Russian Analytical Digest 46/08 Energy
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rrussianussian aanalyticalnalytical russian analytical digest 46/08 ddigestigest Analysis Energy Effi ciency and Development of Renewables: Russia’s Approach By Vyacheslav Kulagin, Moscow Abstract Russia is not only one of the leading exporters of energy, but also a major consumer. Since energy has been relatively cheap in Russia, industry and households engage in extremely wasteful practices. Plans are un- derway to raise domestic prices for natural gas and electricity and bring them up to European standards. Hopefully, realistic prices will push the country toward a more effi cient use of energy. Th e threat of glob- al warming does not drive Russian policies. Rather, the main impetus for enhancing energy effi ciency is to meet rising energy demands at home and maintain, or even increase, export volumes. Th is article provides an overview of the challenges and problems involved in increasing energy effi ciency levels in Russia, and also analyzes Russia’s potential to use renewable energies. Th e main problem is that Russia pays considerably less attention to energy effi ciency and the development of renewables than Europe or the USA. Th is neglect aris- es from Russia’s massive fossil fuel reserves, which provide little stimuli for an urgent development of alter- native sources and the implementation of energy effi ciency measures. Energy Effi ciency in Russia a broad range of governmental energy policies, includ- Like many European countries, Russia considers in- ing the rational use of subsoil resources, the develop- creased energy effi ciency, and consequently access to ment of domestic energy markets, and improved region- new energy-saving techniques, materials and equip- al and external energy policies. Th e liberalization of the ment, a key element of a sustainable energy future. Th e domestic energy market, which the Strategy specifi es potential of Russia’s economy to save energy is huge. in detail, should provide the basis for improvements in According to Russia’s Energy Strategy to 2020 (ap- energy effi ciency in Russia. proved by the Russian government in August 2003), the Another important element mentioned in the Energy country has a potential to save some 360–430 million Strategy is the development of renewable sources of en- tons of oil equivalent (toe), which equals 39–47 percent ergy. In April 2007, then-President Vladimir Putin in of current annual energy consumption (see Figure 1). his address to the Federal Assembly highlighted that it is of great importance to elaborate and implement pro- Figure 1: Energy Saving Potential According to Russia’s Energy grams aimed at solving the task of improving the renew- Strategy to 2020 able sector of Russia’s energy potential. In December 2007, then-Prime Minister Viktor Zubkov called 2008 Other the year of energy effi ciency and innovations. 9% It is signifi cant that more and more companies are Industry creating sections within their enterprises which are ex- Public utility 32% clusively dealing with the issue of enhancing energy ef- 26% fi ciency. Th e major players in the effi ciency business on the governmental level are the Ministry of Industry and Fuel and Energy and the Ministry of Economic Development energy and Trade. At the subnational level, regional or local complex governments are taking the lead on these issues. 33% Russian GDP Energy Intensity Source: Ministry of Industry and Trade of the Russian Currently, Russia is among the least eff ective countries Federation in using energy resources. Russia needs 2.3 times more energy to produce one unit of GDP than the world av- Th e Energy Strategy lists increasing energy effi cien- erage (see Figure 2 overleaf). According to Russian gov- cy as a key activity for the entire governmental eco- ernment evaluations, one-third of Russian fuel-energy nomic policy and one of the main strategic targets. resources are lost or consumed ineffi ciently. Th e main According to the Strategy, effi ciency should be part of reasons for such wasteful consumption are: 2 rrussianussian aanalyticalnalytical russian analytical digest 46/08 ddigestigest Figure 2: GDP Intensity in Various Countries, 2006 Reducing energy intensity in the economy has been (tons of oil equivalent/$ thousand in 2000 ppp) even more rapid in recent years than specifi ed in the current Energy Strategy. Particularly, in 2000–06 the 0 0.1 0.2 0.3 0.4 0.5 specifi c GDP energy intensity went down by 23.3 per- Kazakhstan cent, according to Russian government estimates (see Turkmenistan Figure 4). Yet this decrease in the total energy inten- Russia sity of the Russian GDP was caused not so much be- Former USSR cause of specifi c measures undertaken by the authori- Ukraine ties, but because of changes in the Russian economic Middle East structure, which increasingly favors less energy-inten- Africa sive sectors. We may expect a further decrease within Canada the next 2–3 years, when new pricing mechanisms, the USA China creation of a more competitive situation on the domes- World tic energy market, and new public-private partnership France mechanisms begin to function. India Germany Figure 4: Change in Russian GDP Energy Intensity Japan Source: IEA Key World Energy Statistics 2008 130% • low prices for energy resources; 120% • environmental and climatic conditions, particular- 110 % ly the low average annual temperature; 100% • economic structure, in which most of the economy 90% Fact is made up of energy-intensive operations (over 60 80% percent of industry), while only a relatively small Projected 70% share of GDP comes from the service sector, which has low energy intensity; 60% Projected in Energy Strategy to 2020 • outdated power technology equipment. 50% Russian GDP is also very gas-intensive, and low gas 1990 1995 2000 2005 2010 2015 2020 prices stimulate growing consumption. Th e effi cien- cy of gas power units in Russia is 33 percent, while in Source: Ministry of Industry and Energy, IEA. Europe this fi gure is above 55 percent. In 1980–2003 gas consumption substantially grew in the public utility Russia’s Energy Saving Potential sector (this sector’s share in gas consumption increased Of Russia’s estimated energy saving potential (360–430 from 7.9 percent in 1980 to 14 percent in 2003). Th ough million toe), the Russian Energy Strategy to 2020 calcu- after the peak in 1996–98, gas intensity began to go lates that approximately 20 percent can be implemented down, data from the Energy Research Institute of the at the relatively low cost of USD20 per ton of standard Russian Academy of Sciences (ERI RAS) indicate that coal. Th e most expensive measures (at a cost exceeding Russian levels are still several times higher than aver- USD50 dollars per ton of standard coal) comprise about age global indicators (see Figure 3). 15 percent of energy-saving potential. Measures cost- ing between 20 and 50 dollars per ton of standard coal, Figure 3: GDP Gas Intensity Evolution in Russia (cub. m/$) comprise the remaining two-thirds of the energy-sav- 0.50 ing potential and require considerable investment. Th e 0450.45 Strategy estimates that by 2020, the approximate levels 0400.40 of energy saving investment requirements in Russia will 0.35 reach USD50–70 billion. According to the Minister of Industry and Energy Viktor Khristenko, plans are cur- 0.30 rently being elaborated which would make it possible 0.25 to save 100 million toe annually by 2015. 0.20 ERI RAS estimates that about one third of all sav- 7 1994 1991 199 1998 1999 1992 1993 1995 1996 2001 2004 ing potential is with the fuel and energy complex, an- 2000 2002 2003 2005 2006 Source: Energy Research Institute of the Russian Academy of other third is concentrated in other industries and the Sciences (ERI RAS) construction sector, more than one quarter in the public 3 rrussianussian aanalyticalnalytical russian analytical digest 46/08 ddigestigest utility sector, 6–7 percent in transportation, and 3 per- Given that Russia lacks the resources to substan- cent in agriculture (see Table 1 below). tially improve the insulation of its buildings to the lev- According to Russian government estimates, the total el of most advanced countries, we may realistically as- amount necessary to fi nance energy saving measures up sume that Russia could reduce its total heat consump- to 2015 will comprise about RUR70 billion (USD2.86 tion using available means by some 550 million Gcal/ billion), including 26.4 billion (USD1.08 billion) from year (79 million toe). Th e total size of real savings in the federal budget, 21.1 billion (USD0.86 billion) from heat supply networks and heat consumption may be es- regional budgets, and 22.5 billion (USD0.92 billion) timated at 850 million Gcal/year (121 million toe). from off -budget sources. Th e Russian state seeks to provide incentives for Certainly the government cannot provide enough public utilities to reduce the amount of energy they money to meet the total investment requirements. Th at waste. Th e Duma is currently considering the draft law is why businesses interested in minimizing energy costs “On Heat Supply,” which should establish economic and must provide the main contribution toward increasing legal incentives for technical upgrade projects. In July energy effi ciency. 2007, Russia adopted the Federal Law “On the Basis for Reforming Public Utilities,” which provides effi - Public Utilities and Heat Saving cient mechanisms to manage public utility systems and Decades of low energy prices caused public utilities and fi nancial support for the implementation of resource- consumers to waste generated heat. Most Russian cities saving technologies. Th is fi nancial support will benefi t and settlements are heated by centralized heat supply both regional and municipal governments.