'Renewables' share in Russia will rise significantly': Fortum

5 MINUTES | Joonas Rauramo of Fortum tells Bernd Radowitz how the Finnish utility will take large-scale wind power to Russia for the first time

Finnish utility Fortum in conjunction with Russian state-owned company Rusnano in June won 1GW of onshore wind projects across the world’s largest country,  and will be testing out new territory in a market with a huge potential, but little wind industry infrastructure.

Bernd Radowitz spoke with Joonas Rauramo, vice president, solar and wind development at Fortum in Helsinki about Fortum's early experiences and plans in Russia, turbine choices (Vestas rather than Dongfang), and a country the company considers its “home market” alongside the much further-developed Nordic wind sector.

Could you explain the structure of your co-operation with Rusnano? Does the joint venture mean that out of the 1GW Russian pipeline only 500MW will effectively count as Fortum’s in company results?

It is a 50/50 joint venture, we are investing jointly. Both invest in equity, and then we will raise debt financing. The 1,000MW of the wind investment fund corresponds to 500MW for Fortum, in line with our long-term ambition for wind power in Russia.

You said you plan to use Vestas turbines. When will you take a final investment decision, and what does it depend on? Do you already know what turbine type you will use?

We will take FIDs project by project between 2018 and 2022. FIDs will come gradually when we come close to deadlines regarding the capacity auction scheme. ... There are close to 20 projects, which are clustered [in certain regions]. That is a consequence of the bidding structure. Only a limited amount of capacity was available.

In which areas in Russia are those clusters?

We have one in Ulyanovsk region [from an earlier auction in 2015]. A first 35MW are supposed to be ready by the end of 2017 [since revised to Q1 2018]. At that project, we are using Dongfang turbines, similar ones as at a wind park in Sweden. [For that earlier project, the] local content requirement was still lower. All turbines for the project were manufactured in China.

The local content requirement will be 55% from 2018 on, and 65% from 2019 on.

In what areas of Russia are the projects you won in the tender this year, and what are the wind conditions at the sites?

We are looking at multiple regions. For example the Ulyanovsk and Krasnodar, Rostov, Stavropol and Tatarstan regions.

For the capacity selection agreement (or CSA agreement), you need to satisfy certain minimum conditions to get the full support, or the full capacity payment. We are targeting to have capacity factors of above 30%. They vary a bit depending on the site. So [the Russian sites are] not like the best sites we have in the Nordics, where you can have almost 4,000 peak load hours even in onshore locations. But they still have relatively good wind conditions.

Will the turbines you use be more in the 3MW or 4MW range?

It’s above 3MW at least, I can say that. But it is still a little bit under consideration now what the optimised terms of capex and production will be, and what sort of optimisation we need.

How do you see Russia’s wind potential in general? Rich in oil and gas, Russia so far had been lukewarm towards renewable energy. What do you think made the government change its mind to start to build up RE capacity and a wind industry?

As Fortum we have been in Russia a long time. We have a lot of combined-cycle power and heat generation in Russia. Even the predecessor of Fortum has been in Russia since about the 1930s. We are in Russia for the long term.

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Russia has not been very ambitious with renewables targets before. I believe as now there will be a local manufacturing base because of the [tendering] programme that is now ongoing – and as we have seen the cost of wind power coming down – [a faster deployment of renewables] will happen also in Russia. Obviously, the costs are a little bit higher maybe than in some other areas at the beginning. But looking to the future, we believe that the share of renewables will increase in the power mix significantly.

They [the Russians] haven’t stated percentage targets for electricity or energy as we have them in the EU. But then again, in Russia there is practically no wind power today. So the growth rate per year will be quite high. Even a relatively small share in the total electricity mix will mean quite a high amount in absolute terms of GW or GWh.

What is Russia’s wind energy potential?

There is not too much public information available. But in Russia, there are very large areas where you have a relatively good potential. Especially with higher towers and larger rotors [as they are available now] capacity factors can be increased. 

I would say that the other benefit in Russia is that there is a lot of gas-fired (and also coal-fired), but especially gas-fired capacity, which is relatively flexible. It’s quite easy to add wind power to the system without causing problems with variable production. 

So from that perspective, I think, at least the theoretical potential is huge. But obviously, the pure power market prices are not very high. So [the market] alone is not sufficient to give [renewable energy] a significant boost. That is one of the reasons why Russia has introduced this CSA programme.

How high is the wholesale market price now?

It is somewhere around €20-25 per MWh [similar to that in the Nordic countries].

Russia will hold further renewable energy tenders. Will you bid again?

I would say that we have stated publicly that our target in wind altogether is to go to the gigawatt scale. We have a phased strategy in the company: the first phase is to participate in the consolidation of the European power generation market, and the second phase is to grow significantly in renewables. 

The capacity we have now is quite good. For some time at least our ambitions are fulfilled. And we haven’t even built much capacity [in Russia] yet. We have one 35MW site [at Ulyanovsk], which is supposed to come online by year-end. I have visited the site in March. The construction is going well.

Why do you plan to use Vestas turbines for the new projects and won’t stick with Dongfang?

The basic issue is that there is the localisation topic, which is of course key. Our approach as a company is that we are technology agnostic in a sense that we try to find the optimal solution for different circumstances. In this case it was about overall performance – both technical performance and localisation, and of course pricing is a topic. But we had chosen Vestas also in a 50MW Norwegian project quite recently, and had a good cooperation with them.

Was that a project that is close to the sea in Norway?

Yes, it is quite close to the sea. But it is onshore still, in northern Norway.

When will you commission your first 35MW in Russia? How were your experiences for that project?

Basically it’s in a way a ‘first of its kind’ project. So there has been quite a lot of trail blazing work that we have had to do in terms of technical specification, as well as grid specification to get the turbine, or the design accepted. [Renewables] regulation has not been so developed [in Russia] before. So it has been evolving along the way. 

We have worked a lot with grid companies and authorities to make sure that the procedures are correct in a way, as well as the planning, and – once the plant is constructed – [to get] the connection to the grid. It has been quite a lot of learning for us, and I would assume also for the other stakeholders. That [experience] has been a very important part when we decided to participate in this bidding, that we have had the experience to build those 35MW before.

"Wind is a new thing for Russia, so everyone is learning at the same time that we are doing"

How were your experiences when working with Russian authorities?

We had to work quite a lot, but I think that the relationship has been quite constructive. We have not encountered any special problems. It’s more that it is a new thing coming [for Russia], so everyone is learning at the same time that we are doing, so that’s the reason that certain things have taken a little bit longer.

But I have to say that in Russia many regions are eager and promoting wind power and are willing to have wind power investments. For example in the Ulyanovsk area they have been very, very receptive for wind power investments. So that has been positive.

How is the grid in Russia? Is it favourable to wind power, or do you think some lines still need to be built to get wind power to the big population centres?

I would say that with the amount that we are talking now that is not a problem. Historically, there have been quite strong transmission system lines [in Russia]. Of course, one needs to consider where to install wind parks so that there is sufficient [transmission] capacity. But I wouldn’t say that there are bigger problems than anywhere else. It’s more about selecting the right sites. The grid as such is not so much a limiting factor.

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Of course, in Germany, for example, the [wind power] capacities are much bigger, and there are the challenges for North to South transmission and so on. But in Russia the amounts are still relatively small compared to the overall power production

How much wind power do you have in Finland, and do you see further scope for increasing that?

We have no wind power capacity in Finland. We have wind power capacity in Norway and Sweden. For us, the Nordic market is one market, which we consider to be our home market. Regarding Finland, there was a support mechanism, which has now closed down. The government is planning to introduce an auction mechanism. A first auction will be held in 2018, and that would be altogether for 2 terawatt hours of renewable electricity production from new plants. We are looking at opportunities to participate in those auctions.

In Sweden, we have currently 37.5MW of the [247.5MW] Blaiken wind park, and we are constructing a 75MW plant [at Solberg] , which we own 50/50. But there we are responsible for the construction.

In Norway, we have a 32MW plant operating [at Nygårdsfjellet] , we have one 50MW plant under construction, and a 90MW project, which is supposed to go under construction very soon.

Our strategy in wind power now in this phase is that we concentrate on our home market. So it’s the Nordic countries and Russia.