Moscow, September 2014

Legislative base of wind energy market as a part of RES regulation in Russia

Elena FedorovaNP Market Council

Russian Legislation on RES

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Federal Law of November 4, 2007 N 35-FZ "On Electricity”

Government Decree of June 3, 2008 № 426 "On the qualification of the generating facility operating on the basis of renewable energy sources”

Order of Government on January 8, 2009, № 1-p «On approval of basic state policy in the field of energy efficiency of electric power from renewable energy sources by 2020»

Government Decree on October 20, 2010 № 850 "On approval of the criteria for granting subsidies from the federal budget to compensate the cost of grid connection of generating units with an installed generating capacity of not more than 25 MW, recognized as qualified objects operating on the basis of renewable energy sources, to persons who has it in ownership or at any other legal basis. ”

Changes in Basis of pricing in the filed of regulated prices (tariffs) in the power sector, approved by the Government of the Russian Federation on December 29, 2011 № 1178 "On the pricing of regulated prices (tariffs) in the power sector".

Government Decree on May 28, 2013 N 449 17.02.2014 "On the mechanism of stimulating the use of renewable energy sources in the wholesale market of electric energy and power.”

Government Decree on February 17, 2014 № 117 "On some issues related to the certification of the volume of electricity

produced by operating on the basis of renewable energy qualified generation facilities ”

 

Types of RES in accordance with FZ 35

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Power plants and power stations using solar energy; Power plants and power stations using wind energy; Power plants and power stations using hydro energy (including energy of sewage); Power plants and power stations using tidal energy; Power plants and power stations using wave energy (including wave energy of the rivers, seas, oceans); Power plants and power stations using geothermal energy (with underground thermal fluids); Power plants and power stations using low-potential thermal energy of the earth, air, water (with special heat

transfers); Power plants and power stations using biomass (with specifically cultivated for energy production plants,

including trees); Power plants and power stations using wastes (except waste received from the use of hydrocarbon fuels); Power plants and power stations using biogas; Power plants and power stations using biogas from landfills; Power plants and power stations using gas from coal mines.

In accordance with the regulations generating facilities also include facilities operating in a co-generation of electricity and heat and objects running on renewable and other energy sources.

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RES in Russia – two directions of development

Isolated energy systems In this case the use of renewable energy is often economically justified. Use of renewable energy will increase the security of energy supply in the region.

Unified energy systemIn this case development of renewable energy assumes government support. As a result, it will create a renewable energy industry and eliminate the backlog in the production of renewable energy in Russia.

Goal - the creation of high-tech industry in the field of renewable energy, the achievement of "economies of scale" by establishing the required amount of demand and investment guarantees, the transition to a new technology base of industry with application of carbon-free technologies, smart grid and distributed generation.

Goal - the modernization of the distributed generation based on efficient solutions using renewable energy sources, a significant reduction in the "northern" delivery of diesel fuel and oil, and creation of infrastructure for integrated territorial development.

RES Potential

> 1 GW

RES Potential

> 24 GW

1

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The potential of RES in isolated energy systems

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Forecasts up to 2020, MW Map of wind speed distribution Map of solar insolation

distribution

Current projects

Forecast in case of the implementation of support measures

50

300

10

200

200

300

10

10

The potential for cost-effective renewable energy projects (particularly wind and solar energy) in isolated areas in case of the implementation of support measures will be more than 1 GW *

Source: JSC «RusHydro», «Hevel» Ltd., Russian Association of Wind Industry, Association of Solar Energy Companies

* with the growth of consumption in the region

The potential of RES on the wholesale and retail markets

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SOURCE: RusHydro, Renova, Rosatom; Working Group of «Market Council»

Total, GW

Installed capacity, 2020, GW

Wind Mill Installations

7,3

Target regions Minimum ICUR

25%

30%

35%

13,0 GW (provided achievement by 2020 the share of renewable energy sources in rate of production and consumption of electricity in the amount of 2.5%)

13,0

Biogas Power Stations

0,7

2,3

2,3

0,4 40%

13%

2,5%

Federal Law «On Electricity»

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According to 35-FZ "On Electricity" in Russia the following mechanisms of support renewable energy are fixed:

•providing subsidies from the federal budget to compensate the cost of grid connection of generating facilities with an installed generating capacity of not more than 25 MW, recognized as qualified objects;

•sale of electric energy produced by a qualified generating facilities on the wholesale market at equilibrium prices of the wholesale market with the price mark-up determined in accordance with the procedure established by the Government of the Russian Federation;

•sale of power of qualified generating facilities in the amount of electricity production from renewable energy sources using the mechanism of capacity trading under the rules of the wholesale market for the sale of power of generating facilities;

•sale of electric energy produced by qualified generating facilities on the retail markets by distribution companies on tariffs to compensate the losses in electric networks.

The main condition for support - generating facility should be qualified by NP "Market Council"

Development of renewable energy in Russia: different incentive mechanisms to achieve targets

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Support mechanism

wholesale market▪ special

mechanism of capacity trading

retail market▪ obligation of

network companies to buy renewable

energy at regulated tariffs

Essence of mechanism Advantages and features of the mechanism

▪ Competitive defining of the support objects;

▪ Load distribution on all consumers located in the territories united into price zones of the wholesale market;

▪ Transparency of financing of the support objects;

▪ Attractive conditions for investors;

▪ High degree of control over the implementation of commitments;

▪ Easy regulatory of implementation;

▪ Providing the conditions for localization of production.

▪ Opportunity to stimulate network organizations to reduce the amount of network losses;

▪ Easy regulatory of implementation;

▪ Creating the conditions for the implementation of small generating facilities in the regions;

▪ Implementation of the mechanism is limited by maximum additional financial burden on consumers of a specific region - there is no additional price growth to the consumer.

generating facilities> 5 MW in the wholesale

market price zones

generating facilities<5-25 MW

▪ Establishing of long-term rates (the price formula) for the purchase of electricity from renewable energy facilities for payback period;

▪ The inclusion of RES projects in the federal programs.

Isolated energy system

Main parameters of support mechanism for the wholesale market

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Main parameters of the mechanism:

Annual competitive selection of RES projects, starting in 2013 - 4 years aheadThe selection of projects by the criterion of the least total capital costsLimit values of capital and operating costs for use in the competitions take into account foreign experience, as well as the features of cost structure for the projects in targeted regions of the Russian FederationThe requirement to comply with localization degree: from 20% in 2014 to 70% in 2016Volumes of inputs correspond to the potential of production localization

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Commissioning of 5.9 GW by 2020 in the wholesale market price zones

Commissioning of 5.9 GW by 2020 in the wholesale market price zones

According to the calculations of NP "Market Council" and the Russian Economic Development

Ministry an additional impact on the growth of average prices for the end user will not exceed 2%

in 2020.

Marginal capital and standard operating costs of RES projects

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marginal capital costs, euro/kW

• Approved limit values of capital costs for use in the competitions take into account foreign experience, as well as the features of costs structure for the projects in targeted regions of the Russian Federation

• Approved values of operating costs take into account the features of the structure and content of operating costs in Russian Federation.

• Russian Ministry of Energy was instructed to analyze with the participation of the Market Council before January 1, 2016 the

actual capital expenditures for the construction of renewable energy generation facilities and to submit to the Government the proposals to change the limit values of capital costs for the construction of 1 kW of installed capacity of renewable energy generation facility.

standard operating costs, euro/kW/year

Planning amount of capacity inputon the wholesale market

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Types of generating facilities that operate on the basis of renewable energy sources

2014 2015 2016 20172018 2019

2020 TOTAL

Wind power stations 100 250 250 500 750 750 1000 3600

Solar power stations 120 140 200 250 270 270 270 1520

Small hydro power stations 18 26 124 124 141 159 159 751

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Basic parameters of the mechanism

● Under the mechanism it is proposed to introduce mandatory requirements for the localization of equipment production and engineering services in Russia imposed on the wind farm, solar and small hydropower stations (technology with significant potential for localization).

● In the case of unfulfillment of localization degree significant penalty coefficients are applied to the estimated capacity fee:

- VES and SHPS – ratio 0.45;- SES - ratio 0.35.

Types of generating facilities that operate on the basis of renewable energy sources

Year of commissioningTarget index of

localization degree, %

Wind power stations

2014 35

2015 55

2016 - 2017 65

Solar power stations 2014 - 2015 50

2016 - 2017 70

Small hydro power stations2014 - 2015 20

2016 - 2017 45

Confirmation of localization degree

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Returning documents for revision

if it is not presented in full

volume or improperly designed,

identifying weaknesses

Department of metallurgy and heavy engineering

Department of metallurgy and heavy engineering

Verification of the completeness and accuracy of information

Information about degree of localization

20 daysDocuments

Commission for determination of

localization degree

Commission for determination of

localization degreeApplicantApplicant

Application and documents

YES

NO

Commission decision

Preparation of report on localization degree

Conclusion

10 daysApplicantApplicant Market CouncilMarket Council

Results of projects selection 2013 - 2014

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Type of RSE

Year

Volumes, MW

Target indexSelected in

2013Selected in

2014Available

% selection

Solar

2014 120 35,2 - - 29%2015 140 115 25 - 100%2016 200 149 40 11 95%2017 250 100 155 - 102%2018 270 - 285 - 106%

Wind

2014 100 - - - 0%2015 250 - 51 - 20%2016 250 15 - 235 6%2017 500 90 - 410 18%2018 750 - - 750 0%

Hydro

2014 18 - - - 0%2015 26 - - - 0%2016 124 - - 124 0%2017 124 - 20,6 103,4 17%2018 141 - - 141 0%

Functions of NP "Market Council» (regarding RES)

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Recognition of generating facilities operating on the basis of RES as qualified objects: Qualification of renewable energy generating facilities:

- Technical expertise of a set of documents;

- Field examination of the location;

- Preparation of an expert conclusion on compliance with the criteria of qualification; Keeping the register of qualified renewable energy generating facilities.

Keeping the register of issuance and redemption of the certificates confirming production of electricity on the basis of RES: Analysis of reliability of the data of commercial accounting; Conducting operations to issue, redemption, transfer of certificates; Keeping a register of issuance and redemption of certificates.

Development of the proposals for legislation and regulations: Development of standard forms of contracts (for participants of the wholesale and retail markets); Development of regulations and rules regarding the participation of RES in the wholesale and retail

markets; Participation in the drafting of the rules for the wholesale and retail markets and proposals for changes.

Criteria for Qualification of RES Generating Facilities

According to the PPRF № 426 "On qualifying of generating facility operating on the basis of renewable sources of energy" generating facility should meet the following criteria for qualification:

generating facility operates using only renewable energy sources or as a combination of renewable and other energy sources;

generating facility is in operation (commissioned and not removed for repair or out of service);generating facility in the prescribed manner is connected to the grid of network organization; generating facility is equiped with means of measuring in compliance with the legislation of

the Russian Federation on electricity;generating facility is included in allocation scheme of RES generating facilities in the Russian

Federation, approved by the Ministry of Energy.

In the case of the power plant includes several objects, each generating facility, as a part of the power plant is equipped with the specified measuring devices (metering devices).

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Basic concepts of certification

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Certificate confirming the amount of electric energy produced by qualified generating facilities (Certificate) - entry in the electronic register, confirming the fact of the production of a certain amount of electricity from renewable energy source (s).

Register of issue and redemption of certificates confirming the amount of electricity produced by qualified generating facilities that operate on renewable energy sources (Registry) - a set of information about issued, transferred and canceled certificated, confirming the volume of electricity produced on the basis of renewable energy sources.

Recipient of the certificate - a legal or natural person who owns a qualified generating facility by the right of ownership or other legal basis.

Redemption of the certificate - operation on making a note in the registry of the termination of certificate.

Development of the mechanisms of Certificates Application in Russia

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Certificate confirming energy production on the basis of RES

Certificate is redeemed by “Market Council” in case of use the support mechanism in Russia

Certificate is redeemed by “Market Council” in case of sale to other parties

Development of contractual structure between the Market Council, the supplier of RES, network organizations;

Development of methodology for the separation of electric and thermal energy produced by the combined schemes using generating facilities operating on renewable and non-renewable energy sources.

Development of contractual structure between the Market Council, certificates purchasers.

Further development of software for the production, management, redemption and transfer of the certificates confirming production of renewable energy.

Contact Information: Moscow, Krasnopresnenskaya nab, 12, entrance 6, 12th floor, office 1251. Tel. (495) 967-05-08

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