While the strained relationship between the EU and Russia hangs over the continent’s gas supplies, there is a parallel case for investing in renewable energy in the Russian outback. 

Fortum, a Finnish state-owned energy company listed on the Helsinki stock exchange, is the pre-eminent foreign energy company making inroads into Russian onshore wind. 

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At this year’s auction in September, Fortum secured 1.3–6GW of onshore wind projects in partnership with Rusnano, the Russian state-owned nanotechnology investor, by bidding low, close to the wholesale electricity price, in line with its strategy to broaden the scope of renewable energy in a limited yet high-potential market. 

Ingela Ulfves, vice president of investor relations at Fortum, tells fDi that the company was “targeting market volumes to provide better opportunities for further negotiations with equipment manufacturers”. 

“A bigger portfolio also allows to reduce the cost of equipment, the cost of capital expenditures, attract new efficient technologies, and, potentially, new customers for renewable energy projects,” she says.

Offshore wind is still yet to be developed in Russia, despite it holding half of Europe’s technical offshore wind potential.

First among international players

Having built its first wind park in Russia in 2018, Fortum — now the biggest international player in Russia’s renewable energy market — has built more than 600MW of wind and solar in the country, making Russia one of its core markets for renewables. Fortum is also a member of the Russian Association of Wind Energy.

By the end of this year, five new 340MW wind parks in the Astrakhan region in southern Russia are expected to start supplying power to the wholesale electricity market. 

In 2013, the Russian government introduced a renewable energy support scheme, allowing foreign entrants into the market. This year, the government extended this through a new support programme that replaces a capital expenditure-based system with a feed-in tariff system, and runs until 2035.

The main challenge for foreign players is the local content requirements, which can be quite substantial. At the latest auction, 70% of wind and 80% of solar equipment had to be manufactured domestically or by Russian companies.

But Ms Ulfves is confident that there is a way forward for foreign investors eyeing the Russian market. 

“We don’t see limitations for foreign players,” she says. “We consistently advocate for the evolution of the wholesale electricity market and promotion of power purchase agreements in Russia to allow renewable energy projects to compete in the market with thermal and nuclear-based generation.” 

In parallel, Fortum has been divesting from its fossil fuel-based activities in Russia. In July, it agreed to sell its Argayash coal-fired combined heat and power plant, in line with the company’s goal to end the use of coal in Russia by the end of next year.

Policies and politics 

While the energy sanctions imposed on Russia do not pertain to renewable energy, Fortum says it is confident that it can navigate the general investment risks relating to Russia.

“Geopolitics and political and regulatory risks have always been present in large energy investments in all countries we operate in and, as a company, we are accustomed to navigating them successfully,” Ms Ulfves says.

Vladimir Petrov, power and renewables analyst at consultancy Rystad Energy, says that Fortum has the “best of both worlds”, with understanding of Russia’s energy markets together with an understanding of global ESG trends.

But he adds that, broadly speaking, the market is still constrained way below the country’s wind potential. “We don’t expect significant additions following the new feed-in tariff,” he says, anticipating that solar and wind capacity will only make up 1% and 3% of Russia’s energy mix by 2030. 

Mr Petrov says that Russia’s net-zero emissions target by 2060 may give rise to new mechanisms of support, but “this is not clear yet”.

This article was first published in the December 2021/January 2022 edition of fDi Intelligence magazine. Read the online edition here.