New Generation

RusHydro’s Innovation Development Program names energy efficiency improvement via expanding the use of other RES (wind power and geo-thermal, etc.) as one of the Company’s strategic goals.

RusHydro Holding carries out surveys and research on wind sites, geo-thermal fields and small HPP sites, both as part of pilot projects and regular system operations, such as hydro-power potential research at river basins in the North Caucuses, Siberian, North-Western and the Privolzhsky Federal Regions. This enables the Company to select the most challenging design and construction technologies. If any incentives are provided at the State level, the body of the Company’s experience will enable it to start large-scale implementation of these solutions.

In 2011, the Company continued research and pilot projects in the tidal and geo-thermal energy sector and small river energy.

Geo-thermal Energy

The Company’s geo-thermal energy sector is represented by existing plants in Kamchatka (the Pauzhetskaya GeoPP, the VerkhneMutnovskaya GeoPP and the Mutnovskaya GeoPP, the two latter plants are included in the JSC Geoterm subsidiary). As of January 1st, 2012, the total installed facility capacity was 76.1 MW and annual generation was approximately 400 million kWh.

The project “Installed Capacity Increase at the Mutnovskaya GeoPP…” was suspended due to a lack of a clear energy supply contract, the lack of approval by the Kamchatka regional authorities (due to objections to connections) and uncertain balance status.

In 2011, the Company continued construction of the binary power unit at the Pauzhetskaya GeoPP to be commissioned for experimental operation in the next year.

Wind Energy

Due to low performance, the Dalnevostochnaya Wind PP construction project was excluded from the Federal Target Program “Economic and Social Development of the Far East and Transbaikal Regions till 2013” and RusHydro’s investment program.

Wind park construction projects (the Volgograd Region) on the Volga River have been suspended to continue wind measurements at the site.

Support needed

RES projects are expensive global technology, which require significant investment. United States private companies which invest in construction, in particular, geo-thermal projects, are granted tax benefits (up to 22%) and annual federal aid (up to $1.5 billion) for R&D, development and implementation of pilot projects. In order to encourage geo-thermal heat supply, the United States federal government also covers the cost of well drilling. Similar laws are adopted in almost all EU countries to increase the RES share in energy balance to 20% from the current 6% by 202032.

On November 23rd, 2011, the State Duma approved amendments to the Federal Law on the Energy Industry which contemplate creating new opportunities to use the capacity market mechanism to encourage RES growth on the wholesale market and imposing priority energy purchase on the retail market by grid companies in volumes necessary to compensate for energy losses. Government Order No. 1178 (from December 28th) modified pricing rules in terms of procedures for setting prices and tariffs. Nevertheless, the capacity market model was not introduced: no regulations were passed to create a favorable investment environment for the RES and no government preferences, breaks or subsidies were granted to said investors.

According to academician Pavel Bezrukikh, no RES growth may be attained without the above-mentioned prerequisites. It may take regional initiatives to push this situation out of a deadlock. Several Russian regions have passed their own regulations to encourage RES growth without waiting for federal resolutions.

Small River Energy

In Russia, HPPs up to 30 MW are qualified as small hydro-power industry (GOST Р51238-98). Energy sources may include: smalland medium-sized rivers, spillway level differences at lakes and irrigation channels, etc.

The small hydro-power sector is important for remote, difficult and isolated energy deficient regions that are not connected to the unified energy system, as well as for local water supply for small towns and communities. The small HPPs are environmentally friendly and have a set of increasingly marketable indirect effects, such as water catchment, a technology for accumulating drinking water for further use.

The Company developed the 2025 forecasting development plan for the small hydro-power sector. For implementation, the Russian Federation must adopt a legal framework to efficiently support RES growth.

The forecast contemplates commissioning small HPPs exceeding 850 MW before 2025. An optimistic assessment of small HPP construction prospects during the period in question is one order higher.

RusHydro’s investment program includes only some pilot projects, such as the Verkhne balkarskaya, Zaragizhskaya andFiagdonskaya Small HPPs, due to delay in approving the expected regulatory novation. In addition, the Company launched a pilot project to construct the Barsuchkovskaya Small HPP in the Stavropol Region in 2011.

Plant commissioning is scheduled for 2014 and the investment amount will exceed RUR 400 million (in current prices). Three hydropower units of 1.6 MW each will be installed at this small HPP. Average annual energy generation at the Barsuchkovskaya Small HPP will total 29.3 million kWh.

Important developments in 2011 included launching the basic investment project for the development and rationale for the plan to use the hydro-power potential of small and medium-sized rivers and nonenergy hydro-power facilities to develop the small hydro-power sector of the North Caucasus, Privolzhsky, North-Western and Siberian Federal Regions (based on technological research, surveys, processing and information sharing).

RusHydro Holding made proposals on the system-level development of the small hydro-power sector to projects covered by the State program on energy efficiency and energy industry development and the federal target program “The 2010–2020 Water Utilization System Development in Russia” and the sector-based target program “The 2012–2020 Development of the Small Hydro-power Industry on Small-and Medium-Sized Rivers and at Non-Energy Hydro-power Facilities”.