Dmitry Medvedev chairs a meeting of the Presidium of the Council for Economic Modernisation and Innovative Development.
Opening remarks by Dmitry Medvedev
Report by Minister of Economic Development Alexei Ulyukayev
Report by Minister of Finance Anton Siluanov
Report by Director General of Russian Grids Oleg Budargin
Report by member of the Board of Directors, Energy Projects Group Olga Prokofyeva
Meeting of the Presidium of the Presidential Council for Economic Modernisation and Innovative Development
Meeting of the Presidium of the Presidential Council for Economic Modernisation and Innovative Development
Transcript:
Today’s meeting of the Modernisation Council Presidium is taking place during the forum dedicated to energy efficiency. Accordingly, we will discuss innovations in the sphere of energy conservation, energy efficiency, and innovations which should teach us energy saving techniques. Of course, the issue is not confined to energy conservation in the fuel and energy sector, but also includes industry, housing and utilities, and transport.
Energy conservation and energy efficiency became a priority in 2008. < ... > Energy conservation is vital to ensure the competitiveness, the financial sustainability, and the energy and environmental security of our country. Energy conservation and energy efficiency rank high on the list of the Government's priorities. Back in 2008, I set a concrete goal to reduce the GDP energy intensity by 40% by 2020 as compared with the 2007 levels. The industrial energy consumption in Russia is 2.5-3.5 times higher than in the developed economies. However, the GDP energy consumption has been steadily declining over the past 13 years.
Dmitry Medvedev: Energy conservation and energy efficiency became a priority in 2008. Energy conservation is vital to ensure the competitiveness, the financial sustainability, and the energy and environmental security of our country, and it rank high on the list of the Governmnt's priorities.
Unfortunately, this decline has little or nothing to do with the use of the state-of-the-art equipment, the latest technologies, or the advanced international know-how. It is more connected with structural shifts in the economy over the past years.
Today, I would like to outline the specific tasks faced by all the ministries and departments without exception. The publicly funded sector spends too much on energy as well. < ... >
My first point is that we need to supplement all the state programmes with energy efficiency indicators which could be used to evaluate their performance. As of today, only one state programme has something that looks more or less like an evaluation-based approach. How can you go about developing any industry, say, transport, without paying attention to energy conservation?
Second, much has been done in recent years to promote innovations. We have formed the necessary legal and regulatory framework from scratch. A state programme, Energy Efficiency and Energy Sector Development, has been adopted. Specific measures are being implemented. We have almost abandoned several outmoded technical solutions, including household incandescent light bulbs that use a lot of electricity and significantly reduced the amounts of burned associated gas, although this is still a problem. However, we should continue these targeted measures.
Regional programmes to improve energy efficiency are being implemented. About 7 billion roubles are allocated from the federal budget yearly to implement the energy efficiency state programme. Proper conditions are created for developing and introducing new technologies. Tax credit and compensation mechanisms are in place, but admittedly there are no significant results even though we are using various support vehicles.
Dmitry Medvedev: “Regional programmes to improve energy efficiency are being implemented. About 7 billion roubles are allocated from the federal budget yearly to implement the energy efficiency state programme. Proper conditions are created for developing and introducing new technologies.”
Electricity metres haven’t been installed with all the energy consumers and suppliers. Energy service contracts are not used in full. Not all businesses have conducted energy audits. The state information system, tax incentives and other measures provided for by the law on energy savings and energy efficiency are not fully functional. Therefore, we should review these incentives, and I now instruct the appropriate departments to submit proposals to improve these incentives.
Also, I instruct them to draft industry-specific road maps which will show all the actions regarding the implementation of innovative technologies and modern materials. It’s especially important to do so in the energy-intensive industries.
My third point is that the regions should have their own energy-saving management systems. The Ministry of Energy has issued a directive to that effect, and the methodology for assessing existing programmes should become a tool that combines all energy saving measures.
Unfortunately, often even the subsidies that we provide to the regions from the federal budget on co-financing terms are spent on projects that do not provide for the use of extrabudgetary funds, whereas we need to make these budget subsidies bring in extra-budgetary funding, i.e., the money from business.
There’s one more important consideration. The point is not in getting and spending this money. The point is to buy modern high-end equipment and replace the old technology.
The fourth point is also about relations with businesses. I would like to point out that this is not the kind of a situation where the state will come forward and bail everyone out. Of course, we are prepared to help businesses to modernise production facilities and attract new technologies, but we will work on an equal footing, or at least create incentives for doing so.
Dmitry Medvedev: “About 180 billion roubles have already been invested in the development of new energy-saving and energy-efficient technologies through development institutions. Some time ago, I issued an instruction regarding the innovation-driven activities of major state-owned companies. We will continue monitoring the decisions that they make. Special programmes are used across the board.”
About 180 billion roubles have already been invested in the development of new energy-saving and energy-efficient technologies through development institutions. Some time ago, I issued an instruction regarding the innovation-driven activities of major state-owned companies. We will continue monitoring the decisions that they make. Special programmes are used across the board. Investments in R&D are up, but not as much as we’d like. The amounts that are spent in our country on innovation, including in the energy conservation and efficiency sector, are significantly lower that the amounts other countries spend on developing innovative technologies. I’m not talking about the money value, but percentages. Thus, we should analyse the activities of state-run energy saving campaigns and make proposals to the Government on how to improve them. I believe that certain assessment criteria and targets for managing state-owned companies should be introduced.
Well, that’s about it. In conclusion, I would only like to say that several days ago I signed a resolution on awarding prizes for product quality. This is our traditional and rather prestigious prize. This year’s awards go to seven companies in energy that do research and development projects in the natural and technical sciences, as well as infrastructure projects. I hope this will also serve as an incentive for introducing energy efficient technologies.
Let’s discuss the subject. First, I give the floor to the Minister of Economic Development, Alexei Ulyukayev.
Alexei Ulyukayev: Thank you. Mr Medvedev, colleagues, I will not dwell on the importance of energy efficiency. The Prime Minister has already talked about this. I would like to remind you that we were issued a presidential executive order to reduce the energy intensity of the Russian GDP by 40% up to 2020. We are not achieving this goal, partly due to objective reasons. The graph on slide 2 shows how the initial positive trend was disrupted during the 2008-2009 crisis. Objectively speaking, this crisis forced companies to stick to their more energy intensive technologies, rather than replace them with more energy efficient technologies. Basically, this protracted regressive trend lasted for two years. An extrapolation of this trend shows that we can reduce energy consumption levels by 20-25% on 2007 levels up to 2020. We need to use new approaches to ensure a more positive trend. This methodology has two aspects. The first deals with a multi-sectoral economy. This problem is not only typical of the power industry and the fuel and energy sector. As the Prime Minister mentioned, it includes the programmes of all public sector and business segments because real consumption volumes … this is slide 3 … As you can see, public sector and business segments consume substantial amounts of fuel equivalent and energy resources. Moreover, you can see that it is possible to conserve fuel and energy resources. The housing and municipal utilities sector consumes about 33 million equivalent tonnes. This is a potential that we can work with. For their part, industry and the power sector consume 22 million and 19 million equivalent tonnes, respectively. And the budget sector consumes 21 million equivalent tonnes. These are comparable volumes.
And here is the second idea. Quite possibly, they will say here today and during various other forums that there are various technologies, corporate practices, equipment and tools, and, that demand for them is the most important thing. This demand should be shaped by institutional changes and with the help of tax and financial incentives and their related options. First, state programmes are the main institutional component for demand. Currently, we are implementing the state programme Energy Efficiency and Energy Development, which is a departmental programme. This programme stipulates considerable reductions in GDP energy efficiency levels, but it aims to implement various measures almost solely inside the fuel and energy sector.
Alexei Ulyukaev: “Starting in January, Federal Law No 44-FZ will be introduced in a contractual state procurement system. The law stipulates holding online auctions and qualification tenders for the procurement of goods and services for both federal and municipal government institutions. Eventually, the law may also extend this requirement to state development institutions and companies partially owned by the state”.
At the same time, as I said earlier, other sectors have a tremendous energy saving potential. We need to augment these programmes, including for the housing and municipal utilities sector, budgetary consumers, industry and the transport system, with various energy saving indices and target indicators and measures to boost energy efficiency. We should also augment them with the required key performance indicators (KPIs) for managers, for the heads of federal agencies, including within programmes, and the managers of companies with state capital and private companies.
Here is one more issue, namely, investment in the budget sector and efforts to provide top managers at budgeted agencies of all levels with additional incentives to reduce energy consumption volumes. To accomplish this objective, we should, first of all, extend specific demands to reduce energy consumption volumes up to 2015, in accordance with the federal law on energy saving practices and increasing energy efficiency levels. And these targets should certainly be extended even further. Today, we are talking about plans to ensure 2020 energy consumption volumes are 15% less than the figures for 2015.
The return on investment rule would be the second measure in the budget sector for the investments made by saving funds through budget expenditure planning. These are energy service contracts that you, Mr Medvedev, mentioned in your opening address.
State-funded organisations are allowed by law to close energy service contracts for terms beyond the terms of the budget commitment limits. However, the planning rules and procedures for such commitments are nontransparent and create a risk for non-repayment of the investments made by energy service companies and parties of energy service contracts into modernisation and energy consumption reductions by state-funded organisations. These contracts also have long terms, five to seven years at least. Therefore, transparency is very important.
Thirdly, we should set requirements and criteria for increasing the share of energy saving equipment, goods and services purchased by the government.
Starting in January, Federal Law No 44-FZ will be introduced in a contractual state procurement system. The law stipulates holding online auctions and qualification tenders for the procurement of goods and services for both federal and municipal government institutions. Eventually, the law may also extend this requirement to state development institutions and companies partially owned by the state. It is an enormous market that includes seven trillion roubles in state procurement and a similar value of procurement for state-funded companies and state development institutions (over 13% of GDP). Setting certain requirements and criteria within the federal contractual system will provide a significant market influence that will promote the use of energy saving technology and equipment.
Dmitry Medvedev: What does a ban on non-energy-saving products mean? And who will determine whether it saves energy or not?
Alexei Ulyukayev: Various institutions are responsible for technical regulation, standards and accreditation. We also have laboratories and we can give them the responsibility to set criteria for excessive energy consumption for a given operation. Devices, equipment and technology that do not meet standards should be put on a black list and not be bought. The Federal Agency for Technical Regulation and Metrology and the Federal Accreditation Service are the institutions that could develop such requirements.
Alexei Ulyukaev: “The private sector is the next issue. We need to create incentives there as well to improve the modernisation of major fixed assets in order to make them more sustainable. That would require tax incentives to stimulate the installation of innovative energy saving equipment. These would include tax exemptions on property according to the energy saving law, and accelerated appreciation for energy saving equipment”.
The private sector is the next issue. We need to create incentives there as well to improve the modernisation of major fixed assets in order to make them more sustainable. That would require tax incentives to stimulate the installation of innovative energy saving equipment. These would include tax exemptions on property according to the energy saving law, and accelerated appreciation for energy saving equipment. There are also acts and regulations of the Russian Government that list equipment within this category. Basically, this is what you were interested in, Mr Medvedev. This list serves as a basis for a minimum energy efficiency index. Perhaps, the standards and indices must be adjusted because they change with time. For example, the energy saving index in paper production is 300 for all categories while in the rest of the world it is up to 250 for coated paper and 320 for cardboard, which is the opposite side of the product range. These indices must be clarified in order not to distort the picture for the market.
Also, we need to discuss the government guarantees that have already been mentioned. They exist as both an institution and a budgetary instrument. The budget related legislation specifies all the conditions for providing government guarantees on energy saving projects and improving energy efficiency. The government guarantees have been included in the state energy conservation programme and the federal budget for the past three years. We have annually reserved 10 billion roubles for these purposes each year. General criteria have been set for the scope and quality of housing and utility projects and industrial projects to be eligible for government guarantees. The provision of government guarantees is, however, a very difficult and strenuous procedure. Approval takes at least seven months. At the same time, the expert review of projects has high transaction costs, which seriously limit the number of potential applicants for the guarantees. As a result, the guarantees are not in fact provided and this measure has zero effect. Therefore, we should review and, if necessary, simplify the application procedure to make guarantees more accessible.
The third issue regarding motivating the private sector to conserve energy is the state funding of the federal and municipal energy saving programmes. This funding is quite significant, about six billion roubles a year. The money is, however, not directly linked with specific energy efficiency measures. It would be more reasonable to spend the funds on partial compensation for interest rates on the loans that the state companies receive to implement innovative energy saving technology. That would create a multiplier effect and would influence private investment. In this case, the potential amount would be significantly higher than the budgetary funding. Therefore, we propose to replace the existing forms of budget co-financing with just one mechanism, a partial compensation for loan interest rates.
Thank you.
Dmitry Medvedev: Thank you. When you mentioned benefits, Anton Siluanov, who is sitting next to me, started arguing that benefits have nothing to do with this issue, that implementing energy efficient technologies should be profitable per se, so offering benefits is not heading in the right direction.
Mr Siluanov, could you share your disagreement with this proposal. Go ahead, please.
Anton Siluanov: Thank you, Mr Medvedev.
Colleagues, you are all well aware of the options for addressing any given issue: budget financing comes first, followed by benefits, guarantees and, finally, subsidised loans. But in this case the situation is very simple, since energy efficiency goes hand in hand with higher profits. As a matter of fact, the budget can’t accommodate such spending. In fact, here we have an incentive for companies and state-funded organisations, which are currently trying to find resources to deliver on their priority objectives, such as paying salaries. They should be tasked with working in this direction. It is impossible to solve all problems using budget resources or by introducing additional benefits, because there’s simply not enough money to go round. We need standards, technical requirements. In my opinion, this is how this issue should be addressed: by introducing environment and energy efficiency standards. This is where the solutions lie. Benefits, additional financing and guarantees are perhaps not the best way to go at the present time…
Dmitry Medvedev: Just to liven up the discussion, Mr Ulyukayev, go ahead and express your frustration.
Alexei Ulyukayev: Mr Siluanov, with all due respect, we are not asking for additional allocations from the budget. We are talking about spending that has already been factored into the budget. These funds have been assigned to guarantees; these funds are expected to be used to co-finance the work of Russia’s regions. What we mean is that these funds could and should be spent in the most effective manner by facilitating private investment so that the budget is not alone in confronting this issue and businesses get involved in these efforts. We are not asking you for any additional allocations.
Anton Siluanov: Benefits are just a new idea, an incentive, it’s about regional taxes.
Dmitry Medvedev: Fine, that was a useful exchange of opinions. The first party says that it is not asking for additional allocations, while the other argues that it has no intention to provide any funds. Nevertheless, let’s hear how this situation plays out for companies. I now pass the floor to Oleg Budargin, Director General of Russian Grids.
Oleg Budargin (Director General of Russian Grids): Mr Medvedev, meeting participants, an energy audit we carried out revealed that the energy efficiency potential of Russian Grids exceeds 15%. Russian Grids carried out this audit in execution of your instruction and found out that the company’s energy efficiency potential is equal to 15% and this could be used in the near future.
We have highlighted three areas to deliver on these objectives: reducing energy loss, upgrading power consumption measurement systems, which you, Mr Medvedev, mentioned in your opening remarks, and rolling out the Smart Grid intellectual network.
With respect to energy loss, Russian Grids has seen a positive trend since 2009 as this indicator improved by 8% to the current 9.9%. In accordance with its corporate strategy, Russian Grids must reach 8.8% by 2017. Taking into account the decisions on tariffs, the company is expected to achieve these objectives much earlier than that. Russian Grids is new to the market, and this decision is very beneficial for a company that is only making its first steps, since it really helps us focus on energy efficiency. It was this decision that made us seriously think about this problem.
The second area for improving energy efficiency is power consumption measurement. Russian Grids currently has 22.5 million meter points and only 4% of them have yet to be equipped with metering instruments. We have yet to deliver on this objective within our distribution network. The company was actually expected to report that 100% of meter points…
Dmitry Medvedev: Only 4% left?
Oleg Budargin: Yes, 4% or 900,000 meter points not equipped…
Dmitry Medvedev: 4% isn’t that bad, actually.
Oleg Budargin: Mr Medvedev, of course we were supposed to equip all meter points with metering instruments. Maybe we lacked an incentive. Since the zero rate has been introduced, all distribution networks are now actively working on this issue. In 2011 and 2012 1.2 million devices were installed, which saved us 2 billion kWh, which is equal to the average annual power consumption of the Pskov Region. This is a positive and laudable result, which is expected to incite power companies to cut costs by actively engaging in such activities. We will do our utmost to complete the installation of these devices in 2014. However, it should be noted that these metering devices should be upgraded. As many as 64% of devices were installed in the Soviet times and are now outdated. These are not the so-called smart meters. We are deploying smart grids, while meters still require our staff to provide maintenance services. Besides, the number of people the company employs is on the rise… The problem we are currently facing is installing smart meters.
Oleg Budargin: “Russian Grids currently has 22.5 million meter points and only 4% of them have yet to be equipped with metering instruments”.
Implementing innovations is another issue. Over the last two years 25 projects were implemented to increase transfer capacity and reduce power loss by 20%. This objective was set by the Government and did not go unnoticed: in 25 projects, energy losses have been reduced by 20%, which means that the transfer capacity is up, while energy losses are down. It is no secret that these results are largely due to R&D, including Russian scientific solutions such as equipping most electric substations with series and static compensators and shunt reactors. Unfortunately, only backbone networks have so far been included in this effort. It is our goal to bring these innovations to distribution networks and consumers, and we feel the need to deliver on it by working together with the scientific community and companies.
Finally, the development of Smart Grids. The Smart Grid project is currently being implemented in the Kaluga and Belgorod regions and in the city of Kaspiysk in the Republic of Dagestan. The smart grid project will be carried out in the Kaliningrad Region in cooperation with Russian Direct Investment Fund. These projects reduce energy consumption by 30%. I would like to thank the banking community and above all the Russian Direct Investment Fund for entrusting their investments to us and believing in smart cities and smart grids. All energy efficiency projects are based on a single technology policy approved by Russian Grids. We believe that the improved energy efficiency is due to our guidelines. Implementing these guidelines in companies both within and beyond the Russian Grids group would produce substantially better results. We have created a non-profit partnership (for various power grid companies) with regional power grid operators. We are confident that having a single platform for discussing technology-related issues and power grid controllability will yield positive results on all stages, from power generation to delivery to consumers, as well as specific areas of distribution networks.
Mr Medvedev, allow me to make a number of proposals alongside those mentioned above. Price policy is the main incentive for energy saving. As I said, freezing infrastructure and grid tariffs is the right thing to do, at least while our company is at its formative stage. But it is still an administrative decision, whereas we would like an economic mechanism and an economic incentive to be added to these administrative decisions. I don’t mean benefits… We’d like to leave what we earn in the companies, at least at the first stage, so that we might spend this money on modernisation and innovations.
Dmitry Medvedev: My colleagues are whispering in my ear: If you are fond of the zero, why not introduce it for three years?
Oleg Budargin: Mr Medvedev, do you remember when I said, perhaps let’s first have a five and then two zeros? You said: No, let’s have the zero first and then two fives. But, as I'm hearing, it’s more likely that we’ll have two zeros.
Dmitry Medvedev: Three zeros is being suggested. “Two zeros” has a bad sound. Funny associations.
Oleg Budargin: If this is backed by economic mechanisms and incentives for our labour and our businesses, well, yes, this is likely to be beneficial. But there is another aspect too…
Dmitry Medvedev: This is an important statement; please put it down.
Oleg Budargin: I am speaking about the Russian Grids…
Dmitry Medvedev: I understand, because neither Gazprom, nor Russian Railways is here. Russian Grids is important all the same.
Oleg Budargin: Given that a new company is being formed and that the grids will be controlled from one centre, I think this is beneficial primarily for the grids.
But there is another aspect to low electricity prices: low prices are not conducive to saving energy on the part of the consumer. You focused on this earlier today and there are examples of it in the electric grids: cheap resources don’t encourage saving. For example, the connection cost has been reduced by 66% over the last three years, and the timeframes, by 43%. But consumers fail to meet the deadlines when it comes to one-third of their requests. Big business consumption constitutes 30% of the contracted capacity. Here we are building unnecessary substations, there, unnecessary grids. I think that your proposal and decision to introduce an energy efficiency indicator will be a powerful tool compelling consumers to mind energy efficiency. Thank you for your time.
Dmitry Medvedev: Thank you, Mr Budargin.
Let's continue. Ms Olga Prokofyeva, member of the Board of Directors, Energy Projects Group.
Olga Prokofyeva: Mr Medvedev, colleagues, at this meeting of the Presidium of the Council for Economic Modernisation and Innovation Development I would like to speak about fuel cell technology, which our companies are developing and investing in, and suggest some necessary state support tools which, in our view, will promote the development and use of this technology in Russia.
First, we think it is necessary to include this technology in the Directory of Best Available Technologies in the Fuel and Energy Sector in order to receive tax and investment benefits and introduce various accelerated depreciation options. This will make it possible to encourage introduction and wide-scale use of this technology. As a consequence, it will become cheaper and more widely available to businesses, which, in turn, as was previously discussed, will attract business to this sphere and invite government and private investments.
Second, we suggest phasing in a ban on small generators that use CO2-intensive installations, as being environmentally harmful and damaging for regions of the Russian Federation. We also suggest introducing a new technology based on newly developed technological and environmental regulation measures, something that will make it possible to broaden the scope of its application, make it cheaper, and make this market acceptable and interesting for business.
The technology itself has the following advantages. Its output-input ratio is about 62%, which is an extremely high indicator of efficiency. It can operate on any type of fuel. It is independent and environmentally friendly. Its energy capability is from 5 kilowatts to 100 megawatts, and, what is also important, it can produce heat at the same time, which can considerably broaden the segment of its application in remote areas of Russia, for example.
Right now, the capital costs per installation are rather high, but we are working to reduce them. We would like this technology to be applied on a broad scale and to appeal to companies as being eligible for inclusion in corporate investment programmes.
The key targets for this technology in Russia are power grids and stand-alone generation, housing and utilities facilities, and the oil and gas sector, where it can help utilise associated gas.
I would like to note separately the possible uses of fuel cell technology in the transportation industry, on the basis of which automobiles and other vehicles could be developed.
This technology is being widely used in the world because it helps both to evolve “smart energy systems” and increase power consumption efficiency for power-intensive industries. Thank you for your time.
Dmitry Medvedev: I don’t quite understand. Are you using these technologies in Russia or not?
Olga Prokofyeva: Yes, we are. Currently we produce plates for fuel cells. We have two developments on display at this exhibition. We are working to transfer Korean and US technologies to Russia.
Dmitry Medvedev: Thank you.
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