International Bodies Take Initiative on Energy Efficiency
By Angelina Davydova
Special to The St. Petersburg Times
The country’s worrying levels of energy consumption received a boost recently when the International Finance Corporation (IFC) launched a new financial and consulting program aimed at improving levels of energy efficiency. Interestingly, several years ago a similar project was launched by the European Bank for Reconstruction and Development (EBRD) as attention to the problems grows at both a domestic and international level. According to the EBRD, Russia currently uses energy 3.2 times more intensively than the EU-25 average. This may well have a negative impact on the country’s competitiveness in the global economy. International Energy Agency data shows that Russia consumes 10 times more energy than the U.K. and six times more than Canada per unit of GDP. Up until now the problem of energy efficiency was felt less acutely because domestic energy prices have been kept relatively low. However, these prices are rising rapidly — energy prices for industry have increased 3.5 times over the last five years — and, together with the demands of growing production, constraints are put on private business and the economy as a whole. The problem has been already recognized at a state level. Finance Minister Alexei Kudrin said that Russia will draw its domestic energy prices closer to world levels. With higher energy prices, investment into energy efficient technologies will prove profitable he said earlier this year. President Vladimir Putin, speaking in February, called energy efficiency one of the most important tasks for the country’s economy, while the Russian ministry for economic development and trade listed energy efficiency as one of its crucial targets to be achieved by 2010. The issue of energy efficiency is particularly important for Russia’s Northwest, where many production facilities, including the most energy-consuming ones (like timber and pulp) are located. Moreover, according to recent estimates by City Hall’s Energy and Engineering Committee, the depreciation of St. Petersburg’s energy equipment reaches up to 50 percent, so that up to 30 percent of all heat supplied to housing is lost. Yet it is international organizations who have taken the first steps to combat these problems. In December the Russia Sustainable Energy Finance Program was launched by the IFC (a World Bank organization aimed at supporting developing and transition economies). According to the IFC team leader in the Northwest, Maxim Titov, the program involves financing and consultancy to local private businesses willing to modernize power and industrial process equipment. The IFC is crediting Russian partner-banks, such as Absolut bank, who in turn lend to industrial companies for energy efficiency projects. Altogether, over five years the IFC is planning to allocate $100 million in financing and $6.25 million in technical assistance. Loans are available for a period of up to five years between $100,000 and $2,000,000. Speaking in an interview with the St. Petersburg Times, Titov said that the main task of the program was to find solutions to three main problems: lack of long-term financing for energy efficiency projects; banks’ perception that such projects are technically complicated and risky; and a lack of financial expertise when developing the projects themselves. “We want projects funded within the framework of this program to have a demonstrable effect. We want to show the benefits of energy efficiency projects both for financial institutions and end users. We expect our partner financial institutions to acquire expertise in financing energy efficiency projects and hope that other Russian banks and leasing companies will follow their example and enter the energy efficiency finance sector,” Titov said. The results from investments into energy efficient technologies are obvious enough. Titov cited the example of a large production facility in the region, that spent 50 million rubles ($1,786,000) a month on energy. If the plant invests 50-60 million rubles into installing an infra-red heating system instead of old radiators, then it will pay only 20 million rubles a month. In fact, the project can be realized by an engineering or a service company, who can act as the borrower, and thus, investor. “This project was founded through those who sold the actual heating equipment. They are experts in the field and for them the program is a good opportunity to find financing for their clients,” Titov said. Yet another international organization, the EBRD, is also running a program of investment into energy efficiency in Russia. According to Kate Dunn from the EBRD’s London office, the bank expects to invest about 200 million euros ($240 million) in projects that will yield energy efficiency benefits in Russia. The bank is aiming to invest in the power sector, industrial projects, small businesses via credit from local banks and district heating. For example, in the Northwest the bank has financed a Lenenergo project worth 40 million euros ($55 million) on a 40 percent energy gain. According to Dunn, former command economies are inefficient users of energy for a number of reasons: an inefficient and oversized infrastructure, industry and stock of real estate; subsidized energy prices which don’t encourage energy-saving activities; a lack of consumer control over power consumption; a failure to prioritize energy-saving investments; and a lack of expertise in energy management. Energy efficiency projects promise improved competitiveness of Russian firms in world markets, higher revenues from natural gas exports (because of the discrepancy with domestic prices), more environmentally-friendly industry and additional revenues from emission reductions under the Kyoto mechanisms. Russia is potentially the largest beneficiary of the Kyoto Protocol with GHG emissions down by 23 percent between 1990 and 2002. And last, but not least, energy efficiency will stimulate improved social conditions through better quality housing and public space.
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