that has implemented the use of renewable energy sources will have its investments recovered by the owner of the relevant modernised generating facilities, who will make regular payments to the investor at least during the payback period plus two years. Such payments will be calculated as fuel costs (which usually constitute up to 70 per cent of applicable electricity tariffs) saved through implementing the use of renewable energy sources.iii Non-project finance development
Although the share of project financing in renewable energy projects in Russia is now increasing, most projects are currently implemented through structures or joint ventures established or controlled by state-owned corporations such as Rosatom and Rusnano (see Section II). These corporations can be considered equity investors in their respective projects.
Some relatively minor investors prefer to use their own funds or to attract financing from their parent companies.