While the evidence mounts that renewable energy sources (RES) are becoming increasingly cost-effective, they have been slow to penetrate the Russian energy market. This is even more surprising since Russia was an early leader in RES deployment. Moreover, it raises the question whether renewables may be competitive in Russia, and if they may, how should the legal framework for their integration in the energy system evolve. Thus, the goals of this paper are twofold.

Fist, the authors explore the potential competitiveness of wind and solar PV against new conventional power generation capacities. They find that international capital and operation costs put into Russian climatic (solar radiation, wind speed) and economic (discount rate, domestic fuel prices) conditions give levelized costs of wind and solar PV, which are comparable to these of new conventional power generation, and wind may be the second cheapest energy source after natural gas.

Second, the authors give an overall review of the Russian RES regulation and its new developments to show that Russia has started to recognize its need to gain core competencies in renewable energy technologies. Still, Russia has much room to improve its regulation and to narrow the existing gap between policies and their implementation.

Highlights

  • -LCOE of wind and solar PV in Russia may be comparable to conventional power LCOE.
  • -Wind energy in Russia may be the second cheapest energy source after natural gas.
  • Lower values of WACC dramatically improve economic performance of renewables.
  • WACC may be decreased by strong guarantees for RES investors and subsidized loans.

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