The Russian legal and regulatory framework sets the rules on wholesale and retail energy trading, and offers certain incentives.
A so-called "premium scheme" applied to the wholesale prices for RES generated electricity, was introduced in 2007 by an amendment to the 2003 Federal Electricity Law. However, largely due to the consumer price concerns and legal difficulties with developing a clear implementation mechanism, this price scheme, which would have been equivalent to a feed-in tariff, has never been put in practice.
In 2011, another support mechanism was introduced by the Federal Electricity Law: the promotion of RES through the capacity market. This scheme aims to ensure the financial viability of investments into renewables by concluding "Capacity Supply Agreements" with RES project developers.
The legal framework for this scheme was further developed in 2013 under governmental decree No. 449 (Decree 449). Decree 449 establishes the regulatory mechanisms for selecting new RES projects and for their supply agreements. Under a capacity supply agreement, the grid company (Distribution System Operator) undertakes to purchase electricity from RES-generation facilities in the relevant region in order to compensate for transmission losses. The Russian regulatory body, the Market Council, introduced regional incentive schemes for qualifying RES projects. These projects enjoy long-term tariffs, which aim to guarantee returns on investment over 15 years. The capacity to be produced by such facilities is selected by way of annual tenders for renewables at a price that is usually several times higher than the price for existing conventional capacity.
More specifically, the bidders must provide a technical description of the project, including the percentage of localisation (local content) and project financing / guarantee structures. On that basis, the trading system administrator will select the winning bids, and a relevant RES capacity supply contract will be signed.
Various other financial, legal and tax incentives are available at the local, regional and federal levels, depending on the specifics of a particular RES investment project (e.g. region of investment and degree of localisation, type of CAPEX, legal and project financing structure such as “special investment contract” (SPIC)).
However, although this is a significant step towards the creation of a regulatory framework designed to promote clean energy production in Russia, there are still restrictions. Firstly, this scheme is only applicable to RES generation facilities eligible for the wholesale market (5MW capacity or more). Secondly, it does not allow the promotion of renewable energy technologies in the regions of Russia that have fully regulated tariff systems and the more isolated regions, where the deployment of renewables is economically feasible and supported by the availability of renewable resources. Thirdly, and above all, only projects in which a certain percentage of Russian technology and locally-produced components have been used (the so-called “local content requirement”) may qualify for the purposes of favourable pricing regime. For example, for wind projects the required degree of localisation is equal to 55% for 2018 and 65% for 2019 to 2024, and for solar projects it is 70%. Governmental decree No. 426 adopted in 2008 and the Order of Russia's Ministry of Trade No. 1556 adopted in 2014 provide the local content requirements for each type of RES, and also provide the formula to calculate a relevant degree of localisation. This is a key condition to ensure project bankability and thus sustainability, as a reduction factor is applied to tariffs for projects without the required degree of localisation (35% for solar power and 45% for wind, small hydro and waste treatment power sources).