Incentive Regulation Mechanisms for Electricity Sector Development

This paper examines the regulatory policies designed to stimulate the power sector development. The purpose of this study is to evaluate the effectiveness of the regulatory framework employed in the Russian Federation to support the implementation of investment projects in its electricity sector using the example of the mechanism for the promotion of renewable energy on the Russian wholesale electricity and capacity market. This support scheme introduces the so-called “Agreement for the Supply of Capacity” applied to the power plants that run on renewable energy sources, which allows renewable energy investors to benefit from preferential capacity prices for a period of 15 years. The content of the work is set out in three chapters. The first chapter provides an overview of the main trends in the global power sector development. The second chapter assesses the current state of the electric power sector of the Russian Federation, and also addresses the regulatory mechanisms employed to stimulate its development. In the third chapter, a financial model for a solar power plant investment project is created in order to evaluate the effectiveness the “Agreement for the Supply of Capacity” mechanism.