Due to its vast expanse, Russia has more energy sources than almost any other country. It is hardly surprising, then, that the Russian economy is very much focused on the energy sector: In 2016, the Russian commodity and energy sector achieved value creation of 301 billion US dollars – around 23% of Russia's gross domestic product.
Future market for renewable energies
Should we consider this market to be saturated then? Not according to a recent report by the Swiss Embassy in Russia, which investigates the country's energy industry. Although Russia produces and exports a lot of its energy, production is very much focused on fossil fuels such as natural gas, coal and oil. Renewable energies play only a minor role: their share of total Russian energy production is currently negligible at 0.01%.
Nevertheless, there are interesting business opportunities for Swiss SMEs in just this area. In recent times, interest in renewable energy in the country has increased significantly. Experts believe that its share of Russia's energy mix could grow to as much as 8-10% in ten years’ time. “The demand for cleantech technologies – especially in the areas of solar, wind and energy-from-waste – may well increase in the coming years,” says Michael Kühn, Russia consultant at Switzerland Global Enterprise.
The energetic utilization of wood waste is one market that is already booming in Russia. For many Russian households and small businesses, burning wood pellets is the cheapest heating option. This opens up the opportunity for Swiss providers to supply production equipment to pellet manufacturers. Sales of combustion technology to the operators of wood-fired power plants are also conceivable.
High demand for energy efficiency technologies
In addition to renewable energies, there is still a lot of catching up to do in terms of energy efficiency in Russia. Some of the country’s energy infrastructure still dates back to the Soviet era. This costly for the Russian economy: In terms of output, energy costs are more than twice as high as the global average for Russian companies.
No wonder, then, that there is huge demand for technologies and equipment to increase energy efficiency in the building, power plant and industrial sector in the country. This opens up good sales opportunities for Swiss providers in the areas of heating and air-conditioning technology or thermal insulation, for example.
Demanding market conditions
For all business potential, exporting Swiss SMEs must be aware that the Russian energy market also has some hurdles to overcome. It is important to recognize corruption and systematically avoid it. Tendering processes are sometimes difficult to understand and must be carefully analyzed and tracked. And not least, the weak Russian ruble poses a challenge to the competitiveness of Swiss providers.
Conclusion: The Russian energy sector is an interesting market, but it is not an easy one. Nevertheless, Russian business can be worthwhile for Swiss SMEs that posses a good understanding of the market and adopt a strategic approach.
Would you like to examine your options in the Russian energy market?
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The full report on Russia's energy industry by the Swiss Embassy in Russia is attached as a pdf document (in German).