From red to green - Russia attempts to clean up its economy

By bne IntelliNews November 2, 2010

Rachel Morarjee in Moscow -

Every year, Russia wastes enough energy to power the French economy and the Kremlin is determined to change this. Will it be too little too late or is Russia about to embark on a green energy revolution?

In October, the Russian government approved a RUB9.5-trillion (€221m) energy efficiency programme that will attempt to more efficient the way Soviet-era factories and buildings are run. "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 economy," says Kevin James of London-based Climate Change Capital.

He adds that the forest fires of the summer have led to a growing realisation that climate change will be a problem for Russia too; Prime Minister Vladmir Putin once famously quipped that global warming meant Russians would need to spend less on fur coats.

President Dmitry Medvedev, however, is taking a much tougher line on the environment, backed by a report from the World Bank which says that increasing energy efficiency will improve the country's productivity and competitiveness. "Investment in this sector could save almost 70m tonnes of oil equivalent a year," Medvedev said earlier this summer. At current market prices, 70m tonnes of oil is worth $38.5bn.

Russia is the world's biggest oil and gas producer and cheap, government-capped domestic energy prices have drained the motivation to conserve energy. Medvedev hopes that will change. He aims to make the country's economy 40% more energy efficient by 2020.

Medvedev has introduced political initiatives to reduce Russia's dependence on oil: from the decision to phase out the use of incandescent light bulbs to setting requirements on the share of electric power generated through the use of green technologies.

Russia lags far behind China, which is already the world's leading manufacturer of wind turbines and solar panels and is on track to produce the world's first totally battery-powered car. However, Russia has made moves in the right direction.

This summer the government announced plans to build eight plants that will produce energy-saving lamps. And the first Russian solar plant will likely break ground in the

North Caucasus resort city of Kislovodsk next year, the Rostovteploelektroproekt, a Russian company specializing in the design of energy plants and equipment engineering said. The RUB3bn plant is small at 13 megawatts (MW), but more solar and wind plants are in the pipeline.

Rostovteploelektroproyekt, a Russian company specializing in the design of energy plants and equipment, said it also has plans to develop wind and solar power worth almost $300m in the Krasnodar region. "The wind project will be in two phases with a total capacity will be 100 MW in the end and work on the wind farm could start as early as next year pending necessary approvals. Siemens is also slated to cooperate in the project. In addition, Russian energy giant RusHydro already has plans to build a wind-power park in city of St Petersburg.

Meanwhile, hydropower has also gained ground. This June, Italian energy giant Enel and RusHydro signed a cooperation agreement to work on renewable power projects, including tidal and geothermal power projects, as well as in retail power sales.

Biofuel development is making similar progress. Russian natural gas producer Itera plans to build a methanol complex in the Urals Federal District. In June, presidential economic adviser Arkady Dvorkovich said the government should support small energy-generating projects that use biofuel by giving them tax breaks and subsidized interest rates.

Russia's Natural Resources and Environment Ministry drafted a bill in August to promote recycling. While the separation of tin cans and garden waste seen in Western European households is a long way off, under the bill factories will have to recycle the material they current through away. Pulp and paper factories could easily sell much of their waste to biofuel plants resulting in economic gains for them as well as reduced waste.

And finally, after a long slow start, this year Russia's carbon trading sector has also got off the ground with the government inking 15 projects worth $30m and more in the pipeline.

NGOs say these moves mark a shift in the right direction but it would not be the first time the Russian government has drafted laudable plans but failed to act on them. Vladimir Chouprov of Greenpeace said that there was "a big line of industrial companies wanting to modernise their operations and raise efficiency," but that many at the top including Putin remain sceptical of climate change. "The government is not green and many policies are anti-environmental," he says.

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