Russia’s renewables sector is set to match the Chinese share in the country’s energy market, opening the door for the Chinese to significantly shape the development of Russia’s hydro and solar sectors.

RusHydro JSC, Russia’s biggest hydropower company, announced it is considering a partnership with Power Construction Corp. of China Ltd. (PowerChina). It would gain from a new program aimed to subsidize the construction of small hydro plants eligible for renewables subsidies in Russia. RusHydro may invest as much as 65 billion rubles (US $1.7 billion) by 2020 in more than 30 projects in discussion with PowerChina.

Russian president Vladimir Putin approved a subsidy program that boosts clean energy generation in a bid to curb reliance on oil, gas and coal while cutting emissions. The country plans to expand the share of renewables to 2.5 percent of the power mix by the end of the decade from the current 0.8 percent.

In the solar sector, the second Russian renewable energy project auction last summer granted the bulk of the state-supported solar capacity to China-based Amur Sirius. The Chinese snatched 175 MW of the offered 496 MW of solar for the years of 2015, 2016, 2017 and 2018, while state-owned Energija Solnce was left with 165 MW and Avelar Solar Technologies, part of Renova Group — and the winner of last year’s solar auction — was allotted a mere 155 MW.

The Russian authorities’ Chinese favoratism has not gone unnoticed by some Russian political observers who speculate that Russia and China are trying to strengthen ties as much as possible both economically and politically.

Putting Russian renewables developers behind the Chinese in the auctions has been a slap in the face for local oligarchs, especially Viktor Vekselberg, Renova Group president and a staunch government supporter. Vekselberg has consistently supported Russia’s lucrative sustainable energy business, a Russian energy sector export told RenewableEnergyWorld.com on the condition of anonymity — Vekselberg’s significant support for Russian renewables has been acknowledged by other Renewableenergyworld.com sources in the past.

“The solar power sector has got off to a great start in Russia mainly thanks to the true solar energy ideologist Viktor Vekselberg…He has been actively investing in the development of thin-film solar in the Russian Federation, as well as in the construction of solar power plants,” said Vitalij Davij, president of Ukraine’s Sustainable Energy Market Participant Association. 

An Encroaching Giant

This year’s green subsidy distribution made many wonder whether Russian decision-makers are sacrificing the local pro-government oligarchs like Vekselberg, whom Putin relies on domestically, in order to gain much more powerful players on the international stage where Russia is being hurt by the EU and U.S. sanctions. 

Unlike last year, the selected projects received the Russian government’s guarantee that each will see a return on investment in 15 years with a yield of 14 percent. This legislative novelty combined with the state subsidies for renewables expansion has made the Russian sustainable energy sector highly competitive and, many insist, promising. But industry analysts hint that business and politics not only undermines Russian renewable developers’ expectations, but also break Russian renewable energy laws, which, ironically, include local content rules at new renewable energy facilities.

The local content rule set by the Russian law calls for 55 percent Russia-made content by 2015 and 70 percent starting in 2016 for new solar projects — and 55 percent and 65 percent for wind power projects, respectively. This rule is definitely a boost for local renewable developers, and should be an invincible barrier for a foreign company, including China’s Amur Sirius. 

However, the Chinese have bypassed the local content requirements with legislative loopholes and founded a Russia-based sister company, Solar Systems, an Amur Sirius subsidiary. Solar Systems is plannign to build a large solar PV production facility in Russia. 

“Our company is planning to build a solar panel production plant in Russia by 2016. We expect the output, PV capacity-wise, will be no less than 100 MW yearly,” said Mikhail Molchanov, director general of Solar Systems. The company did not return multiple RenewableEnergyWorld queries for more information on the solar projects that it has taken on already. 

To ease solar financing, Chinese companies also plan to open a Russian affiliate of its China Construction Bank to fund the Russian state-supported solar projects. 

Amur Sirius is reportedly set to build solar farms with a combined capacity of 100 MW in the Russian regions of Samara, Volgograd and Stavropol by 2016, and the Chinese are mulling the further expansion in Russia and beyond it. 

“Currently, Amur Sirius is in search of business partners in the field of financing and technological developing both in the domestic market and the EU member states,”  Molchanov said in a statement.

Amur Sirius is part of China’s Heilongjiang energy alliance, a Harbin-based Chinese energy holding tasked by the Chinese Government to specifically target Russian energy projects. 

The Chinese encroachment has been so increasingly evident to all in Russia that even some of the country’s political think-tanks, such as Russia’s International Politics and Diplomacy Institute (RIPDI) found it necessarily to address the situation.

“The impossibility of Russia’s turning to Asia stems from the fact that Russians do not understand the meanings of the Asian culture symbols. We understand the European dance, but we can only appreciate the Asian dance, being unable though to cipher the significance of the moves and gestures,” Olga Butorina, head of the Institute’s European Integration, wrote in her blog recently.

RenewableEnergyWorld.com contacted Butorina for interview but citing “the intricacy of the issue,” she declined to speak on the matter.

But The Economist’s Edward Lucas was much more blunt. “Russia knows that China is a long-term threat to Russian existence,” he said, “whereas the West is a threat only to the current regime. So Putin is trading tomorrow for today.”

Lead image: Russia and China handshake via Shutterstock