Wind operators face cumulative fines under new Russian system

Wind power operators in Russia face huge fines for missing localisation and export targets under a recently approved state support scheme. They also face penalties if output levels fall below production estimates.

Accumulation of the fines could mean operators lose all of the production payments secured in tenders, which are due to start in September 2021.

Developers are due to bid for power deals on a price-per-megawatt-hour generation basis later this year, and must specify how much their wind farm will produce over the 15-year term of the contract. 

However, if the actual output falls below this projected amount in the first year of the agreement, they can be fined throughout the 15-year duration of the deal with the Russian state.

Analysts from the Russian Association of the Wind Industry (RAWI) estimating developers could lose at least 30% of total payments due throughout the term of the contract. Meanwhile, the maximum losses could be up to 80% of total payments for the entire period.

This system of bidding will replace the previous method of competing on capital costs on a price-per-megawatt capacity basis.

Wind-farm operators will be subject to further fines if their projects’ output deviates from the production plan in the day-ahead market (DAM). They could be docked 30% of the DAM price on a specific day if production falls below planned levels.

Steep penalties

The strict penalty regime starts at the construction stage. The fine for failing to meet 85% localisation targets could be as much as 75% of production payments from the state.

Project owners will also be subject to fines for not meeting export targets, set at 5% for projects commissioned in 2025-30 and 15% for projects commissioned in 2031-35. Developers could be fined 10% of the guaranteed payment in 2025-29 for not meeting export targets, increasing to 21% in 2030-32 and 33% in 2033-35.

All these fines will be cumulative, so operators could end up paying all of their production payments in fines if they miss localisation, export and production targets.

The RUB 177 million ($2.3 million) being made available to devlopers bringing wind farms online between 2025 and 2035 is expected to support about 3GW of new capacity.

Industry groups have raised concerns that this level of support is inadequate, and will lead to job losses in the Russian wind sector.