Renewable energy: localisation requirements and special investment contracts

21/05/2018

The concept for developing renewable energy sources in Russia, following Government Decree 449 (on which we previously reported), pays special attention to local production of power generating plants and facilities in the country. The degree of localisation is a decisive precondition for ensuring an economically attractive price for a power generating plant capacity. Therefore, the owner or other lawful holder of a power generating facility, who uses renewable energy sources (the “Operator”), has to make sure that its power generating facility complies with the localisation requirements. Future Operators, as a rule, generally pass the localisation requirements on to the constructor of the power generating plant and ensure it fulfils the requirements through high contractual penalties. Constructors must then assemble the plant with locally acquired components or, if local components are not available on the Russian market, have to establish their production lines in the country. When constructing a local production line, constructors usually try to minimise their risks by signing a special investment contract (“SPIC”). This article sets out the existing localisation requirements for renewable energy projects in Russia and outlines the general principles applicable when entering into a SPIC.