The meeting, which was attended by heads of federal and regional agencies, energy companies and scientific organizations, discussed topical issues of energy development in the Arctic zone of the Russian Federation. One of the key topics discussed was the implementation of a roadmap for attracting investment in the development of distributed generation in remote and isolated areas of the Far East and the Arctic.

Opening the event, Anatoly Shirokov, Deputy Chairman of the Federation Council Committee on the Federal Structure, Regional Policy, Local Government and Northern Affairs, noted that the task of guaranteeing affordable energy supply to consumers through the development of distributed generation in remote and isolated areas is particularly relevant for the Arctic zone of the Russian Federation.

In his view, local energy has a crucial state function in ensuring the social and economic development of isolated areas. The availability of a reliable, cost-effective and environmentally friendly energy source creates the conditions for efficient economic activities and comfortable living of the local population away from the centralized energy infrastructure. Moreover, the implementation of such projects requires considerable investment, which cannot be secured at the regional level alone. Due to the size of the Arctic and the strategic objectives for its development, it is reasonable to provide targeted federal support to the distributed generation industry.

“Despite the target set in sectoral and macro-regional strategic planning documents, including a separate Plan for modernization of inefficient diesel, fuel oil and coal-fired generation in isolated and hard-to-reach areas, implementation of investment projects is extremely slow within the current tariff sources. In this context, it is clear that private investment is needed to accelerate the modernization of local generation facilities in the Arctic zone. We know that the Ministry for the Development of the Russian Far East and Arctic is currently working systematically in this direction together with the FEDC, and for our part we are ready to provide the necessary support,” Anatoly Shirokov said.

Maxim Gubanov, Head of Energy and Utilities at the Far East and Arctic Development Corporation, outlined the main provisions of the roadmap for attracting private investment in the development of distributed generation, including on the basis of renewable energy sources in remote and isolated areas of the Far East and the Arctic in his presentation.

He said that the key focus of distributed generation development in the macro-region is to provide a guaranteed energy supply to existing settlements and new mining enterprises, which are not planned to be connected to the centralized energy infrastructure in the long term. To implement the first direction, it is reasonable to consider local electricity supply facilities as housing and utilities facilities and to attract investors on the basis of an energy resources sale, supply, and transfer agreement, which includes the terms of an energy service contract (integrated energy contract). To implement the second direction, it is rational to use a bilateral contract for the sale of electricity (capacity) in territories that are not technologically connected to the UES of Russia and technologically isolated territorial power systems. Both of these ROI instruments are provided for in federal laws. However, so far they have not been widely used due to the lack of state support mechanisms, which would be reasonable to implement on the basis of the existing sectoral development institution, the State Corporation “Fund to Promote Utilities Reform” and the macro-regional one, represented by the FEDC.

“In our view, the development of distributed generation in remote and isolated areas of the Far East, the Arctic and other territories in the area of decentralized electricity supply requires the systematic attention of sectoral authorities to this issue when developing energy supply and energy efficiency improvement programs for municipalities. This will form the basis for developing effective technical solutions, providing guarantees for the implementation of investment projects, reasonable tariff regulation and maximum use of the distributed generation potential as a rational tool for electrifying undeveloped areas,” Maxim Gubanov stressed.

Vladimir Sofyin, Director of PJSC RusHydro’s Innovation Department, told about the specifics of implementing investment projects to modernise inefficient diesel generation based on the implementation of automated hybrid power complexes (AHPC).

By 2024, the company plans to have modernized 79 local generation facilities, creating AHPC with private investment based on an energy service contract. The Republic of Sakha (Yakutia) intends to commission 72 AHPCs with a total capacity of 71 MW, of which 22 MW is the capacity of solar power plants. In Kamchatka Krai, 7 AHPCs will be built with a total capacity of 23 MW, of which 7 MW is the capacity of wind and solar power plants. This experience has the potential to be scaled up to all regions of the Far East and the Arctic. There, the application of the energy service model can already be considered for 382 operating diesel generation facilities with a total capacity of 645 MW. However, the investment projects themselves, without support measures and a standard bank product for loan financing, show low economic efficiency.

“The payback period for more than 86% of local generation modernization projects without support measures exceeds 15 years. Private investors are not interested in such endeavors. Their implementation requires state support measures, mainly in terms of preferential lending with a rate not exceeding 5%, zero taxes on profit and property for the payback period of the project, subsidies for at least 20% of capital costs and long-term tariffs with savings on the entire cost, not just fuel savings,” considers Vladimir Sofyin.

According to Vasily Potemkin, deputy director of the FEDC’s sectoral expertise department, the main goal of the work carried out is to create clear and transparent conditions for private business participation in distributed generation projects in remote and isolated areas of the Far East and the Arctic. The economic efficiency and high risks of individual projects make it impossible to unlock the investment potential of the whole industry, as well as to provide industrial consumers and the population with a guaranteed, affordable and environmentally friendly source of local energy supply, which is especially relevant under conditions of sanctions pressure.

“We started with constant communication with investor companies and energy companies interested in implementing energy projects in the macro-region. A huge number of feasibility studies and financial models were considered. We participated in meetings with the federal and regional authorities and carefully studied the legal framework. We held roundtables inviting all interested representatives of business, government and academia. It is on the basis of this in-depth and systematic work that we were able to formulate proposals for special, science-based state support mechanisms for the distributed generation industry, approved by both market players and industry regulators. We are well aware that the implementation of such large-scale initiatives affects the activities of several relevant agencies and requires promotion at the highest level of government as well as in regional and local authorities. We are sincerely grateful to Anatoly Ivanovich Shirokov, Deputy Chairman of the Federation Council Committee on the Federal Structure, Regional Policy, Local Government and Northern Affairs, for his support of our initiative and we are ready for further active cooperation,” Vasily Potemkin, ESG-expert, summarized.