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Energy efficiency in Russia

Russia intended to improve its energy efficiency by 40% of GDP by 2020. How is it doing?

 

Angelina Davydova
12 February 2015

In December 2009 I wrote an article for openDemocracy Russia entitled Wasting energy Russian style, an overview of fuel consumption, and how energy conservation might benefit the Russian economy in the future. The issue was a topical one: various international research studies published that year had put Russia near the bottom of the energy efficiency league tables. They calculated, for example, that Russia wasted as much energy as France consumes, and that the energy-saving potential could be as much as 40% of GDP by 2020.

International research studies put Russia near the bottom of the energy efficiency league tables.

These studies were particularly important for the Russian government at the time, since it was planning to increase its energy exports, and the idea that all the energy saved through conservation measures could be sold to other countries was very attractive. Indeed, two factors ensured the inclusion of energy efficiency in the political agenda: external (the more we save, the more we can sell), and internal (lower costs and overheads, more competitive industry).

The result was a law setting out Russia’s plans to increase its energy efficiency by 40% of GDP per capita by 2020. At the same time, numerous international programmes were set up to fund energy-efficiency projects, and agencies and centres for cooperation with other countries (Germany, France and Finland) established. Several billion roubles of treasury money were also allocated on an annual basis to finance energy-saving measures.

Successes and failures

The results of this grand scheme were patchy. The business sector was generally positive about energy efficiency, and many firms happily invested in new technology, funded by both Russian and outside financial resources. The problems came with the massive old Soviet industrial complexes, including many town-size enterprises that couldn’t afford to upgrade their equipment and machinery.

Another difficult area was the housing and utilities sector, where the question of where the money for renovation would come from was never properly addressed. In many cities the matter was settled at regional level, but there was no overall national policy.

According to Nikolai Pitirimov, who heads the Board of St Petersburg’s Urban Homeowners’ Association, one positive example has been the ‘Energy-efficient Neighbourhood’ project, where renovation was funded in part by the Nordic Environment Investment Corporation (NEFCO). Other examples include the creation of specialised trusts to fund energy efficiency projects in cities, and the involvement of large Russian and international companies, as well as homeowners’ associations, as co-investors in improving energy efficiency in the housing and utilities sector. Pitirimov also talks about such international projects as ‘Effective Energy Management ‘, part of the Southwest Finland-Russia Border partnership; the Finno-Russian ‘Ekograd’ platform and the St Petersburg Cleantech Cluster, based on the model of Finnish and other European Clean Technology clusters.

Today, the idea is that energy efficiency can save money.

The grand scheme

As Yevgeny Gasho, an adviser at the Russian government’s Analytical Centre, and author of many regional energy-efficiency projects, tells me, it used to be thought that the situation could be resolved by an energy audit, an analysis of a site’s energy use and the creation of an efficiency ‘passport’ by an external auditor. However, the question of who would pay for either the audit or the measures it proposed, especially where public sector bodies were concerned, was left open. Today, the idea is that energy efficiency can save money, thanks to energy service companies that will upgrade buildings to increase energy efficiency and lower costs, and be paid by their clients out of the savings they make. This market is, however, slow to develop in Russia, and in any case Gasho believes that there is no single fix for the problem. It requires, he says, a multi-faceted approach at both national and regional level, since most regions will find it difficult to reconcile the need for economic growth (especially at a time of recession) with a reduction in power consumption.  

In April 2014, Russia’s Ministry of Energy produced a national energy efficiency programme, and in December it was approved by Prime Minister Dmitry Medvedev, and allocated an annual budget of 7 billion roubles. The plan funded by this money was an ambitious one: ‘the introduction of new technology and implementation of investment projects; the setting up of a legal and regulatory framework and modernisation of administrative processes in the energy sector; the provision of statutory functions and services, and implementation of appropriate government monitoring and oversight of the sector’. According to financial experts, this mode of funding was the only possible means of financing the programme, as the market mechanism in the form of energy service companies had not yet reached the necessary stage of development.

The Department of Energy stated that the regional element of the project would get no funding for the next three years.

Cuts

At the end of December, however, the Department of Energy announced that for the next three years the regional element of the project would get no funding, because of Russia’s difficult economic situation. And officials from a number of ministries (including the Ministry of Economic Development) have since said that the planned increase in energy efficiency by 40% of GDP per capita by 2020 is unlikely to happen.

‘This cancellation of funding for regional projects, taken together with the deferment of completion dates at a national level, is going to have a negative impact on an already difficult economic situation’, says Olga Senova, who heads the climate project at the Russian Socio-Ecological Union (RSEU), an environmental NGO that works with municipal and government bodies to decrease their energy footprint. Surveys conducted by the RSEU in various Russian cities suggest that regional authorities are not surprised by this development: ‘government funding has not been able to make existing energy models any more effective – private investors are not interested in energy efficiency and don’t want to put money into it, and the public sector couldn’t care less about saving energy’.

‘Currently no transparent mechanisms exist for ensuring a return on investment – through energy service contracts, for example’, says Dmitry Serebryakov, head of the Energy Efficiency Union . ‘We have written a proposal for a law to regulate the energy service sector. This is a completely autonomous financial system, and once it is up and running and there is an investment market in energy saving, this will represent a transition from government grant funding, which has now finished, to other sources of finance’.

Environmental experts see the role of government here as essentially a regulatory one: the creation of a framework, and the necessary conditions and general support for the process. ‘The impetus for energy efficiency and alternative energy programmes needs to come from government’, says Olga Senova. ‘This has been key to their success in other countries, and climate initiatives can also be a powerhouse for economic growth.’  

Energy waste

In November 2014 the Russian Interfax-ERA environmental and energy-rating agency published the findings of its efficiency appraisal of Russian business, comparing the energy expenditure per unit of production of 4500 companies in all sectors and across the regions.

Pavel L Photo and Video - burning ruble - shutterstock.jpg

Russia wastes vasts amount of money through poor conservation. Image by: Pavel L photo and video via Shutterstock

One finding was that Russia was more energy efficient than had traditionally been presented by international studies. Interfax’s specialists talk of ‘politicised’ myths about energy profligacy in the economy that often ignore Russia’s objective massive heating requirements, as the world’s coldest country. They also point out that countries covering a large area consume relatively more energy on transport and communications to ensure that people living in more remote regions enjoy a similar standard of living to those in metropolitan areas.  For comparison they use London, whose annual temperature range (+20°/-1°), cannot be compared with that of Yakutsk (+30°/-50°), and conclude that ‘even taking this natural advantage into account, London is very inefficient in its energy consumption – Yakutsk’s combined heat and power (CHP) plants, which not only supply electricity to consumers but for ten months a year also heat their homes, are almost 50% more efficient than one in London that simply discharges its waste heat into the atmosphere’. The report’s authors estimate that in Russia even leaking district-heating networks lose not more than 3-5% of overall fuel energy, and not 10-15% as was previously thought. Their overall conclusion is that in major centres of population, energy loss is just 4-6%, and 7-10% in weaker and long-distance rural networks.

Yakutsk is more energy efficient than London.

A recent report by the Russian government’s Analytical Centre also stresses the need to take the country’s geographical and climatic specifics into account when assessing its energy needs and consumption, and the Centre’s Yevgeny Gasho repeats that ‘the situation is not as bad as it is presented in international tables, and is even improving in some places, although no thanks to government policies.’ 

According to Gasho, Russia’s regions vary enormously in their energy use. ‘A lot of regions need investment in new plant, others need to increase their supply capacity, and only some, mostly industrial areas, have a sufficiently high energy-output ratio.’ He sees the key issue, however, as how to modernise and increase capacity without a significant rise in fossil fuel consumption and consequent greenhouse gas emission. ‘We have to develop secondary energy sources and renewable energy’, says Gasho.   

Economic stimuli

Many experts agree, however, that even if international figures misrepresent the situation, it does not make the issue of energy efficiency any less pressing. Russia cannot go on forever using its climate, geography and public lack of interest as an excuse for the failure to promote initiatives on the subject. The important thing is results: increased energy efficiency, lower greenhouse gas emissions and environmentally sustainable regional development – in terms of both global trends and international obligations, and the benefit to Russia’s own economic development, including that of its regions.  

Many analysts believe that energy conservation can become an important factor in regional development, by redirecting savings on energy into other areas. The RSEU estimates that the annual electricity savings expected under the government’s energy efficiency programme, 63 billion kilowatt-hours (kWh), almost equal the total planned output of one of Russia’s major nuclear power stations (Leningrad or Kursk, 28 billion kWh each) and its largest CHP plant at Surgut, in Siberia (up to 39 billion kWh) for the same period. The only problem is that cuts in the funding for energy-saving initiatives make these figures highly questionable.

Other experts are, however, confident that economic stimuli will drive energy efficiency even in the absence of government support.  Nikolai Pitirimov of St Petersburg’s Urban Homeowners’ Association is optimistic about the potential of energy efficiency in the city’s housing sector, for example. St Petersburg has almost 23,000 residential buildings containing 1.7m flats with a total floor area of 1.1m square metres. ‘More than half our residential buildings are standard system-built blocks, where we foresee a 65% reduction in energy requirements after renovation, with the introduction of energy-saving measures. And the annual savings in heating costs should be in the order of 4 billion euros.’

Standfirst Image: Energy conservation sign by Mindscanner via Shutterstock.

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