Energy Efficiency in Russia: Sloping to Zero

In the beginning of December, the Head of the Russian Government Dmitry Medvedev approved the implementation plan of the state program ‘Energy Efficiency and Energy Development’ for 2014-2016, which implies an approximately seven billion rubles increase in financing for energy projects. However, just a few days later, a Ministry of Energy representative declared that in the next three years the state support for regional energy efficiency programs was going to wind down to zero.

The state program to increase energy efficiency was developed by the Ministry of Energy and approved in April 2014. Its goals were ‘to ensure reliable supply of fuel and energy resources in the country, to increase the efficiency of their use, and to lower the fuel and energy industry’s overall environmental impact’. The program suggests that ‘the measures included in the implementation plan of the state program are aimed to adopt new technologies and carry out investment projects; to improve the regulatory framework and modernization of administrative processes in the fuel and energy sector; to ensure the realization of governmental functions and provision of governmental services, as well as the implementation of necessary government control and supervision in the energy sector.’

The information about the de facto cancellation of governmental support for regional energy efficiency programs was published by Kommersant newspaper, quoting Alexey Kulapin, the Director of the Ministry of Energy’s Department of Energy Policy. Apparently, the aforementioned goals of the state program suddenly lost their importance compared to other immediate issues, from the Ministry’s point of view.

Due to the anti-Russian sanctions, a number of global ‘green’ financing flows became inaccessible for Russia, writes Kommersant. A whole range of international funding sources, including the funding from the Global Environmental Facility (GEF) became temporarily unavailable due to the specific foreign policy situation. The financing of new and even the already approved projects is currently frozen in Russia. Due to the same sanctions, the existing inter-governmental financial mechanisms were also put on hold. The previously announced goal of decreasing Russia’s GDP energy intensity by 40% by 2020 seems very unlikely to achieve. The share of renewables in the country’s net energy balance will most probably be around 2.5% by that date, instead of 4.5%, as previously expected.

Igor Bashmakov, the Director of the Center for Energy Efficiency (CENEf), provided his own version of the reason for such a drastic change in state priorities. According to Mr.Bashmakov, out of the 15 billion rubles that were going to be used to facilitate the increase in energy efficiency and energy development by 2030 within the program, 9 billion are going to be spent on football infrastructure development, while the rest will be used to support single industry towns. ‘The energy intensity decrease by 40% by 2020 seems highly unlikely…’

Representatives of the regions are not surprised by the current situation. According to them, the state grants and subsidies have failed to make the existing energy models effective. Investors do not want to enter the energy efficiency sector, nor do they wish to provide financing for it. The state-financed organizations are not motivated to participate in energy saving projects either.

‘There are currently no transparent mechanisms of return of investments in today’s model of investing through energy service contracts, for instance. We have come forward with an initiative to develop a separate law regarding energy service activities, which implies changes in both the Budget and the Tax Codes. We firmly believe that energy service is a completely self-sufficient financial system. Moreover, when it starts to work within our country’s economy, when there is a well-formed market for energy saving investments, the transition from receiving state grants (which are over for now) to non-budgetary sources will take place,’ says Dmitry Serebryakov, the Director of Energy Efficiency Union.

According to the Ministry of Energy’s Alexey Kulapin, his department has ‘reformatted the support program’ and will now work on ‘creating a favorable climate to build institutional environment and infrastructure’ in the regions. The implementation of the state program of increasing energy efficiency and energy development until 2030 will be postponed for five years, until 2035.

‘The Government’s reluctance to support regional energy efficiency programs along with the postponing of the state programs’ implementation will negatively affect the already complicated economic situation in the country,’ says Olga Senova of the Russian Socio-Ecological Union’s Climate Secretariat. ‘Energy efficiency and alternative energy programs should be initiated by the state, as the successful world practice suggests. Climate initiatives may become the economy’s driving force.’