President of Russia Dmitry Medvedev: This is the fourth meeting of the Commission [for Modernisation and Technological Development of Russia’s Economy]. We are meeting regularly, as was agreed. This fourth meeting addresses the issue of energy efficiency. Today we have not just the Commission members present but are working together with the Presidium of the Council for Science, Technology and Education. This makes sense given the nature of the issues on our agenda today. As I said, we will be discussing energy efficiency, and scientific development has a big part to play in this. I hope that all of you present today, from the Commission and from the Council, will take part in the discussions.
I made a conscious choice to have just one item on the agenda today so that we do not end up with too much to discuss all at once. We had been addressing two different issues at a time and it was proving too much. I hope that this format will give us the chance to discuss all the necessary aspects.
I will not frighten you with figures. So much has already been said about our energy efficiency figures. I simply want to say again that the situation really is alarming. The energy intensiveness of Russia’s GDP is way above that of developed countries. Energy losses in the country’s heating system come to more than 50 percent.
One of the first executive orders I signed set the goal of raising our energy efficiency and reducing energy intensiveness by 40 percent. The experts calculate that Russia is able to reach this objective using existing advanced technology solutions, and can close the gap with the developed countries. The main thing is to tackle this work not on paper, but for real and in earnest.
A number of instructions on raising energy efficiency were issued following the State Council Presidium meeting on this subject in July. The deadline for these instructions was this year, and so everything that was planned, all the instructions given, need to be carried out within the set time. This covered preparation of a whole number of documents, drafting standards and so on.
It is particularly important to put in place the required legal foundation, above all the law on raising energy efficiency and energy saving, and the bylaws that arise from its provisions. The State Duma will soon put this draft law through its second reading. I hope those responsible will brief me on the current situation with it. Are you happy with its quality, and do you think it is sufficiently concrete in its provisions, while at the same time also sufficiently forward-looking? Other countries have implemented numerous measures in this area, and I would like to know how much we have taken their experience into account. It would be good to know the situation regarding all of these matters.
It is also very important that this law’s provisions go hand-in-hand with updated technical requirements and revision of the rules and regulations in the housing and utilities sector and construction industry. These are all essential for the law to be enacted as from the start of next year, and they should be ready by December 1, 2009 as the State Council decided. I expect to hear from you on the situation here too.
The Commission’s main job is to push through difficult decisions. I say this quite frankly. There would have been no point in establishing the Commission in the first place if this were not the case. We already have the Government with its ministries and agencies, who all have their various duties. But given that we have not managed to address all of the issues before us, and given the huge amount of routine responsibilities that tie us down, we established the Commission precisely to carry out this work. There are several projects we need to implement in this area to test the ways to practically introduce energy effective technology in different social and economic sectors. This includes the public sector, industry, the social services, and residential buildings, including at the level of specific towns, as we agreed. The incentive should be as simple and clear as possible: whoever achieves greater energy efficiency pays less money.
These projects should encompass the energy resource accounting system, and production and use of energy efficient lighting devices. We need to decide today on how to go about this work, not jumping too far ahead, but at the same time setting standards that will be mandatory throughout our industry, so as not to end up on the rubbish heap. We need to come up with standardised plans for modernising residential districts and social sector establishments. These projects, once they are ready for implementation, should be spread throughout the whole country, because they need to have a matrix effect.
All of this work should be accompanied by an attention-grabbing information campaign, as is the practice throughout the world in this area. We need to make use of all possible information resources in this work, because the objective is not just to find money for the programme or motivate industry, though this is difficult too, but what is perhaps even more difficult is to change people’s behaviour, change the way we look at energy use. Many of us perhaps do not consider this issue so important, but really, if we can achieve results here it would be a tectonic shift in our thinking.
I want to say a few words separately on the need for innovative decisions in the area of energy efficiency. A number of projects will be presented here today. We saw some of the new developments before while looking round the institute. They look very inspiring, but the main problem is that they are not actually in use anywhere yet. At best, all we have is experimental production underway. We still have a problem with the applied side of things. We need to define our priorities in order to decide which of these projects should receive state support.
Another issue is that of biofuel, that is, conversion of renewable bio-material of vegetable origin. We have made some advances here but have few results to show for it so far. There are countries that have made biofuel a priority and have achieved real successes: I saw a number of interesting facilities in Brazil, and other countries are also working on this. Of course, this is something that requires very detailed preparation, but it is nevertheless important for our country. We also need to look at the development of superconductor cables for energy transport, accumulation and consumption, and also the development of hydrogen energy.
One more important matter is that scientific development must be tied closely to technological modernisation. This is equally useful in science, the economy, industry, and ultimately benefits the entire country. As far as I know, the Academy of Sciences has prepared a whole volume of documents on different areas in which technological advances are most vital. I would also like to get an understanding of what is being proposed. I think the Presidium of the Council for Science, Technology and Education could report on the work it intends to carry out together with the Commission. I would like to hear a few words about this too.
Economic Development Minister Elvira Nabiullina: Mr President, colleagues,
It has indeed been pointed out on many occasions that Russia’s economy uses a lot more energy than do developed countries’ economies. But when making these kinds of comparisons we also need to take into account the structure of our country’s industry, and also our climate. But even taking these factors into account there are still many areas in which we can increase our energy efficiency: in our buildings, production, and transmission of heat and electricity.
The general public is our top priority consumer. Our work should result not only in lower utilities costs for the population, but also in more comfortable living standards, above all through improved heating and light supply.
The working group on energy efficiency and resource conservation proposes carrying out several specific projects that we think will enable us to make real progress in making our economy more energy efficient and create incentives for modernisation and innovative development. We selected projects based on the following criteria. Projects must be able to be replicated throughout the whole country, produce their first measurable results within the next two or three years, be economically feasible and able to be implemented with a minimum of budget money. We wanted one of the working group’s projects to focus on developing new products and technology in the energy efficiency field.
Based on these criteria we selected the following six projects: Count, Save and Pay, New Light, Energy Efficient District, Small-Scale Complex Energy Systems, Energy Efficient Social Sector, and Innovative Energy.
The first project involves installing metres. The idea is not just to give people metres but, more importantly, to give them the instrument they need to reduce their consumption, that is, to regulate their consumption. This project’s main objective is to change consumers’ behaviour patterns. We think that this project’s successful implementation would make it possible to reduce energy consumption in the housing and commercial sectors by around 20 percent. The target is to have 80 percent of consumers using metres within the next three years. This project will require efforts to coordinate and develop production of modern metres here in Russia.
We hope that this project’s implementation will substantially develop the market for production, use and integration of metering systems and electricity consumption regulation systems.
Once the metres have been installed, people who are thriftier in their energy resource use will be able to reduce energy costs as a share of their household expenses even if the rates rise.
Coming to the second project, New Light, technological development made the incandescent light bulb an everyday part of our lives for a whole century. But these light bulbs are one of the most energy-wasteful everyday devices, and this is why many countries are now taking steps to modernise lighting by using more advanced technology.
We propose gradually phasing out technologically outdated lighting systems in Russia, and we have calculated that replacing all energy wasteful light bulbs in the country would free up as much as 10 percent of energy generating capacity and reduce electricity and lighting costs by up to 60 percent.
To achieve this, the project proposes setting restrictions on the sale of outdated light bulbs. We need to start with ourselves and ban public procurement of incandescent light bulbs. This measure would create demand for energy efficient replacement light bulbs and would demonstrate their economic effectiveness and consumer qualities to the public.
A draft law currently before the State Duma proposes banning the sale of incandescent light bulbs of more than 100 watts as from January 1, 2011, and at the same time introducing a ban on public procurement of all types of incandescent light bulbs.
Making an immediate transition to public procurement of photo-diode light bulbs only would have a bigger economic impact in the long term and would be more environmentally friendly. On the downside, photo-diode light bulbs are still quite costly at the moment, and we do not yet have sufficient supply.
Fluorescent lights could be more energy effective than the light bulbs currently in use, and they are considerably cheaper and in sufficient quantity on the market, but they require a special recycling programme because they contain harmful substances such as mercury. They are not as environmentally friendly, but they can be used for industrial purposes nevertheless. This is something that we discussed at a meeting with our scientist colleagues. We propose that as far as public procurement is concerned we need to ban the purchase of incandescent light bulbs and at the same time make an immediate transition to purchasing photo-diode lights.
Another aspect of this project is that of building up our own capacity for producing modern lighting devices. Our target is to increase production capacity to 200 million light bulbs a year with the total light bulb market coming to about 840 million light bulbs in 2008. It is also important to ensure quality control of imported energy efficient light bulbs. Not all imported light bulbs are of good quality, and this can discredit the idea of energy saving. We therefore need to toughen quality control of imported light bulbs.
We have set out structured proposals for modernising various types of lighting and have presented the expected results in terms of energy saving and economic effectiveness of replacing different types of lighting with newer technology depending on the area of use. Photo-diode lights are not always the optimum economic solution for now because of their high cost. But if we take into account their long service lives, which last for years, and the fact that increased production will enable economies of scale that will gradually bring down their cost, photo-diode lights have obvious potential.
We predict that Russia’s light bulb market will undergo a transformation. The economic effect will make itself felt, we think, not just through lower financial costs as a result of energy savings, but also through lower labour costs as lights are replaced with longer-lasting modern technology that does not have to be serviced so often.
Russian Railways, for example, is in the process of replacing the incandescent light bulbs in its signal lights with photo-diode light bulbs. They calculate that the average annual savings for one signal light will be 132 rubles [around $4.5] in energy costs and 1,200 roubles in labour costs. In other words, the indirect benefits are also considerable.
We have calculated the approximate economic gains for families. Overall, taking into account the changes in electricity rates, most people would recover the cost of replacing lights in their main rooms, their bedrooms and kitchens, within a year, and replacement would pay for itself within five years for sure, whatever the changes in rates.
The next project through which we want to test key measures in various energy saving areas (heating, water and electricity) is the Energy Efficient District project. The project aims to raise people’s quality of life by bringing down energy costs and improving the quality of heating and lighting supply. The second objective is to reduce municipal budget expenditure. We think that spending could be decreased by up to 25 percent.
The project involves putting in place standard mechanisms for financing energy efficiency improvement measures that can then be replicated throughout the countries’ regions. We call on all the regions to take part in the project, and the best will be rewarded. The minimum requirement for a district is that there is at least 50,000 square metres of residential buildings and social infrastructure facilities. We accept that if regions prefer, they can extend the definition of ‘district’ to take in a whole town in the case of small towns.
We propose holding a thematic exhibition, Energy Efficient District, in Tyumen in February 2010, where project participants will be able to present the results of their energy use studies as investment projects, and suppliers of energy efficient goods and services will be able to present their products.
Closely linked to this project is the Energy Efficient Social Sector project, which aims to draw up standard solutions for different types of social sector buildings, above all schools, hospitals and medical centres. This will result in the development of a comprehensive programme for making the social sector more energy efficient based on the experience gained through implementation of several pilot projects in schools and medical centres.
A key part of the project’s implementation is that social sector facilities will be able to keep the money they save through reduced energy consumption and put it to other needs.
A second key mechanism that we want to test in this project’s implementation is that of standard long-term energy service contracts. These contracts will make it possible to get professional companies involved in energy saving measures with both sides benefiting. The social sector facilities will benefit from lower utilities costs, and the energy service companies will receive earnings in the form of a share of the savings made. This is precisely why the social sector establishments need to be the ones who decide how to spend the money saved.
The next project is Small-Scale Complex Energy Systems. Russia is the world’s biggest market for centralised heating supply. We inherited from the Soviet economy an effectively organised heating supply system with a very high share of co-generation. But we are starting to lose the advantages of this system now. The aim is therefore to make our fuel and energy balance more efficient by carrying out pilot projects in the regions with subsequent replication at national level. We think we could lower energy consumption, cutting it by 20 million tons of fuel by 2020 is we replace 4,500 of the 18,000 gas generation facilities currently in operation with more modern technology. These projects are already being examined, already exist in practice. We plan the following implementation steps:
First, we need to identify technologically obsolete and economically ineffective regional energy supply systems, for example, systems using fuel brought in from outside and old boiler systems.
Second, replacement solutions need to focus on small-scale complex energy systems that are economically effective, use Russian-made innovative technology, and can be replicated. The result should be a set of standard solutions that we can implement throughout the country. Implementation of these pilot projects is already underway, and work has begun on drawing up new projects.
The sixth project is Innovative Energy. We can make our energy use more efficient by pursuing real innovative development and technological advances in energy production and transmission. We have examined several areas: wind energy, tidal energy, biomass processing, solar energy, geothermal energy, and also superconductors. Hydrogen energy and thermonuclear fusion were not mentioned because the working group decided to concentrate on technology in which tangible progress could be made by 2015. Furthermore, projects in these areas are being developed within the framework of other mechanisms.
We analysed the current situation in Russian technology in these areas from the angle of its potential competitive advantages compared with foreign producers, and we attempted to rank them in terms of their economic effects for the country. We propose examining superconductors and biomass projects as priority areas for work. Our choice is based on the following considerations.
The geography of Russia’s energy system with hydroelectricity production in Siberia and nuclear energy production in the European part of the country leads to large-scale electricity flows over the course of the day. The development of effective electricity collectors based on superconductor technology would make it possible to substantially reduce electricity losses and make the country’s energy system more effective, and the development of superconductors would also have big benefits for related sectors.
Second, Russia has huge biomass reserves, above all in terms of its forests. Unlike most countries, we have no competition between biomass for technological purposes and food. We propose implementing these projects through technological development and support in the selected areas and, realising that there are many areas where innovation can be developed, we propose putting in place a mechanism to support innovative solutions throughout the energy sector, including in the traditional fossil fuels sector.
At the meeting with scientists we also discussed the area of grid management, where we could introduce a new system to optimise grid management. This is another area that we will examine.
Dmitry Medvedev: What is happening with hydrogen energy?
Elvira Nabiullina: There are initiatives in hydrogen energy. Work is going on, but the view is that we will not reach large-scale commercial production of hydrogen energy for a long time yet, a longer time frame than that the working group is looking at.
Dmitry Medvedev: Probably, but precisely because it is not really being given consideration…
Elvira Nabiullina: It’s true we are not looking at its large-scale commercial use.
Dmitry Medvedev: So it is not included among the energy technologies to be developed for commercial use?
Elvira Nabiullina: Yes, although of course it is possible there could be breakthroughs in this field too. Certainly, this possibility exists.
Dmitry Medvedev: The thing is, everyone is working on this now. It would not be a good thing if we don’t make it one of our priorities too, all the more so as not all of the innovative types of energy you mentioned are guaranteed to produce immediate results. Superconductors are also a complicated matter. We do not know when all of this will begin producing practical results. Perhaps hydrogen energy could be included on the list?
Elvira Nabiullina: Our proposal for work on the innovative energy projects was that we select one or two projects that we could follow and support, and the other projects would be covered by institutional mechanisms that would also provide them with support. We are working on this at the moment, so as to make sure that nothing is left out.
Dmitry Medvedev: But you think that an institutional mechanism for hydrogen energy is not necessary for now? I am not trying to impose one view or another on you, but I simply want us to be clear about what direction we are taking in this area.
Elvira Nabiullina: Hydrogen energy should be covered by a support mechanism too, for certain.
Dmitry Medvedev: But it is not on the list of areas for support.
Elvira Nabiullina: Then we will include it. I agree. We will include it.
Dmitry Medvedev: Let’s include it then.
Elvira Nabiullina: Regarding superconductors, this is one of the fields of technology where Russian developments really are at the cutting edge along with work actively underway in the USA, Japan and Germany. The key area here is the production of superconductor materials from which various types of equipment can be made. Along with work on materials, the project proposes work on equipment such as a kinetic superconductor-based energy collector and electric cars. Developments in this field will have a direct impact on the stable operation and regulation of energy networks and will increase the energy system’s efficiency in general. Also very important, it will have a multiplying effect in other sectors such as energy machine-building, electronics and transport. We therefore think it one of the most important areas of work and can discuss it in detail, as with biomass. As far as our forests go (we did not go especially into the details), I think the possibilities for using our forest resources and bio-resources in general are quite clear.
The working group thinks that holding competitions could be another area for work. The project is in large part about changing behaviour and aims to develop energy saving habits among the public and in business, and so we therefore propose organising competitions and instituting a national prize and regional prizes to reward best practice and encourage the best and most innovative solutions in energy efficiency.
Next comes the draft law on energy efficiency. Energy efficiency is being hindered by lack of motivation in the public sector, in tariff regulation, as well as insufficiently developed necessary institutions such as energy service contracts, an energy services market in general, energy use evaluations, and mechanisms for financing projects to increase energy efficiency.
We summarised the proposals on institutional measures in the draft federal law currently before the State Duma, where it is being prepared for its second reading. The draft law proposes major innovations – general systemic measures and also measures aimed at promoting energy efficient behaviour in the public sector, construction industry and heating production and use. This includes provisions demanding that public procurement be energy efficient, banning the sale of energy-wasting equipment, making it compulsory to carry out energy use evaluations at energy-intensive enterprises, and introducing instruments for raising energy saving potential.
The law is now being prepared for the second reading. We propose that the necessary economic mechanisms, the key mechanisms, should be launched starting in 2010, including the possibility of concluding standard long-term energy service contracts and the possibility for public sector institutions to dispose themselves of the energy savings they make. This also includes the introduction of long-term tariff regulation in the utilities sector and recommendations on development and support of regional energy efficiency programs.
The project is complex and ambitious in scope, but we aimed for only minimum reliance on budget funding, hoping that the main investment will come from private investors motivated by the institutional measures and economic incentives we offer. We will soon be able to give a precise figure for the amount of federal budget money the project will require.
I note that the very fact that energy efficiency is being examined at such high level has prompted economic players in this sector into becoming more active. We already have requests coming in and are receiving information on the start of projects to produce energy-saving equipment. We know that there is a lot of activity in the regions. All of this leads us to hope that carrying out these projects will indeed enable us to make a big advance in energy efficiency and resource saving.
Dmitry Medvedev: I want to clarify two points, or rather, I want to clarify one point and share my view on another. As far as preparing the law for the second reading is concerned, when we will know the full picture? When will the law be ready?
Elvira Nabiullina: We think it can and should be passed during the autumn session, in the coming month.
Dmitry Medvedev: All the instructions assume that it will be passed during the autumn session and come into force as from January 1.
Elvira Nabiullina: We do have a number of legal considerations that will need to be taken into account over these coming weeks, as part of the polishing process the law is going through now in the Duma. The Finance Ministry has made a number of points. They are not conceptual issues, but they require some additional work, including on issues such as the source of the information needed to identify the most energy-wasteful public sector institutions (this is an example of the kind of point that has been raised). I think all of these points should be worked through over the coming week.
Dmitry Medvedev: I don’t understand, you have a question regarding this issue, or you disagree on the source?
Elvira Nabiullina: There is disagreement at the moment over whether it should come from the accounting records or other records…
Dmitry Medvedev: Let the police and the FSB do the reporting. That will be a good source on who is wasting what, and everything will be fair and above board.
On the second point, the New Light project, you said that starting from 2011 (and if I’ve understood correctly, this is the deadline the law proposes) there will be a ban on the sale and use of incandescent light bulbs of more than 100 watts, and we will see what further steps to take from there. I have a proposal. I discussed the situation with colleagues too this morning. We do need to set some kind of guidelines. If we just say that 100-watt bulbs will be banned starting in 2011, people will simply use 75-watt bulbs instead for the next 50 years. We therefore need to give some kind of indication of where we are going. Perhaps there is no sense in setting out more stringent obligations now, so as not to cause problems, but I think that we definitely should outline a timetable for when all of these changes will take place, as other countries have done.
We also need to think about production of replacements for incandescent lights and how to bring their cost down. This applies to fluorescent lights, other types of lights, iodine lights. This is a separate programme that requires state attention and support.
Finally, there is also the information factor, and this is something also requiring close attention. We need to look at how to carry out information work in this area over the coming period, so that discussion on the fate of incandescent lights does not turn into laments about how warm and cheerful they were, and now they are to be replaced with some strange new kind of light and so on. I have already read my fill of people saying they do not want to live with the new light bulbs and so forth. We need to explain to people the advantages of these light bulbs, the real material advantages their use offers. I ask to work on this.
Elvira Nabiullina: Regarding the timetable, we do have a timetable already outlined. We think that a ban on the sale of incandescent light bulbs of more than 75 watts could be introduced from January 1, 2013, and a ban on all incandescent light bulbs from January 1, 2014. We do not have to set this out as a firm obligation in the law right now, but we do have this timetable as a guideline.
Dmitry Medvedev: Maybe we could set it in the law not as a firm commitment but as the general outline for the deadlines by which we will try to carry out this or that action. We will see later down the line what has not worked, what adjustments need to be made, but we do need to establish some kind of framework now. That is agreed.