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Economy Sustainability Eco-friendly projects are aimed at boosting productivity


From red to green: is Russia ready to clean up its economy?


Every year, Russia wastes enough energy to power the French economy. But the Kremlin is now moving to switch losses for efficiency.


RACHEL MORARJEE BUSINESS NEW EUROPE


The Russian government ap- proved a 9.532 trillion rou- ble (£193.2bn) energy effi- ciency programme on October 21 that will trim the fat from the way Soviet-era factories and buildings are run. Will it be too little too late, or is Russia about to embark on a genuine green energy revolution? “The political winds have changed at the top, and there is a growing consensus that climate change is happening and a will to change and build a more efficient econ- omy,” said Kevin James of London-based Climate Change Capital. He added that the forest fires of the summer have led to a growing realisation within the country that climate change may not be entirely positive for Russia. Prime minister Vladmir Putin once famously quipped that global warming meant Rus- sians would need to spend less on fur coats. President Dmitry Medvedev, however, has taken a much tougher line on the environ- ment, backed by a report from the World Bank, which says that improving energy efficiency will improve the


Prokhorov’s hybrid car


country’s productivity and competitiveness. “Investment in this sector could save almost 70 million tons of oil equivalent a year,” Mr Medvedev said earlier this summer. At current market prices, 70 million tons of oil is worth around £23.9bn. Russia is the world’s biggest oil and gas producer, and cheap, government-capped domestic energy prices have


drained the motivation to conserve energy. Mr Medvedev hopes attitudes will now change, and aims to make the country’s economy 40pc more energy efficient by 2020. Accordingly, he has intro- duced political initiatives to help reduce Russia’s depend- ence on oil – from the deci- sion to phase out the use of incandescent light bulbs to setting requirements on the


share of electric power gen- erated through the use of green technologies. Russia lags far behind China, which is already the world’s leading manufacturer of wind turbines and solar pan- els and is on track to pro- duce the world’s first totally battery-powered car. However, Russia has made moves in the right direction. This summer, the government


Energy Solar power development takes root across regional sun traps


Light fantastic: the sun’s northern exposure is a welcome bonus


The use of solar power, though still in its infancy, is starting to shine through as a promising alternative energy source in Russia’s regions.


IRINA FILATOVA THE MOSCOW TIMES


Russia may be associated more with long, dark winters than sun-drenched days, but that does not stop private companies from tapping into a growing market for solar energy. “There was an opinion that it’s better to use solar energy in countries where there’s a lot of sun,” said Marat Zaks, chief executive of Solar Wind, a Krasnodar-based solar panel manufacturer. “But the fact is that there’s a lot of sun in Russia too. Germany is the world’s number one solar en- ergy consumer. But is Ger- many a sunny country?” Solar Wind produces panels mostly for export but hopes to see the domestic market grow. “If we get an order from a Russian customer, we try to complete it quickly to aid the market development in the country,” Mr Zaks said. A number of Russian private companies are creating joint ventures with Rusnano, the state nanotechnology corpo- ration, to address local needs. Solar Wind is starting a $160m project, with Rusna- no as a partner, in which it will make double-sided solar panels for domestic use. These are panels that collect solar energy from both sides, and


announced plans to build eight plants that will produce energy-saving lamps. The first Russian solar plant will probably break ground in the North Caucasus resort city of Kislovodsk next year, said Rostovteploelektro- proekt, a Russian company specialising in the design of energy plants and equipment engineering. With an output of 13 mega-


watts (MW) the 3bn rouble (£60.7m) plant is small, but more solar and wind plants are in the pipeline, includ- ing plans to develop wind and solar power worth some £186m in the southern Kras- nodar Region. The wind project will be im- plemented in two phases with a total eventual capac- ity of 100 MW. Work on the wind farm could start as early as next year, pending necessary approvals, with German engineering group Siemens slated to co-operate in the project. In addition, RusHydro has plans to build a wind-power park in the city of St Peters- burg, while the Russian com- pany also signed a co-oper- ation agreement this June with Italian fellow energy giant Enel to work in other areas of renewable energy, including tidal and geother- mal power projects, as well as in retail power sales. Biofuel development is mak- ing similar progress. Russian natural gas producer ITERA plans to build a methanol complex in the Urals Feder- al District. In June, presidential econom- ic adviser Arkady Dvorkov- ich said the government should support small ener- gy-generating projects that use biofuel by offering them tax breaks and subsidised in- terest rates. Biofuels could also benefit from recycling plans current- ly afoot. Russia’s natural re-


Winds of change blow over the Krasnodar Region


sources and environment ministry drafted a bill in Au- gust to promote recycling. While the separation of tin cans and garden waste seen in Western European house- holds is a long way off, under the bill factories will have to recycle the material they cur- rently throw away. Pulp and paper factories could easily sell much of their waste to biofuel plants, re- sulting in economic gains for them as well as reduced waste. Russia is even entering the hybrid car business. At the start of this year, multibil- lionaire Mikhail Prokhorov said he would launch the mass production of inexpen- sive electric cars in Russia with a project that has Mr Putin’s personal backing. The first three prototypes of the $12,000 car are due to roll off the production line


in December of this year. And finally, after a long and slow start, Russia’s carbon trading sector also got off the ground this year with the government signing off on 15 projects worth £18.6m, with more in the pipeline. NGOs say these moves mark a shift in the right direction, but add that it would not be the first time the Russian government has drafted laud- able plans and then failed to act on them. Vladimir Chuprov, energy unit head at Greenpeace Rus- sia, said that there was “a big line of industrial companies wanting to modernise their operations and raise efficien- cy”, but that many at the top, including prime minister Putin, remain sceptical of cli- mate change. “The government is not green and many policies are anti- environmental,” he said.


Council of the Common- wealth of Independent States. The Krasnodar Region turned its attention to solar energy after it launched an energy- efficiency programme in 2006. The region uses solar power for electricity produc- tion and heating water. The roof of the central hospital in Ust-Labinsk, a town northeast of Krasnodar, is being covered by 300 solar panels. The installation will heat water for the hospital’s daily needs all year-round, said deputy chief doctor Al- exander Kiselyov. Solar energy use has a fu- ture in Russia, but only in combination with other re- newable energy sources, said Dr Brigitte Schmidt, a board member of Eurosolar Deut- schland, the German division of the European Association for Renewable Energy. Solar energy is not yet popular in Russia because of the coun- try’s focus on oil exports, she said.


Rooftop energy: solar panels on country homes in Novosibirsk


which are made by only a few firms, said Mr Zaks. The plant, which may start working at the end of this year or in the first quarter of 2011, will have an initial an- nual manufacturing capac- ity of 30 megawatts (MW), ramping up to 120 MW per year. The volume of Solar Wind’s domestic sales is still much smaller compared with ex- ports, Mr Zaks said. Private firms and regional govern- ments are his customers lo- cally, and the company ex- ports solar panels to more than 22 countries, including


Germany, Britain and the United States. Industry insiders said solar energy could become a real alternative to traditional en- ergy sources in a number of the country’s regions. “The Krasnodar Region and most parts of Siberia have insola- tion levels comparable to the south of France and central Italy, where solar energy is currently booming, while the Zabaikalsky Region gets more solar energy than Spain,” said Vasily Malakha, head of the environment monitoring department at the Electricity and Energy


The Krasnodar Region and most parts of Siberia have insolation levels comparable to the south of France and central Italy


Another obstacle is the cost of solar power-station con- struction, compared with tra- ditional power stations, ex- perts said. The construction cost of a solar power station ranges from $10,000 to $17,000 per kilowatt, Mr Malakha said. In compari- son, one kilowatt of installed capacity at a nuclear power station costs up to $3,000, while the figure for a hydro- electric power station is $1,000. That makes building solar power stations less effective for Russia’s economy than construction of traditional power stations, said Yevgeny Nadezhdin of Unesco’s Sus- tainable Energy Develop- ment Centre, adding that hy- droelectric and biofuel energy generation are the best options. Building solar electric power stations around Russia is unlikely to be economically viable over the coming 30 years, Mr Na- dezhdin said.


Published in Moscow Times Markets Carbon trading market finally takes off


New prospects for cash from carbon


The carbon trading market in Russia used to be rigidly controlled by the state and held little appeal for foreign investors. Now it shows signs of growth in austere times.


RACHEL MORARJEE BUSINESS NEW EUROPE


When Kevin James of Cli- mate Change Capital moved to Moscow in 2005, he hoped his company would be in the vanguard of a movement to make money out of cleaning up the country’s Soviet-era factories. Instead, the com- pany pulled out of Russia after just four years, frustrat- ed by infighting among gov- ernment ministries over whether the country should sell carbon credits in return for reducing emissions. “We tried to pull off three or four environmentally friend- ly projects in Russia, but there was a policy morass at a national level which held us up,” Mr James claims. However, it appears he may have simply been too early, with the country’s carbon trading market now finally starting to move. This year, Russia gave the green light to 15 projects aimed at cut- ting emissions in sectors ranging from paper factories to chemicals to power gen- eration. The 30 million tons of carbon credits these projects should tot up could raise up to $300m on the open market. A second group of projects awaits govern- ment approval. Russia’s ratification of the Kyoto Protocol in 2004 com- mitted it to a UN programme to reduce global emissions of


03


Global carbon emissions


greenhouse gases. Carbon credits are aimed at encour- aging countries to implement the targets by putting a mon- etary value on those emis- sions. At the same time, the programme gives developed countries the opportunity to invest in reducing emissions in developing countries as a cheaper alternative to fulfill- ing Kyoto targets. Thanks largely to the col- lapse of the Soviet Union and much of its heavy industry, Russia’s emissions remain at 1990 levels. Many officials have come to believe that these carbon credits should be reserved to allow future economic growth, rather than sold to investors in return for emissions cuts. However, this view was most prevalent ahead of the 2008 crisis; officials struggled to see the value in raising money through emissions cuts when


SOURCE: UN FCCC


the country was awash with cash, suggests Mr James. But now money is tighter. Bankers say the first tender to identify the 15 pioneers earlier this year was a test run: if it goes well, more projects will follow. But the original hopes of internation- al investors that Russia could issue 300 million tons of car- bon credits and generate a market worth as much as $3bn have faded, as the fu- ture of carbon trading be- yond 2012 is uncertain. “Kyoto ends in 2012, so there’s limited time for ad- ditional projects, but there is still the chance to use the revenue they can raise for key priority areas in Russia,” said one banker in the sector, who asked not to be identified. “The advantage of the car- bon market is that it would provide additional financing for energy efficiency.”


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