Wasting energy Russian-style

Angelina Davydova
18 February 2009

At the moment, Russia is one of the least energy efficient countries in the world. In 2005 it was the largest energy consumer per unit of GDP among the world's ten greatest energy consuming countries. But Russia could save 45 percent of its total primary energy consumption, sparing billions of cubic meters of natural gas and kWhs of electricity, according to a recent report carried out by the International Finance Corporation (IFC), in co-operation with the Centre for Energy Efficiency.

Russia's energy inefficiency story tracks back to Soviet times. Then, a profligate attitude to the use of natural resources was the norm in a state-run economy which put a low premium on efficiency.

Even nowadays it can be observed in all sectors - manufacturing, building, electricity generation and delivery, heating supply and many others. One of the worst sectors is that of residential and public buildings. Leaking pipes and a centralised heating system are still common, and up to 25 percent of all heat is being wasted on the way to apartments. Most people in Russia can't regulate the level of their central heating. When the radiators get too hot they just open the windows. This absurd and inefficient system, which comes as a shock to foreign visitors, is very hard to change, though.

Up until recently, energy efficiency has received very little attention in Russia, either from the politicians or business leaders. While the economy was still growing there was some recognition of the need to modernise and re-equip the country's ageing technological and production base. But in practice very little has been done. Both the state and business have been focused on short-term goals and profits, rather than on investing in the future.

Nor did ecological considerations rate high on the agenda. State controls have been weak and business has not been motivated to analyse the environmental factors and risks. They have preferred the old Russian habit of letting bribes oil the wheels of business.

Political resolve

Perhaps now even the Russian authorities are starting to realise the importance of energy saving. Various statements by Dmitri Medvedev indicate that it has become a concern, even a priority. The problems is that such statements - his pronouncements on corruption spring to mind - do not necessarily bring about changes and reforms. And the prospects of real effort on the energy saving front seem even bleaker now when Kremlin's main task is to deal with the stark social and political consequences of the present economic crisis.

Maxim Titov, Deputy Programme Manager for the IFC's Eastern Europe and Central Asia- Russia Sustainable Energy Finance Programme confirms that energy efficiency has now become one of the state priorities. "The President's June decree on energy efficiency is evidence of this, as are various regional initiatives and up-coming amendments in the federal legislation", Titov says. A few weeks ago a Russian-German energy efficiency agency was established, comprising energy companies and banks. Also in February, a Russian-Norwegian meeting on cooperation in fuel and energy sectors took place to discuss opportunities for joint projects in energy conservation, energy efficiency and renewable energy.

This all indicates that Russia is eager to learn about cutting-edge world technologies and expertise on energy efficiency. However, in a country the size of Russia, long distances and a lack of detailed plans for implementation often put the brake on the development of such initiatives.  

According to Titov the priority now if for the public to start saving. This needs to happen not just at the level of domestic consumption, but also at the level of home-owners associations, since the greatest potential savings are to be made in common-use areas like cellars, attic floors and stairways. "If you could just make the lighting energy-efficient, install energy-counters and modernise heating systems - that would already save a great deal", he points out.

Titov maintains that business is already imbued with the ethos of energy efficiency. Sensible entrepreneurs have realized that energy-effective management is one path to higher competitiveness, especially at times of growing resources costs.  The IFC energy efficiency program was launched in 2005 and due to end in 2010. Within the framework of the program, Russian banks have financed $92m in energy saving investment projects for private Russian companies. This represents a reduction in CO emissions of 1 950 100 tons.

The looming threat

Yet according to the report, achieving Russia's full energy efficiency potential would cost the economy a total of $320 billion. It would result in annual cost savings to investors and end users of about $80b[1], paying back in four years (all figures in 2007 internal prices). Benefits to the total economy could be much higher: up to $120-150 billion per annum of energy cost savings or an additional earning from gas exports, with a pay-back of just two years.

By realizing its energy efficiency potential Russia can also save 240 billion cubic meters of natural gas, 240 billion KWh of electricity, 89 tons of coal and 43 million tons of crude oil, according to a recent report from the Moscow-based think tank the Center for Energy Efficiency.

This is crucially important for Russia, according to Igor Bashmakov, the report's author. For levels of oil and gas extractions for the period of 2008-2050 are provided with a probability of 33-70%. So by 2050 the last ton of oil will have been extracted from today's fully developed oil fields. All that may prove to be a serious obstacle for economic development, proving that an energy- and capital-intensive economy might not cope with sustainable growth.

Bashmakov offers various scenarios of Russia's development, ranging from highly pessimistic to highly optimistic, like the low-carbon scenario, which Bashmakov claims may be both feasible and realistic. Still, the final decision on future strategy depends on a number of factors, including the balance of the long- and short-term goals, the need for populist measures, the oil and gas prices and the general economic situation.  

The global downturn effect?

The current economic decline is a potential worry for the implementation of the energy efficiency programs and investments into the sector. Some experts have already expressed their concerns regarding the opportunities for development of such projects in tough economic times, when priorities can be found in other sectors.

However, Mark Izeman and Edith Pike-Biegunska from the Natural Resources Defense Council, claim that now is the perfect time for investments into the energy efficiency sector. For these are not only likely to result in new money resources and new technological and business approaches, but will help the Russian economy to develop and diversify.

The choice has yet to be made.

More details on the report can be found at http://www.ifc.org/ifcext/rsefp.nsf/Content/Home

[1] The range depends on which gas export prices are used for the calculation. The study considered gas prices ranging from US $250-350 per thousand cubic meter.

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