Strategy Study on Inter-Fuel Substitution Implemented in the Kolpashevo Municipality

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Strategy Study on Inter-Fuel Substitution Implemented in the Kolpashevo Municipality REPORT Strategy study on inter-fuel substitution implemented in the Kolpashevo municipality Recommendations for future inter-fuel substitution implementations in municipalities of the Russian Federation Moscow 2010 This analytical paper assessing energy, economic and environmental effects of the recent inter-fuel substitution in the town of Kolpashevo was prepared by Gazprom promgaz compliant with Contract No. PS 13683 concluded with UNECE on 03 July 2008 and with the tripartite agreement signed on 24 September 2008 in Munich (Germany) between UNECE, EBC and Gazprom promgaz. The analytical assessment prepared under the supervision of: Cand. Eng. Sc. A.Yu. Zorya and Cand. Eng. Sc. Yu.A. Okhorzin Principal authors: V.A. Karasevich, S.V. Khon, K.N. Khurshudyan, V.V. Kulikov, M.G. Lelik, M.S. Levickaya, T.V. Gospodinova, S.G. Skvortsova 2 Introduction The United Nations Fund together with the European Business Congress (EBC) have co- financed project “Financing Energy Efficiency Investments for Climate Change Mitigation” implemented as part of the Energy Efficiency 21 programme. Other co-financers of the project include French Ministry of Foreign and European Affaires, French Fund for Global Environment and Global Environmental Fund. EBC in particular finances implementation of the study on reducing emissions of greenhouse gases by implementing inter-fuel substitution in the Russian Federation. The paper aims to analyze the outlook of implementing inter-fuel substitution in municipal entity «Kolpashevo urban settlement», the Tomsk Region, and to develop recommendations on implementing inter-fuel substitution in urban and rural settlement of the Russian Federation. Connecting the Kolpashevo urban settlement to gas supply and requirement for effective gas use via replacing of deteriorated and obsolete equipment of boiler house and heat supply facilities, decreasing production costs, converting to modern technologies of heat and electric power generation and distribution underpin the study. The paper includes: 1. An evaluation of the energy efficiency, environmental, social and financial outcomes related to the inter fuel substitution from coal and oil fuel to natural gas use in district heating and regional/local key industries, basing on: quantitative analysis of performance indicators of the boilers operated in district heating and at industrial facilities, comparative and future projected performance and costs indicators of fuels previously and currently used, comparative estimate of GHG emissions generated by natural gas use and previous coal and oil fuel use in heating and key industries. 2. A study considering the relevance of upgrading currently used gas boilers to combined cycle boilers in the district heating and industry sector and recommendations on the equipment options as are the best suited the district needs in terms of cost and efficiency. 3. An analysis of barriers discouraging investors from installing the best cost/efficiency equipment in the public, private and industry sectors, and suggestions on instruments that should be put in place to avoid these barriers in the future. 4. An assessment of the training needs for the municipal administration‟s decision makers and municipal managers of electricity and heat systems. 5. Recommendations made on the basis of the Kolpashevo case study on future inter-fuel substitution within the Russian Federation‟s municipalities. This paper presents a finalized version of the analytical study submitted to the UNECE and EBC in November 2008 and includes the following amendments required by the above two organizations: Completion of the analytical study with an executive summary describing major features, conclusions and recommendations of the case; 3 Inclusion of a chapter comparing dynamics of the analyzed alternatives‟ parameters; Adding details of gas supply organization economic effect on different consumer categories under all the alternatives analyzed, including investment climate, business entities‟ economic efficiency, schemes of the inter-fuel substitution financing; Description of the effect that implementation of the inter-fuel substitution alternatives may have on the socially significant consumer groups; Identification of barriers hampering investments in energy efficiency and energy saving and of means to eliminate such barriers and facilitate investments in the energy industry; Adding list of energy sector personnel development programmes and recommendations on the personnel annual retraining, inclusive of positions and quantity of employees to be retrained. The work was performed on the basis of: Analysis of data of the Tomsk Region Administration Department for Economics and Modernization of the Housing and Communal Services, Administrations of the Kolpashevo District and Kolpashevo urban settlement, directorates of utility companies LLC “Kolpashevo Heating Company” and LLC “Heating Systems and Technologies”; Statistic records of the Territorial Body of the Federal State Statistics Service for the Tomsk Region. It seems appropriate to conduct a post-audit of the Kolpashevo inter-fuel substitution project in 2 or 3 years in order to compare of theoretical and practical outcomes of the case. 4 1 Executive Summary 1.1 Assessment of Inter-Fuel Substitution of Coal and Liquid Fuel by Natural Gas Municipal entity “Kolpashevo district”, located in the South-East of the West Siberian Plain, is part of the Tomsk Region northern territory. The city of Kolpashevo is the capital of the municipal entity “Kolpashevo district”. The Togur village is the biggest rural settlement in the district. The distance between the city of Kolpashevo and Tomsk exceeds 300 km. At the beginning of 2007 the population of the Kolpashevo district was 44 072 people, incl. 25 815 urban residents of the Kolpashevo city, and 17 257 rural residents. Industry in the district is presented by timber, wood-processing, food-processing, machine- building, metalworking, geologic survey, agriculture, construction, wholesale and retail trading, catering enterprises, some of them in the stagnation state though. Practically all these enterprises and infrastructure facilities are concentrated in the city of Kolpashevo and in the near-by Togur village. In 2007 the fuel and energy complex (FEC) accounted for the greatest part (42%) of the overall industrial production, while coal and crude oil dominated in the district fuel and energy balance. Existing state of the district FEC had negative impact on the environment, while the high prices of fuel and energy resources (FER) hampered the economic development. To improve such environmental and economic situation the district was included in the Programme of Establishing Gas Supply and Distribution in the Russian Federation Regions. Under the said Programme in the later half of 2007 the district was connected to the Unified Gas-Supply System (UGSS). During the elaboration of the gas supply and distribution scheme of the district (in 2006), the Regional Administration together with the Gazprom group decided to develop an integrated energy supply system based on modern equipment and technologies. JSC “Gazprom Promgaz” therefore developed the programme Creation of the High Energy Efficiency Zone in the City of Kolpashevo. The following achievements have been reached in the framework of the programme: General scheme of gas supply and distribution in the Tomsk Region, including the Kolpashevo district; Technical and economic proposals on reconstruction and modernization of the Kolpashevo city heat supply systems; Scheme of the Kolpashevo city integrated energy supply; Justification of investments in the construction of mini combined heat and power (CHP) plants and self-contained block boiler houses. However, after the district was connected to the unified gas supply system, modern heat and power generation facilities were not put in place, but a decision was taken to switch operating boilers from coal and oil to gas, which was de facto withdrawing from the high energy efficiency zone project. By December 2008 the following activities had been implemented: 5 Construction of a gas pipeline to Kolpashevo; Implementation of the first and second stages of gas supply; 14 municipal boiler houses have started operating, which covers 70 % of the heat needs of the district; Installation of modern gas boilers with chemical water treating, processing automation, gas flow meters; Reconstruction of 7.5 km heat network. For the purpose of implementing comparative study of the inter-fuel substitution and accepted decisions effectiveness four alternatives were defined: 1 Alternative 1 “Before gas supply and distribution organization” reflects situation in the district FEC prior to the UGSS connection; 2 Alternative 2 “First stage” describes the district FEC after implementation of the 1st and 2nd stages of gas supply and distribution establishing and re-equipment of 14 boiler houses. This case must be commented on. When the district had been connected to the UGSS, the Kolpashevo district Administration invited potential investors to bid for design, construction and operation of housing and utilities infrastructure (gas-fired boiler-houses) at the territory of the Kolpashevo city. The tender was won by open limited liability society production company “Octane”1 (hereinafter LLC “Octane”). Investor funds were seen as means to improve the communal infrastructure and have the utility users ready for gas connection without financing from the regional budget. As follow-up of the tender on
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