The Russian Federation has set out to increase and diversify its use of renewables, particularly for power generation. Under current plans and policies, renewables would reach nearly 5% of total final energy consumption by 2030. Accelerated deployment, however, could boost Russia’s renewable energy share to more than 11% in the same timeframe, according to this REmap working paper from the International Renewable Energy Agency (IRENA).
Achieving this potential calls for cumulative investments of USD300billion in renewable energy up to 2030, or on average USD 15 billion per year between 2010 and 2030. When externalities related to human health and climate change are taken into account, these investments in renewables could ultimately save up to USD 11 billion per year.
Yet certain areas require further attention. These include long-term planning, integration of renewables with existing plans, opening the way for solar PV and wind development, and ensuring reliable and affordable bioenergy supplies.
Hydropower – representing about a fifth of Russian power generation capacity – is currently the most prominent renewable source, along with bioenergy for heating in buildings and industry. By end of 2015, total installed renewable power generation capacity reached 53.5 gigawatts (GW) of which 51.5 GW came from hydropower, and the remainder 2 GW from bioenergy, wind, solar PV and geothermal.
The country analysis forms part of REmap, IRENA’s global roadmap to double renewables in the global energy mix.
See theworking paperon Russia’s renewable energy prospects
Russia ranks fourth in the world for primary energy consumption and carbon dioxide emissions and maintains its focus on fossil fuels despite enormous renewables potential. Russia is following a "business as usual" strategy, relying on conventional fuels exports which are critical for the state budget, for the key energy companies and for many regions in the country which rely heavily on hydrocarbon revenues. But the changing global environment, Sustainable Development Goals agreed upon in the UN institutions in 2015 and the decarbonization agenda, as well as the wellbeing of the whole economic system in the country, challenge this energy mix.
Despite the fact that Russia signed the Paris Agreement in September 2019, decarbonization of the domestic energy sector was not the agenda until recently, when in the end of 2021 President Putin has announced net zero target to be achieved before 2060. GDP energy intensity remains high, constrained by relatively low energy prices and high capital costs. The share of solar and wind energy in the Russian energy balance is insignificant and, according to official forecasts, is not expected to exceed 1% by 2035.
The challenge for Russia in the coming years is to develop a new strategy for the development of the energy sector (at least for energy exports), in response to increasing global competition, growing technological isolation and financial constraints.
There are several factors which define Russia''s attitude toward all these changes and energy transition:
Demography and macroeconomics;
The role of energy in the Russian economy (including the role of hydrocarbon revenues for the sustainability of the Russian economic system, speed of economic growth and investment availability, as well as technological and financial sanctions);
The institutional framework of the energy sector;
The current population of the Russian Federation is approximately 146 million people and it has been stagnating since the 1990s. The decline of the number of Russian citizens is compensated by migrants (primarily from the former Soviet republics), but there is no population growth envisaged in the future.
GDP annual growth rates in the first decade of this century for the country were of the order of 7–8%. But the global financial crisis in 2008–2009, coupled with the slowdown of global energy demand, resulted in economic recession. The situation was aggravated by the dispute with Ukraine in 2014 and sanctions imposed on Russia, followed by oil price decline in 2014–2016. As a result, Russian GDP growth rates went down to 1.5–2.5% per annum, which is rather gloomy for such an emerging economy as Russia''s. The severity of the impact of COVID-19 on the Russian economy is still unclear, but obviously 2020–2021 will have negative growth, and hence the recession will be even deeper than expected before 2019.
This situation of stagnant population and economy has significant implications for domestic energy demand—which is stagnating as well. There is no demand for large capacity additions (in fact, the electricity market was oversupplied for the last decade), and together with very limited availability of financing this means that there is no need for massive investment in new assets and capacities. As a result, the existing asset structure in the energy sector gets "frozen" as there are no incentives (and no money) to change it.
Despite the fact that Russia produces only 3% of world GDP and has a population equivalent to 2% of the world population, it is the third largest producer and consumer of energy resources in the world after China and the US, providing 10% of world production and 5% of world energy consumption. With energy production of about 1470 mtoe, Russia exports over half of the primary energy produced, providing 16% of the global cross-regional energy trade, which makes it the absolute world leader in energy exports (SKOLKOVO-ERI RAS 2019).
Not all energy sources are utilized equally: fossil fuels dominate Russian energy production, consumption and exports. Russia consistently ranks first in the world in gas exports, second in oil exports and third in coal exports (SKOLKOVO-ERI RAS 2019), while renewables represent only a negligible share in the country''s energy exports and about 20% of the country''s total installed power generation capacity (mainly provided by hydropower). Thus, there are enormous opportunities related to renewable energy sources.
Hydrocarbons are the basis of the Russian economic model. Despite the fact that recently oil and gas export revenues have declined from the heights of 2008–2012 under the impact of falling prices for hydrocarbons, nonetheless, oil and gas still provide approximately a quarter of GDP, 40–50% (depending on oil price) of the federal budget revenues, 65–70% of foreign earnings from exports, and almost a quarter of overall investments in the national economy (MINFIN 2020).
At the beginning of the 2000s, Russia managed to dramatically increase energy exports: from 2000 through 2005, they grew by an unprecedented 56% (ERI RAS 2016), exceeding the total energy exports of the USSR, allowing for an incredible acceleration of the national economy and strengthening the country''s position in the international arena as an "energy superpower." But as the global financial-economic crises came in 2008, energy exports stopped growing. Post-crisis years of 2011–2014 saw still very high oil prices, but stagnant export volumes. Lack of petro-dollar revenues has resulted in GDP stagnation at an oil price of 110 $/bbl, which was clear evidence of deep structural economic problems (Mitrova and Melnikov 2019).
Another key institutional challenge for the Russian oil sector is taxation. Tax reform has been under discussion for at least a decade, as the current system of volume-based taxation creates no incentives at all for modernization and the development of smaller fields, or hard-to-recover and unconventional oil. It was not such a significant issue for several decades, as the Soviet-legacy fields were providing sufficient production volumes and did not require any significant investments in their recovery. But now Russian oil production has reached its peak and its possible decline is becoming more and more plausible.
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