Eyes turn to Russia for a renewables rush

Russia is being targeted as a potential new market for wind energy investment and the country may host a domestic carbon-trading program, according to company statements last week.   

The Russian energy company OAO Lukoil stated last week it may turn to its home country for future renewable energy projects as its units in Bulgaria and Romania are being hurt by subsidy reductions. Separately, Russia’s climate negotiator said the country is considering a domestic carbon market to cut greenhouse-gas emissions.

The announcements came during a week of news prominently led by coverage of rising tensions between Russia and Ukraine over the Crimean Peninsula.

OAO Lukoil said it may start a pilot project for 10MW of wind generation in Kaliningrad as early as next year if Russia reduces restrictions requiring equipment to be bought locally. Maxim Karnaukhov, first deputy general director of Lukoil-Ecoenergo, said in an interview with Bloomberg News: “In Kaliningrad there is the opportunity to develop wind generation. The region is isolated, and logistics for transit of traditional energy are difficult.”

Eastern European countries such as Romania and Bulgaria have been rolling back subsidies to limit the cost of renewable energy and curb consumer electricity bills. Both governments cut incentives for renewable energy projects last year following a surge in installations.

Russia approved incentives for renewable energy in 2013 and completed the first tender in the latter part of the year. The country, which has abundant gas and hydro resources, plans to add about 6.2GW of renewable power capacity, including small hydro, by 2020 to increase its share in power generation to 2.5 per cent from less than 1 per cent currently.

Russia also suggested last week it might take a tougher approach to curbing global warming. The country is considering a domestic carbon market to cut greenhouse-gas emissions and may start providing poorer nations with cash to cope with climate change, Russian climate negotiator Oleg Shamanov told Bloomberg News in Bonn. The German city hosted United Nations-led climate talks last week. 

Russia's intention to develop a carbon market is likely to be welcomed by the international community, as the country comprises around 5 per cent of global emissions ‒ the fifth largest. Nonetheless, its ambition to limit emissions to 75 per cent of 1990 levels will still provide it with sufficient space for emissions growth over the coming years. Russia's emissions dropped by 41 per cent over 1990-2000, and emissions remained 33 per cent below 1990 levels in 2011.

In other news, talks between Ireland and the UK on a potential deal to sell offshore wind generated in Irish waters to the British market continued to drag on. Irish Prime Minister Enda Kenny said last week after a meeting with his UK counterpart, David Cameron, that the countries may miss a target to begin trading by 2020.

Irish wind-farm developers are counting on a trade deal that would allow them to benefit from UK power subsidies. 

The levelised cost of electricity of offshore wind is currently at €158/MWh, which is about €90/MWh higher than the revenue awarded to onshore wind projects in Ireland at the moment. Access to the UK market, which in 2018 will offer a strike price of around €180/MWh to successful offshore projects, is therefore essential for offshore wind farms in Ireland.

Mainstream Renewable Power, Bord Na Mona and Element Power plan to develop 10GW of onshore wind projects – provided they can export the electricity.

It is “probably not possible” to finish a deal within the original timeframe, Kenny said after his meeting with Cameron in remarks reported by the Irish Times and confirmed by an Irish government spokesman. Officials from both sides have been given three months to discuss issues including electricity prices and connections between the countries, he said.

Elsewhere, plans are progressing on a $US2 billion geothermal project in Ethiopia.

Reykjavik Geothermal, the Icelandic power-plant builder, said last week it is set to begin drilling in the African country by July to develop the renewable energy source. Ethiopia’s government signed a deal with the Reykjavik-based company in October to build a power plant on an imploded volcano in the Rift Valley that will generate 500MW of electricity by 2020. 

Finally, Shanghai Chaori Solar Energy Science & Technology, the first company to default in China’s onshore bond market, said last week its notes may be delisted as it heads toward its third consecutive year of net losses. The solar-cell maker plans to announce its final 2013 earnings on 28 April, it said in a filing to the Shenzhen stock exchange. The company said on February 27 it expects to incur a net loss of $US216.6 million for the period.

EU carbon

European carbon lost 8.7 per cent last week after the UK sold a reduced number of allowances. Dec-14 EUAs ended last Friday’s session at €6.37/t, compared with the previous week’s €6.98/t close. Front-year EUAs were trading as high as €7.08/t on Monday. An EU auction of 4Mt of carbon permits on Tuesday received record bids of 29.3Mt.

EU Emission Trading Scheme installations in 17 member states will be able to exchange UN offsets for European Union allowances shortly. The first batch of ‘international credit entitlement tables’ were approved by the European Commission last week, which will likely prove bullish for offsets in the short term. The commission confirmed the remaining import limits for existing installations and airline operators in the 17 countries, and indicated that the quotas will be finalised for the remaining member states by “early-April”.

Originally published by Bloomberg New Energy Finance. Reproduced with permission.