Russian Federation

Major achievements

The Russian Federation has some of the most extensive fossil fuel reserves in the world and is the third largest energy consumer. The energy sector has undergone some dramatic changes which have contributed to the country’s economic recovery since the 1990s.

The “Energy Strategy of Russia for the Period to 2020” was adopted by the Government in 2003 and sets out the strategic direction for the evolution of the energy sector.

Major challenges

The Russian Federation faces substantial challenges ahead, as with any country liberalizing its electricity sector. Many institutional, regulatory and legal reforms still need to be implemented.

Investment to refurbish many components of the current power system is required. Much of this could come from the private sector, but that will largely depend on the success of current market reform efforts.

Targets and goals

In April 2003, electricity reform laws were passed, with the aim of creating an electricity market, enabling economically sensible governance and providing a regulatory structure for the operation of the transmission grid. Under this reform, tariff rates for the domestic market could be liberalized by 2005. In 2006, the Government aims to liquidate the Unified Energy System of Russia (UES), which is the dominant organization in the electricity sector. Electricity transmission will be controlled by the Government, but the generation and distribution facilities will be privatized.

Electricity output is expected to grow at an average annual rate of 1.5 per cent until 2030. More than 80 per cent of new facilities are likely to be gas-fired. However, the Government has stated that it plans to expand the role of nuclear and hydropower in the future to allow for greater export of fossil fuels.

Renewable Energy

The use of renewable energy sources is fairly limited in the Russian Federation when compared with fossil fuels. A number of hydroelectric facilities exist and these hydropower resources will be expanded in the future.

A considerable amount of geothermal power, estimated at 380-550 MW, could potentially be exploited in the Russian Federation. At present however, only one 11-MW facility is in operation in Rauzhetskaya in the Kamchatka region, though there are plans to expand on this. Additionally, a second 80-MW geothermal plant is under construction in Kamchatka.

Efficiency measures

Energy intensity has increased slightly over the past 10 years, primarily due to a substantial drop in the Russian Federation’s GDP, which is more than the decrease in energy use. Another contributing factor is the abundance of energy resources that are used inefficiently, and the fact that very few improvements have been made to the infrastructure since the collapse of the Soviet Union. The strongest export sectors for the economy tend to be very energy-intensive industries.

Environmental impact

The Russian Federation suffers from a number of energy-related environmental problems, such as air pollution and waste. Environmental improvements to date have been more the result of economic problems, such as the closure of many energy-intensive industries, than policy successes.

The collapse of the Soviet Union led to a dramatic decrease in Russian energy consumption and consequently carbon emissions, which are substantially lower now than in 1990. The Russian Federation has recently ratified the Kyoto Protocol and should benefit from selling carbon credits to other countries.

Financial aspects

The development of the Russian electricity sector to meet the growth in energy demand will require a substantial investment. An essential part of attracting investment for these upgrades will be increasing the price of electricity for consumers and enforcing payment for services. Electricity tariffs are heavily subsidized, and in 2002 averaged less than 49 kop/kWh (1.6 US cents/kWh) for residential customers, and 65 kop/kWh (2.2 US cents/kWh) for industrial customers.

Stakeholders

• Ministry of Economic Development and Trade – the organization leading the electricity reform drive

• Ministry of Industry and Energy

• Ministry of Atomic Energy

• Unified Energy System of Russia (UES)

• Ministry of Natural Resources