Interview with Sergey Pikin, Director, Energy Development Fund

With the rise of tariffs for electricity in Russia resulting in it no longer being treated as a cheap product, is it likely that interest in energy efficiency programs will increase in the near future?

The more expensive the resource, the greater the interest for its effective usage on the part of those who feel the price is important. So, no matter how paradoxical this may sound, the higher the tariffs, the better the future of Russian economy.

Unfortunately, we had to take a lot of painful decisions related to both the overhaul and development of the power sector. However, there is no other way out today, as there has actually been no development in the sector for about two decades. This is where all the present problems and the ineffective industry operation have come from, resulting in the current shocks. However, if the government is able to build an effective system to regulate the sector, it will be possible to overcome these shocks and raise the energy efficiency in our country in the future. At least, we should be able to bring the Russian economy more in line with the energy efficiency level of European countries.

What kind of energy efficiency programs do you believe will be employed in Russia – will it be time varying tariffs, price discounts, reduced tariffs for those who use energy efficiency equipment, installation of smart equipment, demand response, or anything else?

First of all, the type of power market model is important to achieve energy efficiency, since all the resources are bought and sold on the market. When no clear price signals for the economy are received from the model, the customer is not interested in the investments into economic processes. In physical terms, the customer saves funds and the next year, when the prices for energy go up, the economic effect by value is zero.

This is why first of all, it is necessary to stimulate the development of model built-in relationships on the power market to make the energy efficiency program function. When this is achieved, it would be possible to speak of introducing energy saving processes on a larger scale, from various smart technologies to simply putting energy consumption under control. It seems to me the latter may have the maximum effect and be the least expensive. However, heavy investments will be necessary to start using smart technologies. Still, in the absence of an effective competitive power market model, even smart technologies are just pricey high tech, with no significant benefit for the end consumer.

Will commercial or residential consumers be able to employ these programs, and what measures are to be taken for this purpose?

Program availability depends on the availability of corresponding financial schemes. This primarily pertains to project financing. Those major consumers that have the funds to upgrade and renovate their enterprises and increase their energy efficiency are already doing so. However, the problem with energy efficiency appears to be greatest for small and medium users, who don’t have sufficient funds to finance a serious modernization program. Unfortunately, project financing schemes are unavailable to them and it is exactly this kind of financing that makes it possible to drastically change the situation.

What financial, regulatory or technological instruments are necessary to make consumers participate in demand side management programs and to level up energy efficiency in Russia with that of Western Europe?

This is a multi-component issue. The first component is the power market, where the consumers would be able to both purchase and sell electricity round the clock and regulate power load. If a model provides for that, consumers will have a motive to participate in the trade. The current model doesn’t allow this. That’s why any technological or financial measures will not be popular. The market will send no clear pricing messages as to its operation to the consumer.

Would a wholly liberalized power market or a regulated power market with certain intervention on the part of the government be more useful to the consumer in the long run, and why?

For the first part, it is important for the consumer whether the introduced regulations will remain in force for a long time. It doesn’t matter if it is a market or regulatory system – any system of rules should be a smart one. Besides, it should be designed for the long term.

As for the markets, the government has already introduced certain market instruments. However, it is necessary for them to become more competitive. A market where competition is lacking has no sense. It will only generate price shocks. Regulation is also necessary when the market sends no long term development signals. It is an admitted fact both in Russia and abroad. In any case, government regulation is necessary here. Thus, in my opinion, a long term symbiosis of the market and government regulatory system based on stable operation principles is necessary.

Sergey Pikin is a speaker at Smart Utilities Russia 2013.