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Climate Action 2010-2011

Energy and Mitigation

Energy and Mitigation Figure 1: Russia energy-related CO 2 emissions abatement, relative to the Reference Scenario. Source: World Energy Outlook, IEA, Paris (2009) ©OECD/IEA 2009. factories, especially in the military complex, converted to production of more modern technologies, including renewable energy systems. However, without ready markets, a commercial industry has been slow to develop. Potential markets There are many applications where renewable energy sources may have a competitive advantage over conventional energy sources, for example, in both largescale and distributed (decentralised) electricity generation, as well as heating. There will be more such applications in future when domestic gas prices increase and the cost of renewable energy technologies fall further. Although Russia as a nation is an energy exporter, most Russian regions ‘import’ fossil fuels from the few energyrich regions, primarily from Western Siberia. Given the long distances between regions, transportation costs Figure 2: Russia’s total primary energy supply, 2008. dramatically increase the end cost of fuel. Indeed, some remote territories such as Kamchatka, Tyva and Altai spend more than half of their budgets on fuel. Moreover, disruptions to fuel supplies are common. Most regions have locally-available renewable energy resources that can be exploited to improve energy security and reduce energy supply cost. Geothermal plants are viable in Kamchatka, the Kuril Islands and the North Caucasus. Large-scale use of biomass for energy purposes is cost-effective in the north-western part of Russia, where the pulp and paper industry is well-developed. Wind projects could eventually become commercially attractive in coastal areas of the Russian Far East, in the steppes along the Volga River and in the North Caucasus. Small-scale hydro could be developed in many regions with favourable conditions. There is a huge potential market for off-grid renewable energy systems. About 10 million Russians are not Figure 3: Electricity generation from renewable energy as a percentage of all generation in Russia and IEA member countries, 2008. Source: Energy Balances of OECD and Non-OECD Countries, IEA, Paris, 2009. Source: Energy Balances of Non-OECD Countries, IEA, Paris, 2009. | 72 | www.climateactionprogramme.org

Energy and Mitigation connected to the electricity grid and are served by standalone generation systems using diesel fuel or gasoline. The remote Northern and Far Eastern regions obtain their fuel by rail or road and sometimes even by helicopter. The cost of transporting these fuels is not entirely borne by the end users of these systems: removing energy subsidies here would make renewable energy a viable alternative. Another potential market for renewable technologies could be Russian dachas or country houses. Nearly all families in Russia have a country house or a small plot of land where they grow vegetables and fruit. Many of these dachas are not connected to an electricity grid and many others have unreliable power supply. Use of renewables for heating is particularly attractive in Russia given its cold climate. Direct use of geothermal energy for space heating and hot water production is commercially viable in Kamchatka and other regions with geothermal resources. Conversion of coal- or oil-fired district heating boilers to burn biomass (especially wood waste) is another cost-effective application, particularly in cases where consumers face unsubsidised heavy fuel oil and coal prices. Small and medium-sized boilers have already been converted to biomass use in Belarus, Estonia, Latvia, Lithuania and some Russian regions. Renewable energy can contribute to regional economic development, create local jobs, and reduce both air pollution and greenhouse gas emissions. Increasing domestic use of renewables would also mean more oil and gas available for export, given that oil and gas sectors will face significant investment challenges to meet both domestic and export demand. Is the giant waking up? Why has the deployment of modern renewable energy technologies been so slow in Russia, despite huge resources, existing potential markets and the numerous benefits? Part of the reason is down to the widespread belief that only countries dependent on energy imports have to develop renewable energy, while Russia, rich in fossil fuels, does not need this expensive toy. This misguided mentality has translated into the lack of a renewable energy policy and support mechanisms – something that has only changed very recently. The current structure of Russia’s energy market and domestic energy prices are other major barriers for increased use of renewables. As Figure 2 has demonstrated, Russia’s energy mix is dominated by natural gas. Domestic gas prices, as well as electricity and heat tariffs are state-controlled and have often been kept below cost. Cross-subsidies are still widely spread. When the cost of using renewable energy is compared with the distorted, subsidised prices of conventional energy, it is not surprising that renewables are not competitive. Other barriers include: low awareness about renewable technologies and their advantages; high capital cost, and limited access to financing. Nevertheless, Russia is making considerable progress in most of these areas. Renewable energy has been raised to the highest national policy-making level. Amendments to the electricity law, adopted at the end of 2007, introduced the concept of renewable energy sources and outlined key measures for their development. This law was followed by a number of regulations. In January 2009, Prime Minister Putin signed an executive decree which sets specific targets for expanding the share of renewable energy (without large hydro) in electricity generation from less than one per cent in 2008 to 1.5 per cent in 2010, 2.5 per cent in 2015, and 4.5 per cent by 2020. The Russian Ministry of Energy is tasked with developing support measures, including price premiums and purchase obligations for electricity produced from renewables; improving statistical reporting, and raising public awareness. Development and implementation of effective support measures will be key in meeting the declared targets. Encouragingly, Russia is moving toward market-based prices. Domestic gas prices are gradually rising, which opens new opportunities for renewables. The ambitious programme of electricity sector reform reflects recognition among policymakers that it is vital to create markets operating in response to genuine price signals. How this programme will be implemented is critical. Improving the overall investment climate by continuing the economic, financial, legal, regulatory and fiscal reforms is vital for renewables and the energy sector as a whole. Russia can be an active player in the global low-carbon energy revolution if it extends the reforms of its energy sector, eliminates subsidies for conventional energy sources, and speeds up the development and implementation of effective support framework for renewable energy. At the same time, government actions are needed to boost energy efficiency, which can be the largest contributor to CO 2 emissions abatement in Russia. These actions are required urgently: for every year that passes, the window for action on emissions over a given period becomes narrower and the costs of transforming the energy sector increase. Put simply, saving the planet cannot wait. The views expressed in this article are those of the author and do not necessarily reflect the views or policy of the International Energy Agency (IEA) Secretariat or of its individual member countries. References [IEA (2009) World Energy Outlook, IEA, Paris]. [Bezrukikh, P. et al. (2002), Resources and Efficiency of the Use of Renewable Sources of Energy in Russia, Nauka, St Petersburg (in Russian)]. [IEA (2003) Renewables in Russia: from Opportunity to Reality, IEA, Paris]. Elena Merle-Béral is an Energy Analyst in the IEA. She has worked on various energy issues in transition economies, with a particular focus on energy efficiency and renewable energy. She has written several books including ‘Renewables in Russia: from Opportunity to Reality’ (IEA, 2003). Elena Merle-Béral, International Energy Agency 9, rue de la Fédération, 75739 Paris cedex 15, France Tel: +33 1 40 57 67 96 Email: elena.merle-beral@iea.org Website: www.iea.org www.climateactionprogramme.org | 73 |