1. Introduction
    1. Political and administrative structure
    2. Legal environment
  2. Common forms of business structures for foreign investors
    1. Main types of structure
    2. Registration, liquidation and reorganisation of business structures
    3. Shareholders’ and participants’ agreements
    4. Strategic industries
  3. Anti-monopoly issues
    1. General legal and regulatory framework
    2. Scope of application of the Competition Law
    3. Anti-competitive practices and restriction of competition
    4. Liability
  4. Tax system
    1. General approach
    2. Corporate taxation
    3. Incentives
    4. Special tax regimes
    5. Taxation of individuals
    6. Double taxation treaties
  5. Customs regulations
    1. Trade between EEU and non-EEU countries
    2. Mutual trade between the EEU members
    3. General approach
  6. Currency control
    1. Foreign currency transactions
    2. Consequences of breach/Penalties
  7. Lending in Russia
    1. Lending documents and governing law
    2. Jurisdiction
    3. International finance transactions and repatriation requirements
    4. Security interests
    5. Recognition of security trusts
    6. Syndicated loans
    7. Enforcement
    8. Suretyships and guarantees
    9. Bankruptcy considerations
    10. Other lending related issues
  8. Employment and migration
    1. Formalising the employment relationship
    2. Managing employment relationships
    3. Terminating an employment agreement
    4. Specifics of employing foreign nationals
  9. Personal data protection
    1. General approach
    2. Scope of the Data Protection Law
    3. Liability
    4. Right to be forgotten
  10. Intellectual property
    1. General approach
    2. Contractual aspects of intellectual property rights
    3. Rights over the results of intellectual activity
    4. Company names, trade names, trademarks and appellations of origin
    5. Intellectual property rights infringements
    6. IP Court
  11. Advertising issues
    1. General approach
    2. Scope of application of the Advertising Law
    3. Violations of the Advertising Law
    4. Liability
  12. Anti-corruption and compliance
    1. General approach
    2. Legal framework
    3. Compliance requirements for companies
    4. Concept of corruption in Russian law
    5. Possible targets of bribery
    6. Liability and penalties for corruption
    7. Example of sector-specific anti-corruption measures
  13. Real estate and construction
    1. Rights to real estate
    2. Real estate transactions
    3. Resolution of real estate disputes
    4. Planning and construction issues
  14. Corporate bankruptcy
    1. Insolvency criteria
    2. Stages of bankruptcy proceedings
  15. Import substitution and production localisation in Russia
    1. Measures affecting goods importation and current import substitution legislation
    2. Localisation incentives
    3. Sector-specific impact of import restrictions and localisation requirements
  16. Banking sector
    1. Legislative and regulatory framework
    2. Licensing and operations
    3. Deposit insurance
    4. The anti-money laundering law
    5. Bank secrecy
    6. FATCA and CRS
  17. Environment, energy efficiency and renewables
    1. Environment
    2. Energy efficiency
    3. Renewables
  18. Infrastructure and public private partnerships
    1. General approach
    2. Key PPP legislation
    3. Russian PPP environment
    4. Financing
    5. Legal issues
    6. Prospects for infrastructure projects
  19. Oil & gas
    1. Legislative framework
    2. Ownership and licensing
    3. Restrictions on foreign investors
    4. Licences
    5. PSAs

Environment, energy efficiency and renewables

Key contacts

Contact
Tissot Dominique
Dominique Tissot
Partner
Head of Tax | Head of Energy Efficiency & Renewables

Renewables

State policy

Since the adoption in 2009 of the Russian Energy Strategy to 2030, the Russian legal and regulatory framework has improved but still remains somewhat inconsistent, with the renewable energy sources (“RES”) generation target being revised several times.

A Government Ordinance1 in 2009 set a target of 4.5% by 2020, excluding large hydropower plants of more than 25MW. A Government Ordinance2 in July 2015 shifted this target to 2024.

The above target corresponds to approximately 5.4GW of newly installed RES capacity (excluding large hydropower plants) by 2024, and is to be achieved using three renewables technologies: solar, small hydro and wind, with the latter covering the major share of approximately 3.3GW.

As of 1 January 2019, according to the Russian Ministry of Energy, hydro, solar and wind power account for 20.3% of the country's total installed power capacity of about 243.24GW.

The Russian legal and regulatory framework sets the rules on wholesale and retail energy trading, and offers certain incentives.

Subsidy scheme and tariffs

A so-called “premium scheme” applied to the wholesale prices for RES generated electricity, was introduced in 2007 by an amendment to Federal Law No. 35-FZ “On Electricity” dated 26 March 2003 (the “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” RES project developers.

The legal framework for this scheme was further developed in 2013 under Government Decree No. 4493 (“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 agreement will be signed. After completion of the construction, the authorities check that the generating facility meets certain requirements, such as those relating to the localisation of the equipment installed on the generating facility.

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 capital expenditure, legal and project financing structure such as a SPIC – please see the Special investment contracts section above for more details).

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 2020 to 2024, for wind projects the required degree of localisation is equal to 65% and for solar projects it is 70%4. A Government Decree5 and an Order6 of the Russian Ministry of Industry and Trade 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 localisation7 (35% for solar power and 45% for wind, small hydro and waste treatment power sources).

Recent developments

The Russian Market Council, based on amendments to the Rules of the Wholesale Electricity and Capacity Market8, launched in 2018 an annual tender for the construction of facilities generating electricity from RES as follows: 829.94MW of wind, 150.202MW of solar and 269.56MW of small hydro projects. The winners got 15-year capacity supply agreements under Decree 449.

Only three projects were selected in 2019. This tender was less attractive than the one held in 2018, when more than 1.2GW were tendered. This is because low volumes were proposed to bidders in 2019. At the beginning of 2019, more than 90% of the targeted capacity under the current programme9 (which is covering the period up to and including 2024) had already been awarded to various market participants, mostly in wind and solar energy projects.

The market is now awaiting new regulations regarding the period beyond 2024. It is unclear whether the renewable energy sector will receive state support after the expiry of the current incentives.

That said, most market participants are confident that the Russian Government will continue to support the RES market and the current programme will be extended until 2035.

However, the exact volumes are not defined yet.

Russian green certificates could be used to supplement the existing incentive structure. This is currently under discussion. It is envisaged that, by selling these green certificates, consumers could reduce their total amount of payments for capacity under the current support mechanism of capacity supply agreements. As for power suppliers, the green certificates could act as a source of return on their investment.

Apart from the wind and solar focus, in 2017-2018 Russia introduced a set of legislative amendments10 aiming to extend the existing renewable energy scheme to energy-from-waste facilities. Currently only the Republic of Tatarstan and the Moscow Region are included in the list of Russian regions where such facilities are to be built. In 2018, two new Russian regions were added to the list: the Krasnodar Krai (55MW) and the Stavropol Krai (55MW). However, no bids were submitted for these new projects and the 2018 tender for the construction of waste-burning plants was not successful. In 2019, no tender was announced at all.

Outlook

Russia has the potential to increase the use of all types of renewable energy technologies. Historically (since the Soviet period), it has a well-developed hydropower segment. Its bioenergy potential is also significant, as this technology is used in the agriculture, forestry, infrastructure and trade sectors. But today, the Russian renewable energy policy is focusing on accelerating the deployment of wind and solar photovoltaic.

More generally, there are a number of drivers in Russia that explain the increasing focus on renewables and decentralised energy. New energy solutions are seen as a way to modernise the power system, but they are also a part of a broader socio-economic development model to achieve higher living standards. In addition, a decentralised electricity generation system is of interest to Russia’s remote and distant regions, as it is economically impractical to extend high-voltage electricity lines to these regions.

Furthermore, decentralised electricity generation is also interesting and attractive for industrial complexes. It offers opportunities for them and allows them to become more independent from the centralised power system. The current situation of relatively high electricity prices is another reason to explore new energy solutions.

Finally, in response to the EU and US sanctions (Please see the Introduction), Russia’s local content requirements have become one of its main economic policy drivers supporting inbound investments and technology transfers to develop local innovative technologies, including in the RES sector.

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“Russia offers unique opportunities for investors who want to implement energy efficiency and renewables projects, particularly for investors with experience of implementing technologies in these spheres.”


[1] Russian Government Ordinance No. 1-r dated 8 January 2009. Back ↑

[2] Russian Government Ordinance No. 1472-r dated 28 July 2015. Back ↑

[3] Russian Government Decree No. 449 dated 28  May 2013. Back ↑ 

[4] Russian Government Ordinance No. 1-r dated 8 January 2009. Back ↑

[5] Russian Government Decree No. 426 dated 3 June 2008. Back ↑

[6] Order No. 3788 of the Russian Ministry of Industry and Trade dated 24 September 2018. Back ↑

[7] Decree 449. Back ↑

[8] Russian Government Decree No. 432 dated 11 April 2017. Back ↑

[9] Russian Government Ordinance No. 1-r dated 8 January 2009. Back ↑

[10] Russian Government Decree No. 397 dated 31 March 2017, Russian Government Decree No. 802 dated 6 July 2017. Back ↑


Key contacts

Tissot Dominique
Dominique Tissot
Partner
Head of Tax | Head of Energy Efficiency & Renewables