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Russia: a market with huge potential – will decentralised energy take off?

Everyone knows that Russia is a vast market with huge untapped potential. But in the context of a struggling economy and increasingly tense diplomatic relations, what is the future for decentralised energy in the world’s largest country?

Earlier this month, I travelled to Moscow to attend the annual Russia Power conference and trade fair in a bid to find out if Russia is ready to embrace a new generation of efficient, distributed power facilities.



Here are three key messages that emerged during the conference:

  • Energy price trends across Russia are increasing but have been frozen for 3 years amid the uncertain economic climate. A programme of sustained energy price rises has been underway in Russia for a number of years. Mandated by government, these price rises are seen as crucial step towards a competitive and efficient energy market, and follows decades of government subsidies for energy consumers. Yet, the announcement towards the end of 2013 that energy prices are to be frozen for 3 years has undermined investor confidence in the Russian energy sector. It now seems that cost parity is more likely to be achieved towards the end of the decade – perhaps then we may see a new era of Russian modernisation.
  • Weak and out-of-reach electricity grid drives sales of distributed power systems. Vast regions of Russia have no access – or limited access - to the electricity grid. For industrial consumers who require a reliable electricity source, distributed power systems (often gas engines) are frequently the most effective way to secure a supply.
  • Russia is burdened with an over-abundance of aged, inefficient generating plant. Today, the Russian electricity sector has significantly more generating plants than is required to meet what is a reducing demand for electricity. These inefficient plants are badly in need of replacement; yet with the economy weakening, and energy prices frozen, there remains a lack of appetite among investors to build new capacity. Still – there could be good news in store for distributed generators. 50 GWe of distributed generation is set to appear by 2030, driven by industrial consumers looking to mitigate against risks of rising energy prices and security of supply issues.

This month, we are also launching a new Delta-ee research service. Covering global regions for distributed power systems (including Russia), our research will cover both the established markets of today, and the emerging markets of tomorrow.

To find out more about the Distributed Power Service, please click here.

 

Comments 3

Jan Hughes (website) on Tuesday, 11 November 2014 16:36

Do you think there can be a barrier in micro cogeneration in Russia the fact of high price of CHP units and high maintenance cost?
Even with low gas price and average electricity price comparing to Europe, the payback period is considered to be 8-9 years. With some kind of uncertainly still for efficiency of micro cogeneration in Russia, it might be hard to be accepted by customer to wait that long. Knowing Russian culture, it is often “all and now” culture.
Are there any local manufacturers who can compete with the European quality and more developed technology?

Do you think there can be a barrier in micro cogeneration in Russia the fact of high price of CHP units and high maintenance cost? Even with low gas price and average electricity price comparing to Europe, the payback period is considered to be 8-9 years. With some kind of uncertainly still for efficiency of micro cogeneration in Russia, it might be hard to be accepted by customer to wait that long. Knowing Russian culture, it is often “all and now” culture. Are there any local manufacturers who can compete with the European quality and more developed technology?
John Murray (website) on Wednesday, 12 November 2014 10:04

Hi Marina,

Thanks for your question. Certainly, the relatively high price of 'micro-CHP' compared to more conventional solutions (gas boiler and importing grid electricity) is one of the biggest challenges for the sector. Even with good spark spreads (the difference between gas and electricity prices) like you describe above for Russia, this alone is normally insufficient to promote a huge uptake of CHP technology. Usually, some sort of regulatory support (for example, feed-in tariffs, or carbon tax exemptions) is necessary to support the technology.

Hi Marina, Thanks for your question. Certainly, the relatively high price of 'micro-CHP' compared to more conventional solutions (gas boiler and importing grid electricity) is one of the biggest challenges for the sector. Even with good spark spreads (the difference between gas and electricity prices) like you describe above for Russia, this alone is normally insufficient to promote a huge uptake of CHP technology. Usually, some sort of regulatory support (for example, feed-in tariffs, or carbon tax exemptions) is necessary to support the technology.
John Murray (website) on Wednesday, 12 November 2014 10:09

In most cases, a payback period of less than 5 years is necessary to promote significant uptake in sales. This is true across Europe - not just in Russia. In Germany - the strongest European market for CHP - we see payback periods of under 3 years in some cases.

We have deep knowledge of the industry, and if you have specific questions on this, please do drop me an e-mail and I'll try to help.

Thanks again for the question,

John

In most cases, a payback period of less than 5 years is necessary to promote significant uptake in sales. This is true across Europe - not just in Russia. In Germany - the strongest European market for CHP - we see payback periods of under 3 years in some cases. We have deep knowledge of the industry, and if you have specific questions on this, please do drop me an e-mail and I'll try to help. Thanks again for the question, John
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