Thomas White Global Investing
Green Reports

August 18, 2010

The Green Report

Turning Russia Green

Turning Russia Green

Russia can conserve around 65 million tons of fuel per year, which is 15% of domestic energy consumption, by implementing energy saving measures, calculates Russian Energy Minister Sergei Shmatko.


Up until now, Russia has been a decidedly “un-green” nation. And what not? The country is the world’s largest producer of natural gas, and sits on some of the world’s largest deposits of oil and coal. Russia possesses 12% of the world’s oil reserves, 35% of its gas reserves and 16% of the planet’s total coal deposits. Impressive figures to say the least and enough to foster the false notion, that these fossil fuels would last forever. So much so, that it led a leading newspaper in Russia to ponder the question, “Why develop wind, solar and other expensive sources of energy when we have so much oil under our feet?”

To make things worse, these resources are made available to the Russian industry at extremely cheap prices, way below the standard level of the European Union. Most Russians are now used to paying very low electric bills, thanks to this treasure trove of energy resources. Shockingly, many Russian homes don’t even have electric meters. “People in our country have got used to the idea that our resources of gas and oil are virtually inexhaustible, therefore both ordinary people and the government are quite relaxed about the future. At the same time, prices and tariffs for centralized power supply services are still much lower compared to those in the rest of the world, which undermines the economic competitive advantage of renewables,” points out Oleg Popel, a renewable energy expert at the Russian Academy of Sciences.

Clean energy has also taken a back seat due to low public awareness. There is very little to convince people of the advantages of using alternative energy. Lack of state support and the complacency of abundance have resulted in the highly inefficient use of Russia’s existing resources, which has not helped the advancement of renewable energy.

But this is all about to change. Russian President Dmitry Medvedev has been keenly pushing green energy and clean technology since he came to power in 2008, supported by Prime Minister Vladimir Putin. In a bilateral summit organized in July 2010 in Washington, Russia and the U.S. agreed to share information on best practices and improve energy efficiency in their countries, two of the world’s biggest emitters of carbon dioxide. Russia has also given the green signal to 15 clean energy projects in order to stack up credits under the Kyoto Protocol.

Currently, renewable energy contributes a mere 1% to Russia’s energy needs, which the government is planning to increase to 4.5% by 2020. But those are subpar figures compared to the rest of the EU, which is planning to derive 20% of its energy from renewable sources by 2020.

A United Nations Development Program that was released recently,
estimates that Russia will use up its oil reserves in the next 21.9 years,
partly because of inefficient utilization of resources.

Now, though, the energy landscape is changing with pressure from the EU. And as prices continue to rise, they have given birth to new thinking on energy incentives and alternatives. In November 2009, the government outlined initiatives that would include spending $59 billion on energy saving projects over the next ten years. What’s more, these projects would also rack up savings of up to $3.2 trillion over the same period according to government planners. With these projects, the Russian government also hopes to attract private investors, and in turn, provide a boost to the economy simultaneously. A new energy efficiency law was also put into effect on January 1st 2010, which introduced taxes and other financial incentives encouraging energy saving.

Russian renewable energy companies, although few, stand to benefit from these legislations. Currently, the partly state-owned hydroelectricity company RusHydro, is the strongest vehicle for the country’s green efforts. With a generating capacity of 25 GW, the company has been developing plausible strategies over the last two years to improve energy efficiency by 2020. Recently, Siemens forged a deal to enter the Russian wind market with a promise to build wind farms through three joint ventures.

But such corporate players, let alone entrepreneurs, are rare in Russia. Energy efficiency projects are expensive and unless there is funding from both state and private sectors, implementation will be difficult. Plus, Russian infrastructure needs a long-pending revamp to prevent waste. Nikolai Shvets, head of the country’s power distribution grid holding MRSK, laments that half of the company’s 3.2 million mile long power transmission lines are frayed and need prompt replacement. Medvedev himself has pointed out that Russia’s badly insulated buildings leak $38.5 billion worth of heat in a year.

All of these factors have built a veneer of skepticism around Russia’s enthusiastic green plans. Nevertheless, with Medvedev taking special interest, Russia is at least off to a start. As the country embarks on its journey to reclaim some of its superpower status, perhaps this time, Russia will also be powered by the elements of nature, and not just by oil.




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