The U.S. government recently announced that it would award up to $2.3 billion in tax credits under the American Recovery and Reinvestment Act in accordance with Section 48C of the Internal Revenue Code to 183 clean energy manufacturing projects across the United States.  Following a competitive application process that opened in August of 2009, and the submission and review of over 500 applications for clean energy manufacturing projects, these tax credits were awarded to manufacturing projects in order to promote economic growth and encourage a robust domestic manufacturing capacity for renewable and clean energy projects.  The application process considered specific criteria for these projects, including, among others, domestic job creation; the net impact in avoiding or reducing air pollutants or greenhouse gas emissions; the greatest potential for technological innovation and commercial deployment; and the shortest project time from certification to completion.  The Internal Revenue Service has already notified the projects that have been awarded the tax credit, as well as the amount of the tax credit, which will be allocated to these projects until the program funding is exhausted.  Importantly, this investment in the manufacturing tax credit will be matched by up to $5.4 billion in private sector funding. 

Because the clean energy manufacturing tax credit program was substantially oversubscribed by “technically acceptable applications” during the application period, the White House “has called on Congress to provide an additional $5 billion to expand the program” in order to provide further tax incentives to “worthy applicants who are willing to invest private resources to build and equip factories that manufacture clean energy products in America.” The Administration’s statement that recommends expansion of the program includes the observation that “there is already an existing pipeline of worthy projects and substantial interest in this area, [and] these funds will be deployed quickly to create jobs and support economic activity.” 

The pie chart below reflects the individual sectors that received the energy manufacturing tax credit, according to an Excel spreadsheet linked in the Department of Energy press release announcing the tax credits.  The Solar Photovoltaic, Solar Components and Materials, Industrial, and Buildings sectors are the largest recipients, by dollar amount, of the clean energy manufacturing tax credits, and more than a dozen additional clean energy manufacturing sectors also received tax credits under the program. 

(1)  Approximately 137 of the 183 projects were identified by technology sector.  The remaining projects were not identified by a technology sector.  Given the lack of data relating to these projects and their respective sectors, these projects were not included in the chart.

(2) The “Other” category on the pie chart includes the following sectors that represent 2% or less of the total dollar amount awarded: Batteries ($29,360,400, 5 projects); Biomass ($29,304,480, 2 projects); Carbon Capture & Storage ($4,842,438, 2 projects); Fuel Cells ($5,510,100, 2 projects); Geo/Buildings ($8,941,626, 1 project); Smart Grid ($35,652,663, 9 projects); and Solar-Hot Water ($806,501, 3 projects).

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Secretary of Energy Steven Chu will be testifying before the Senate Energy and Natural Resources Committee.  Secretary Chu was invited to address the Committee on the research, development and technology priorities necessary to meet medium and long-term efforts to reduce carbon and greenhouse gases in the atmosphere.

Wednesday, January 20

The House Science and Technology Committee will hold a hearing on “America COMPETES: Big Picture Perspectives on the Need for Innovation, Investments in R&D and a Commitment to STEM Education,” at 10:00 am in Room 2318 of the Rayburn House Office Building. The hearing will discuss the America COMPETES Act of 2007, which encourages people to study and teach mathematics and science, along with supporting research into emerging technologies and increasing funds for federal science-based organizations.

Thursday, January 21

The Senate Energy and Natural Resources Committee will conduct a hearing on the Department of Energy climate priorities at 10:00 am in Room 366 of the Dirksen Senate Office Building.

For further information about this topic, please contact Akin Gump.

To view Part I of “Update on Developments in Russia’s Renewable Energy Sector,” please click here.  

Investment in Renewable Energy

After the 2008 announcements and proposals calling for increased investment in production of solar products in Russia (see earlier ClimateIntel postings), some steps were taken by the government and by industry.  For example, Nano Solar Technology (NST), created in June 2009, undertook a solar module project in the Republic of Chuvashia.  This 49/51 joint venture is owned respectively by Russian state corporation Rusnano and the Renova Group of Companies.  Oerlikon Solar has been chosen to provide a 120 MW end-to-end line for the production of thin film modules.   The equipment is scheduled to be delivered to a new production facility located on the territory of the chemical plant “Khimprom” (city of Novocheboksarsk) in 2010, with production scheduled to start in 2011.  This project will significantly increase the production capacity of the Russian PV market.  Ryazan Metal Ceramics Instrumentation Plant in Ryazan Oblast is already using a 12 MW module manufacturing line supplied by Spire Corporation. Bogoroditsk Plant of Techno-Chemical Products in Tula Oblast also received a solar module manufacturing line from Spire Corporation last year (see previous ClimateIntel postings).  Both Russian plants are daughter companies of the holding company OJSC Russian Electronics, which is controlled by state corporation Rostekh.

Some investments have also been undertaken in the nascent biofuel sector.  OJSC RT-Biotekhprom, a wholly-owned holding company of state corporation Rostekh, announced plans to produce biofuel pellets and butanol in Arkhangelsk Oblast.  The wood pellet facility will have an annual capacity of 150,000 tons and is expected to be completed in Fall 2010.  The head of RT-Biotekhprom also heads an affiliated company — OJSC Biotechnologies Corporation — which is developing plans to produce two million tons of biofuel additives for motor fuels (gasoline and diesel) in the future.

The Ministry of Regional Development in September 2009 discussed a major project to promote energy efficiency in Arkhangelsk Oblast.  This project seeks to convert boilers from coal and diesel to biomass (from readily available wood waste in the region) and to set up production of biofuel pellets.   

As concerns hydropower, the development of small hydro power plants in the country appears to have slowed.  The fund “New Energy” created in early 2007 to implement RusHydro’s 2006 program for building small hydro power (SHP) plants with new capacity of up to 300MW by 2010, has been unable to handle the task, according to a source familiar with the situation.  In 2008, the fund’s portfolio included 383 prospective SHP projects with total capacity of 2.1 GW.

Prospective wind power projects are also in the news.  In 2009, the Russian daughter company of Canada’s Greta Energy Inc announced plans for a 72 MW wind project in the Yeisk district of Krasnodar Krai and began negotiations with manufacturers of wind turbines and related equipment.  The company plans to put three wind power facilities into commercial operations in early 2012.  According to a media report, Greta Energy “plans to invest up to €250 million in its first wind farm” near Russia’s Black Sea coast.  The Russian daughter company of The Netherland’s Windlife Energy is the leading developer of a 200 MW wind farm project (with 100 wind turbines) in Murmansk Oblast. This project is expected to be fully completed by the end of 2013.  Various wind power projects, as well as challenges facing the industry, were discussed during the first national conference held by the Russian Wind Industry Association in mid-November 2009. 

It may not take long before Russian hydrocarbon companies also begin to invest in domestic wind power projects.  For example, LUKOIL, citing the Yeisk project, has publicly expressed interest in a pilot project proposed near the city of Lagan on the Caspian Sea. 

However, it is less certain that the country’s wind-power capacity will reach the goal presented by RusHydro in 2008 to increase wind power capacity tenfold (from an estimated 12 MW in 2005 to a target capacity of 120 MW in 2010).  The federal government’s January 2009 decree did not include specific percentages for each type of RE input (i.e., small hydro, wind, solar) to be used in electricity generation.  Specific targets were in a draft decree, but these were later removed, according to a person familiar with the situation. 

The future development of the renewable energy sector depends on the Ministry of Energy speeding up work on developing and adopting additional RES regulations responsive to the market.  Currently, the number of finalized projects is small and the amount of government support for renewable energy is quite limited - especially when measured against the huge amounts allocated for gas and oil development projects.  It will take not only the passage of new laws and favorable regulations, but also a long-term political and financial commitment to further develop the renewable energy sector before one can speak of “breakthroughs” in this area.

For further information about this topic, please contact Akin Gump.

Additional legislation and executive branch implementing regulations will be required to boost substantial private investment in domestic renewable energy (RE) projects inasmuch as  private investment in this area will follow - not precede - the federal government’s investment in major projects.  Private Russian companies will nevertheless continue to undertake feasibility studies as they await federal legislation, as well as the development of specific regulations as required by certain provisions of the 2007 federal law “On Electric Power.”

Electricity Generation

In April 2008, the Chairman of the State Duma Energy Committee spoke of the need for the federal government to develop and introduce regulations based on the 2007 law “On Electric Power” concerning RE pricing and economic incentives, and to articulate “clear economic rules” for attracting investors.  Subsequently, the federal government issued an important decree on June 3, 2008 (№426) for determining the qualification of generators that use renewable energy sources (RES).  On November 17, 2008, the Ministry of Energy issued a regulation (№187) for the issuance, transfer and redemption of renewable energy certificates (RECs).  This regulation, which came into force on February 27, 2009, is likely to be reworked in 2010.  The executive directive issued on January 8, 2009 outlined the federal policy on the use of renewable energy for electricity generation and tasked the Ministry of Energy with developing regulations and other follow-up actions (see previous ClimateIntel posting). 

According to Anatoly Kopylov, Vice President of the Russian Wind Industry Association (RAWI) and a leading expert on renewable energy policy issues, a series of regulations still need to be developed and adopted detailing RES provisions and the requirements of the 2007 law.   Some concern mark-ups for electricity generated from RES, as well as the volume of electricity to be purchased on the wholesale market.  Other regulations concern “rules, criteria and procedures for providing federal budget subsidies to compensate costs associated with connecting RES generators of up to 25MW” to the grid.

The draft bill “On Heat Supply” (#177427-5), introduced in the State Duma in March 2009, was passed in a first reading on November 11, 2009.  Although “renewable energy sources” (RES) are not specifically mentioned in the text of the proposed legislation, the Ministry of Energy’s website comments that the draft bill envisions “measures for development of RES in the area of heat supply.”  Amendments and comments are to be submitted to the State Duma Energy Committee by February 10, 2010.

It is interesting to note that Russia’s efforts to create a legislative framework and regulations for renewable energy have been paralleled by Kazakhstan.  Legislation adopted earlier by Kazakhstan “On Support for the Use of Renewable Energy  Sources” was signed into law in July 2009.  Work on relevant regulations in Kazakhstan is currently under way.

Alternative Fuels

The draft bill “On the Use of Alternative Motor Fuels” (#130858-4), initially introduced in the State Duma in January 2005, has been revised for a third time by the authors and reviewed by the State Duma Energy Committee, which is overseeing this initiative.  On October 9, 2009, the Energy Committee sent the draft bill to the State Duma Council.  According to the draft ruling posted on the Duma website, the State Duma Council recommended that the draft bill be resent to the State Duma Legal Department, the Presidential Administration, the Cabinet, and various committees of the Russian parliament for comments and suggestions.  One criticism already received by the Energy Committee notes that the draft bill does not address the issue of “mandatory certification of alternative motor fuels” as they relate to current emission requirements.  The text of the draft ruling of the State Duma Council suggested that the Energy Committee receive feedback until November 13, 2009 and that the Committee should then prepare the draft bill for a first reading during the spring (January-July 2010) Duma session.

Although more than two years have passed since a legislative initiative on biofuels was announced, the fate of the draft bill, “On the Bases for the Development of Bioenergy in the Russian Federation,” is not clear.  Presented as a joint effort of both the Ministry of Agriculture and the Federation Council Committee on Economic Policy, the text of the 2007 draft bill has still not been posted on the State Duma website.  The head of the Bioenergy Development Center at the state-owned Russian Research Institute for Mechanization in Agriculture recently announced that the Agriculture Ministry had contracted the Institute to work on the draft.  Thus, it is not clear who is ultimately responsible for the introduction of this draft bill in the Duma.  In an interview with the “Regions of Russia” journal (Issue #9, September 2009), the head of the Center noted that the steps required for “mass production of equipment for bioenergy projects in Russia” have still not been taken and that the country’s “mechanical engineering is not ready to participate in the development of the new industry.”

There is no internal momentum for developing biofuel technologies in Russia and the country must rely on foreign technology in this area (as in many other areas) for launching domestic projects - despite the fact that in late 2007 then-President Vladimir Putin stressed the need to create conditions for private companies to produce biofuel in Russia (see previous ClimateIntel posting).  One of the drags on progress in this area is opposition - possibly from the Ministry of Finance - to lowering the excise tax on biofuel for domestic use.

As in the electricity generation area, Kazakhstan is developing a draft law “On State Regulation of Production and Turnover [Sales] of Biofuel,” which was approved by the lower house of the Kazakh parliament in a first reading in May 2009 (see previous ClimateIntel posting).  A related draft law outlining serious penalties for violations of the law was also approved.

The Russian executive branch continues to voice support for the development of the nascent renewable energy sector.  As concerns biofuel development in Russia, President Dmitry Medvedev said at a September 2009 meeting of the Commission for Modernization and Technological Development of Russia’s Economy that Russia has “made some advances here but [we] have few results to show for it so far,” adding that “this is something that requires very detailed preparation, but it is nevertheless important for our country.”  It is not clear whether the President’s objective assessment of the situation will lead to accelerated work at lower levels in federal ministries and agencies, given the severity of the economic downturn and the many other areas in which the Russian economy is lagging or underperforming.

To view Part II of “Update on Developments in Russia’s Renewable Energy Sector,” please click here.

For further information about this topic, please contact Akin Gump.