Investments in energy in Russia and in the world: how to successfully invest money in energy investments

Energy is the basis of the Russian economy, its development has always been a priority. Without constant cash injections, such a powerful industry simply will not survive. This is why investments in energy are relevant, they are strategically important.

The lack of full government subsidies makes attracting third-party capital to the industry particularly important.

Factors influencing this significance:

• Unstable economy in the country.
• Direct dependence of industry on energy.
• Insufficient funding for the industry has a dramatic impact on the economic picture nationwide.

These projects will help increase capital:

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Investment policy

Investments in the energy industry currently account for the bulk of private capital. Continuing the trend of large injections does not guarantee the return that investors sometimes count on. The peculiarity of such investments is that they cannot quickly pay off.

Successful investment in the energy sector is a long process, spanning several decades. It is for this reason that there are certain, but completely justified risks with the only amendment: this is a “long game”, not for those who like to get rich quick.

Recently, there has been a trend that up to 90% of investments in the industry are made up of private capital, the remaining part comes from government funding.

An increasing number of investors began to consider non-standard energy resources

How a large energy industry enterprise became private property

The starting point for the collapse of the Russian energy industry is considered to be the mid and late 90s. At that time, in circumvention of Russian legislation, foreign companies (usually American ones) gradually bought up the assets of Russian enterprises through shell companies. So, for example, as of April 30, 1999, more than a third of the shares of the RAO UES concern belonged to organizations registered outside of Russia (for example, the holder of 20% of the assets was the Bank of New York IN).

In the 2000s, the energy recession was reversed. More than 60% of RAO UES shares are concentrated in the hands of the state and controlled organizations - nominal holders of securities. There were several such companies, the main ones:

• National Deposit Center (NDC);
• Depository Clearing Company (DCC).

But this did not save the industry from reform, and on June 1, 2008, RAO UES was liquidated, and the electrical power engineering business was transferred to private hands. The state began to implement only:

• collection and processing of operational information on the condition of all fuel and energy facilities;
• uniform distribution of energy products in the constituent entities of the Russian Federation;
• organization of centralized energy supply systems.

As for the company's private investors, who owned 5% of the total shares, they were forced to sell their securities at a redemption price that was less than 40% of the original cost. In the transaction notification, people saw the details of the company Siberian Energy Investments Ltd, registered in Cyprus. But the laws were not violated, because the holder of 95% of the shares has the right to forcibly buy out the remaining securities.

As a result of the reform, RAO UES split into 22 companies (only 2 of them are state-owned), and the population was offered to purchase electricity at free prices, subject to tariff regulation by the Antimonopoly Service.

Investments in alternative energy

Russia is rich in its natural reserves: oil, gas, coal. With such abundance, it is difficult to start saving resources, but in the EU countries it is the opposite. With the constant import of fuel and other energy resources, you can’t help but think about alternative power sources for industry. Thus, long-discovered, but not widely used, methods of energy generation can become a significant savings item for European countries.

Unlike mineral-rich Russia, the West boldly invests assets in the energy sector, which quickly brings tangible dividends. About one tenth of the share of the European energy market is occupied by methods that are not familiar to us.

Characteristics of energy investments in alternatives:

• This is promising for countries that import fuel and want to have an autonomous supply that will not be influenced by external reasons: politics, the economic situation of supplying countries and other factors.
• Such energy, generated locally, without overpasses and intermediaries, is cheaper.
• It is environmentally friendly and does not harm nature.
• Such “extraction” of energy is not tied to deposits; it can be carried out in any area.
• Unlike traditional ones based on the extraction and processing of gas, oil and coal, this industry is more mobile and profitable.

Investments in solar energy would be quite justified, given the characteristics of some regions: Altai, Yakutia and Tyva. There are ready-made projects developed for these territories. But, given the insufficient funding, construction costs fall on the state budget, so they were never implemented.

With proper organization, the payback is much faster and therefore more attractive to investors

The attractiveness of the domestic energy resources industry can be increased

According to the IEA, for the effective development of the Russian fuel and energy complex, investments in the amount of more than $2 trillion will be required. To attract these funds, it is necessary to coordinate the interests of investors with the fulfillment of social obligations and GDP growth. What can be done for this?

1. Change the pricing policy , and leave every money saved by the enterprise in the organization without reducing tariffs.
2. Remove administrative barriers and simplify the registration procedure for foreign organizations.
3. Set the exact amount of tariffs for a certain period of time (preferably for 5 years, but 2-3 years is also possible) so that investors can plan profits and predict the period of return of capital.
4. The state must guarantee the unchangeability of these tariffs, regardless of the economic situation in the country.

Of course, the question of the chosen currency remains open, since fixing tariffs in dollar terms with a sharp jump in the exchange rate will lead to the insolvency of the population. In this case, you can use the reverse subsidization technique and assign part of the costs to industrial enterprises, which is also not a universal way out of the crisis, but will maintain the level of foreign investment.

Types of alternative energy

Let us list and consider the main, promising types of non-traditional energy resources, investments in the development of which can be considered with a further perspective. Kinds:

1. Energy of sun. It is considered accessible anywhere in the world. The daily production of millions of kilowatts of power by the luminary can provide energy to everyone. Moreover, the resource is self-renewing and inexhaustible. To collect and convert such energy, equipment is needed, which can be either local (to provide for one family) or global.
2. Geothermal energy. The method is based on the conversion of thermal energy from the earth's interior, and is mainly used in mountainous and foothill areas.
3. Wave energy. There will always be ebbs and flows, and the force that carries the wave is colossal. When a wave receives mechanical energy, it is converted into electrical energy.

Energy investments in alternative types are increasing in relevance, and this trend will continue with the depletion of natural - non-renewable resources.

This investment method is one of the longest processes

How to invest in this industry:

• Venture mutual fund specializing in alternative types of energy. If you have time to invest during the founding period of the fund, the profit promises to be high.
• Acquisition of shares in an energy production company. The profit will be the dividend portion and funds from a profitable sale after the rate rises.
• Purchasing a share in a fund whose share package, among others, includes shares of alternative energy companies. This way you can hedge your bets without investing all your capital in the energy sector.
• This method is not for the faint of heart - investing in the development of new methods for extracting and converting energy.

It is necessary to understand this area and try not to invest in an unviable project

Types of renewable energy

The main areas of alternative energy are listed below:

• solar (solar energy);
• wind;
• geothermal;
• bioenergy;
• hydropower.

Solar energy is based on the use of solar radiation to produce energy. This renewable source accounts for 9% of global energy production capacity. This industry is showing stable growth, which is much faster than other segments of green energy. It is expected that by 2040 the share of solar energy will reach 24% of global electricity generation.

Solar radiation is an inexhaustible source of energy, and this technology does not pose a danger to the environment. The disadvantages of solar energy include:

1. Seasonal factor. When demand for electricity increases, solar radiation intensity drops, resulting in lower output.
2. Dependence on weather conditions.
3. Limited work schedule. Solar power plants can only operate during daylight hours.
4. High construction costs.
5. Difficulties arise with the disposal of solar panels.

In wind energy, electricity generation is achieved by converting the kinetic energy of air masses using wind generators. Since the wind speed at sea is almost twice as high as on land, wind generators installed in coastal areas are the most productive.

In many countries, wind energy accounts for the largest volumes of electricity production from renewable sources. For example, in Denmark, 47% of total energy demand is provided by wind energy capacity. This industry has strong technical potential, so it is expected that in the long term wind turbines will be able to produce electricity in volumes that will be sufficient to meet global demand.

When generating electricity at geothermal power plants, the thermal energy of the Earth's interior is used. The construction of these facilities is carried out in volcanic zones. Electricity production is achieved by drilling wells that provide access to hot underground water. The use of geothermal power plants is common in Japan, New Zealand, Mexico, Iceland, as well as Italy and France.

The Earth's thermal energy reserves are inexhaustible, which distinguishes this type of alternative energy from others. At the same time, it is extremely difficult to find a suitable location for the construction of geothermal power plants. Due to increased seismic activity or natural changes in the crust, this facility may cease to operate at any time.

Another source of alternative energy is biofuel, which is obtained by processing organic industrial waste, waste products, as well as animal or plant raw materials.

The following types of biofuels are used to produce electricity:

• gaseous (methane, synthesis gas, hydrogen);
• liquid (biodiesel, ethanol, which are used in the operation of internal combustion engines);
• solid (peat, straw, husks, briquettes, firewood).

With the help of hydroelectric power plants, the energy of water flow is converted into electricity. The advantages of this method include low production costs, the use of renewable resources, the absence of harmful emissions into the atmosphere, and rapid access to operating power after switching on. On the other hand, the construction of hydroelectric power plants requires large investments.

The greatest successes in this industry have been achieved by Norway, Canada, Iceland and China. Today, this sector does not show the same strong growth as solar or wind energy, but hydropower sources are expected to occupy a leading position in the next 20 years.

Risks for the investor

Despite these bright prospects, investing in the cleantech sector carries high risks. There are several reasons for this:

1. Dependence on the state. When an economic downturn occurs, governments of countries that support the green energy industry will be forced to reduce tax breaks and government assistance. Without subsidies and subsidies, this sector will not be able to compete with traditional energy sources.
2. Risk of lower hydrocarbon prices. In this case, the use of renewable sources will become unprofitable, since their cost will be much higher compared to traditional resources. It is likely that if such circumstances arise, government support will cease.
3. Increasing cost of renewable energy production due to rising associated costs. The cost of resources in the field of green energy directly depends on the prices of goods in the production and commercial chain. For example, a shortage of silicon has caused an increase in the cost of solar panel production. Prices for this resource have increased significantly, which has led to a decrease in demand. Another example is the decrease in profitability of power plants that operate on biomass due to a sharp increase in palm oil prices.
4. Changes in the environmental situation. If the problem of global warming loses its relevance, the popularity of this trend will decrease, which will lead to a reduction in demand for clean energy.

The green energy industry is most influenced by two factors: government support and the level of prices for fossil energy resources. Both of these points are highly unstable and therefore difficult to predict.

You don’t have to look far for an example - due to the pandemic and the oil crisis in 2021, the growth of the capacity of green energy enterprises decreased by 13%. Although it is worth noting that this did not affect the quotes of enterprises operating in this area. Shares of leading companies showed confident, and in some places even rapid growth.

Today is not possible tomorrow

“It is necessary to invest because our energy system is becoming outdated,” emphasizes Alexandra Panina. — We need to develop, we need to do more progressive projects, solve the problems of localizing modern CCGT units. It is impossible to ignore international environmental requirements and state national projects: clean air, clean city. We need to develop. Investments are needed, but there is no visible source for this in our market.

The need to invest is already obvious. The average age of the domestic generation is 35 years, which is higher than in the energy sector of other countries: the USA - 30 years, Germany - 24 years, Japan - 17 years. By 2030, without energy capacity modernization programs, the average age of generating facilities in Russia will reach 44 years.

There is a choice. Or invest through market mechanisms, in which case it is necessary to develop competition: remove restrictions on applications in the DAM, introduce the mechanism of bilateral agreements, gradually liberalize the heat market with compensatory mechanisms (social norms, targeted subsidies for certain categories of consumers). Or invest through regulatory contracts, special mechanisms with maximum public discussion and transparent criteria for selecting projects.

Controversial issue

The so-called surcharges, which, in essence, are a continuation of tariff regulation, make up a significant part of the final cost of electricity on the wholesale market. The significant role of government regulation is a necessary measure, since at present there are virtually no effective investment market mechanisms. The alternative is the evolutionary development of competition in energy markets. However, while the current rules of the wholesale electricity and capacity market do not allow the investment component to be taken into account, the industry simply cannot do without surcharges.

“I would like to draw attention to global experience: not all investors abroad invest only on the basis of market signals,” says Alexandra Panina. — For example, in China the industry is regulated by the state and investments in the electric power industry are carried out without market signals. In the USA, there are special regulatory mechanisms, analogues of what we call premiums, analogues of our DPMs (a mechanism for returning investments with guaranteed profitability due to an additional premium to the wholesale price. - Izvestia).

The market does not raise the question of a complete abandonment of surcharges, noting the need to continue investments in the development of the electricity sector, but considers it advisable to streamline the procedures for introducing surcharges to the market price and develop clear criteria justifying their necessity. And also consider any form of non-market allowances by the competent government authority with subsequent monitoring of the achievement of goals by the beneficiary.

“It seems to me that decision-making on bonuses should be made as public as possible,” noted Maxim Bystrov, chairman of the board of the association NP Market Council, in his speech. — First of all, we can submit them for consideration by the presidential commission on the strategy for the development of the fuel and energy complex and environmental safety, at the meetings of which all subjects of the energy complex, representatives of the State Duma and the gubernatorial corps are present. The second site is the government energy commission. And the third is the State Council of the Russian Federation. On each of these platforms, you can publicly discuss all proposals and formulate an informed decision.

The most significant thing in the discussion on premiums in the “Market Council” is considered to be a discussion of the target model, namely the holding of technologically neutral competitions that do not depend on the type of generation. And they recognize the need to abandon those surcharges that are not related to the development of the electricity market.

Prospects for oil giants

The largest oil corporations are actively investing in the production of renewable energy and creating green energy facilities. One of the leaders in this area is the British company British Petroleum (BP), which plans to reduce oil and gas production by 40%. BP finances 3 areas at once:

1. Wind power. The company plans to build its own giant wind farms in coastal areas of the United States and already has a stake in this industry in seven states.
2. Bioenergy. BP Bunge Bioenergia is a joint venture between British Petroleum and Bunge, which produces bioethanol by processing sugar cane.
3. Solar energy. BP's share in the capital of the European company Lightsource, which builds and manages solar generation facilities.

The British-Dutch concern Shell intends to start producing biohydrogen using electrolysis. The company is currently closing refineries and cutting capital expenditures in its exploration business. In addition, Shell is actively investing in solar and wind energy businesses.

French oil corporation Total has also announced plans to produce batteries for electric vehicles and build wind farms. The company's strategic goal is to achieve 25 GW of electricity production capacity from renewable sources by 2025.

The American concern Chevron is investing in the production of solar and wind energy. The Italian oil company Eni has created a separate division that produces biomethane.

Thus, at the moment, large oil companies are experiencing a period of large-scale transformation and are gradually reducing the volume of hydrocarbon production and production. If this trend continues, then those corporations that are oil and gas giants today will become leading producers of clean energy in the foreseeable future.

Russian companies also support the “green” trend, but it must be said that in the Russian Federation this direction is not as developed as in the USA and European countries. The Lukoil concern owns hydroelectric power plants in the Krasnodar Territory and the Republic of Adygea, the total capacity of which is 297 MW. In addition, the Russian oil giant owns wind farms in Bulgaria and solar power plants.