Fiona Riddoch: Managing Director, COGEN Europe
Russia is naturally aware of the economic value of its primary fuel exports, particularly natural gas, and improving the efficiency of fuel production and consumption makes good economic sense. Improved efficiency frees up additional volumes of energy for export from Russia, while also enhancing the security of export supply. Within Russia itself, natural gas is the leading single primary fuel consumed representing 55% of primary fuel consumption. Coal is the second most used source at 20%, followed by hydro at 15% (see figure 1).
Primary energy supply in Russia (excluding electricity trade) runs at around 700,000 Mtoe with, 25% used in transport, around 30% in industry the remainder being in commercial, residential and agricultural use.
Russian industry is highly energy intensive. There was a dramatic decrease in energy consumption in Russia as a result of the decline in GDP growth over the market transition years of the 1990s where Russia saw its GDP fall by 50%. This low level of consumption has continued in the 2000s, showing a permanent shift in economic activity.
Russia uses CHP routinely within its heat and electricity supply. CHP accounts for around one third of the installed electricity generating capacity, hydroelectricity is 20%, nuclear is 10% and the rest is traditional thermal condensing generation. Due to the history of expansion of industry and of the urban areas and cities of Russia, there is an extensive use of district heating in Russia’s cities often supplied with the useable surplus heat from local industry as the source. Russia’s district heating network delivered 1,700 TWh of heat in 2007, supplying 80% of Russian residential buildings.
As mentioned above, Russia’s industry is highly energy intensive. Just over half of Russia’s 500 CHP plants are based in industry. Iron, steel, chemicals and petrochemicals make up over half of the industrial heat consumption in Russia. All these industries have been badly impacted by the structural change in the Russian economy and as the ability of CHP plants to deliver energy savings depends on their reliable operation “as designed” with all the electricity produced and all the heat produced being consumed, radical changes in either demand or supply have a potentially large impact on efficiency performance. Where a district heating network is accepting the heat from a process it is easy to see how a downturn in the industry has a knock-on effect on its role as a reliable heat supplier, sending customers looking for alternative or backup supply.
Considering the high penetration of both district heating and CHP in the Russian economy as a whole, it might be assumed that the areas of the economy involved would be highly efficient in their own right. However, those who have studied the sectors suggest that an absence of good data and underinvestment in the infrastructure mean that there is a huge opportunity for improving the energy performance in these areas.
Although Russia has over 50 GWe of CHP installed capacity there is little published data on the efficiency of these plants. Moreover, there is little direct policy structure around CHP despite its significant position in the economy and its considerable potential. District heating may be associated with CHP but it is not always the case and district heating relies heavily on the efficiency of its distribution network and on a CHP element to deliver significant primary energy savings compared to separate production.
District heating in Russia is suffering from several problems. The municipal heat network extends over 200,000 km. More than half of this length is estimated to have exceeded its technical lifetime of 20 years and 25-30% is considered to be in a critical condition according to the IEA. Raising the investment to replace, repair and maintain this immense network is the key challenge facing Russia’s district heating system network.
Estimates by the IEA suggest that raising the efficiency of Russia’s CHP plants and reducing the losses along its district heating network could yield energy savings through improved efficiency of 20-30%. Russia consumes the equivalent of about 150 billion cubic meters of natural gas a year in its district heating, savings of 30-50 bcm (roughly two thirds of Germanys total gas usage per annum) which could be achieved by action on CHP and district heating would release that gas for export rather than let it be wasted internally.
Energy efficiency has been a key element of Russian energy policy thinking for the past 15 years. Over the past 5 of these years legislators have moved to develop policy to create the necessary framework for action. Trends in the focus of energy efficiency legislation in Russia seem to be moving in a very similar direction to the European Union, with more focus on energy efficiency in general and providing a policy structure to deliver this as growing awareness of the significant role of energy efficiency encourages more legislative action. The new Russian Energy Efficiency Law of 2009 focuses on energy end use with the declared aim of creating a legislative, economic and organisational stimulus for energy savings and increasing energy efficiency. Its effect extends to include water supplied, transferred and consumed using centralised water supply systems. The governing principals of the legal approach are:
» efficient use of energy resources;
» support and encouragement of energy savings and increased in energy efficiency;
» a systematic and integrated approach to energy savings and energy efficiency program;
» the planning and integration of activities increasing energy savings and energy efficiency;
» use of resources with account to resource;
» technological, ecological and social conditions.
Maybe driven by its economic strength as a supplier of energy, Russia’s growing attention to energy savings is visible for example in its focus on capturing all the areas of the energy supply and consumption chain under the legislation. An example is flaring of natural gas. Although the absolute level of flaring of associated gas in Russia is unclear, it is of concern to the government. Prime Minister Vladimir Putin brought focus to the issues in a 2007 presidential address. In response, the Russian energy and environmental ministries produced a set of proposals to reduce flaring and a decree published in 2009 sets the goal of using 95% of the associated gas by 2012. A further example, with implications for CHP, is the development of legislation around heat. Following the restructuring of the electricity market, the Russian authorities are now developing a new regulatory framework for the heating sector. The Federal Law 190-FZ on Heat Supply was adopted on the 27th of July 2010. In a similar way to the objectives pursued with the electricity reform, this law aims to modernise the sector which is currently characterised by the use of very old equipment and thus a high energy intensity. The European Union has toyed for the past decade with the idea of tackling the heat sector but failed to do so. Arguably this is a significant barrier to progress on CHP in Europe but one that Russia has already moved to address. With the extensive use of CHP in Russian industry and the relative contraction of that sector plus the age of the district heating network, there is considerable scope for improvement in efficiency through a focus on heat, its generation and use and how to efficiently adjust the existing system to the challenges of the current decade.
Both Russia and the European Union are beginning to consider the efficiency of the whole energy supply chain as being key to making progress. The European Parliament is currently discussing a proposed Energy Efficiency Directive which looks at the full energy supply chain. Until now European energy efficiency and savings legislation has been fragmented across several different directives. End use energy efficiency was promoted through the Energy Services Directive, CHP through the CHP Directive and other wide ranging measures through the Energy Efficiency Action Plan 2006. The interlinking network efficiency and particularly transformation efficiency itself were left to other instruments with a secondary impact on efficiency. The new Energy Efficiency Directive is ground breaking for Europe in the sense that it looks at the full energy supply chain, forcing consideration of all areas of conversion, supply and use and introducing the proposal for direct involvement of all primary energy using sectors, including the electricity sector.
One of the biggest differences between EU energy efficiency legislation and that of Russia is the absence in Russia of focused legislation addressing the economic and non-economic barriers to the wider uptake of efficient CHP. There are some learning experiences from the European Union which Russia might want to consider should it decide to move forward with legislation on CHP. The CHP Directive 2004/08/EC – though not successful in the promotion of CHP across Europe – was successful in raising policy-makers confidence in its energy savings and in giving the kind of policy background which allows investors to adequately calculate risks. The Directive did this by putting in place a transparent methodology for calculating the energy savings from CHP and introducing a threshold of efficiency performance for CHP (high efficiency CHP) which must be reached or exceeded if the CHP plant can benefit from particular Member State support schemes. The Directive was not so successful at introducing new statistical recordings for CHP, but this too is considered highly desirable in the implementation of an effective energy efficiency strategy.
District heating is a big existing and potential future heat customer for CHP in Russia. However, for district heating to deliver energy efficiency savings compared to individual installations the heat network itself must be highly efficient (achievable with modern distribution technology) and the overall efficiency of the system should be optimised. The main barriers which Russia’s district heating seems to face is a convincing business model which supplies the customers with the comfort and control level they expect, at a price which is reasonable. Allowing adjustment of the heat tariff is a key element of any business model. If this can be achieved, investment in the heat network will follow based on the robustness of the plan. The emergence of a suitable environment for this will be the entry of third parties willing to support directly or jointly with others. For example, a recently announced large refurbishment of the Chelyabinsk district heating network by Fortum’s Russian subsidiary aims to reduce losses by 30% through automation and network upgrades and technical improvements at the power plants located in the Chelyabinsk region. A co-ordinated and long-term strategy and policy structure which enables the companies with experience in district heating to operate in confidence with a reasonable investment horizon, would drive this kind of investment forward. Examples of just such an approach in the European Union (Denmark, Germany and Flanders) have been successful.
There is considerable untapped potential for CHP in industry and space heating/hotwater delivery. The industries of paper, chemicals, refining, food, ceramics and more, use CHP routinely and effectively. At a time when industry is challenged by high labour and materials costs in Europe, it is possible to add an additional income stream of low carbon electricity sales to the profit and loss account if the policy structure in place removes the barriers for new players to enter the electricity market, and encourages and rewards high efficiency. Since the 2000 there has been increasing momentum in refurbishing existing boiler houses with smaller scale CHP units (<25 MW). These developments take CHP into new applications, smaller heat networks, smaller factories. There is an ever increasing range of CHP solutions for a widening range of capacity demands. In its district heating network Russia has both a challenge and a valuable opportunity. The existing network represents an investment which in planning and construction terms would be difficult to repeat today except in the rapidly expanding economies and cities. For district heating the challenge is to secure a solid business model which creates more customer demand for district heating, while providing adequate investment to upgrade the network and boiler house (to CHP) in a timely way.
