Fortum leaves in parts – Newspaper Kommersant No. 233 (7434) of 12/15/2022
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As Kommersant found out, Finnish Fortum may abandon a third of its wind farm projects in Russia received at the 2021 competition at record low prices. We are talking about projects for 460 MW with a delivery price of less than 2 rubles. per 1 kWh and launch in 2025–2027. The company may change its mind if regulators agree to index the prices of all new projects by 20%. The former volumes of Fortum may be raffled off again at the competition, but their cost will be many times higher due to the lack of competition, analysts warn.
Fortum (controlled by the Finnish Fortum) may abandon some of its cheapest wind farm projects (WPPs) received at the tender in 2021. We are talking about projects with a total capacity of 459 MW with a launch in 2025–2027. The issue will be discussed on December 20 at the Supervisory Board of the Market Council (energy market regulator), follows from the draft minutes of the meeting (Kommersant has it). Fortum declined to comment.
Green generation in Russia is being built under a program to support renewable energy at the expense of industry: consumers buy their energy at an increased tariff (includes CAPEX, OPEX and profitability). Projects are selected at the lowest price.
Fortum won 1.39 GW of wind farms at last year’s competition, or 75% of the total quota in terms of capacity due to a record reduction in the one-part price in bids. The average rate for their projects is 2.22 rubles. for 1 kWh. The price of the cheapest projects that Fortum wants to abandon is 1.72-1.99 rubles. For comparison: the one-part wholesale price of electricity in the European part of the Russian Federation and in the Urals reached 2.7 rubles by October. The main competitor of Fortum, Novavind (a Rosatom structure), took 460.7 MW at 5.1 rubles each in 2021.
If Fortum refuses part of the projects, then this volume will be raffled off at a new competition in the spring of 2023.
However, at a meeting in the Market Council, according to Kommersant’s information, company representatives said that they could remove the issue from the agenda if the government approves increased indexation (by 20.4% instead of 8.4%) of the prices of renewable energy projects selected in 2021 year. Additional indexation was supported by the Ministry of Economy and the Ministry of Industry and Trade, but the Ministry of Energy opposes (see “Kommersant” of December 12). With increased indexation, the average price of all new projects of the Fortum wind farm will be 2.7 rubles.
The main question is how Fortum will implement current and future WPP projects. Finnish Fortum wants to sell assets in Russia. Fortum’s technology partner, the Danish Vestas, refused to supply wind turbines to the Russian Federation, and also closed the blade manufacturing plant in Ulyanovsk. As a result, Fortum was unable to launch a 253 MW wind farm in the Russian Federation by December 1. In the fall, the Fortum company said that they had decided to exercise the right to a non-penalty delay in their launch.
Kommersant’s interlocutors in the industry believe that Rosatom will become the main contender for Fortum’s volumes, since there are no longer manufacturers of localized equipment in Russia.
Power Machines and Tatneft want to start production of equipment for wind farms: they are negotiating with Chinese suppliers, but have not yet reached an agreement, Kommersant sources say.
The “Community of Energy Consumers” (which unites industrial consumers of electricity) believes that the current situation is “another confirmation of the inferiority of the RES support mechanism”. “All the risks of the so-called investors are passed on to consumers, since volumes can return to new withdrawals, significantly increasing prices due to narrowing competition,” they say. “Meanwhile, these projects could be implemented within the framework of voluntary demand, without increasing the burden for everyone consumers, becoming the subject of free investment contracts, the contractual structure for which has been discussed for a long time, but has not yet been created.
Even last year it was obvious that the price was less than 2 rubles. in terms of applications, Fortum was very low, and its achievement was realistic only in a stable economic environment and taking into account the fact that other projects will bring more money, Tatyana Lanshina, an independent expert in the field of renewable energy economics, believes. Now the economic situation is uncertain, so we expect the rejection of projects. Ms. Lanshina does not expect high competition in the new competition, where former Fortum volumes can get, since the barrier to entry into the renewable energy industry is much higher. In her opinion, re-trading prices may turn out to be close to the established ceiling (about 6 rubles).
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