Development of the Energy Service Market in Russia
The problem of improving energy efficiency attracted a great deal of attention in 2009 when the widely-discussed Federal Law FZ 261 “Concerning energy efficiency” was enacted, containing crucial limitations on the use of incandescent lamps. Not only that, the law also made an attempt to bring energy saving on course commercially by introducing energy services.
Generally speaking the service consists of an enterprise concluding a contract with a service provider which will realize some package or other of energy-saving measures. The most common type of energy service is an Energy Service Performance Contracts (ESPC). The key feature of such contracts is that they are paid for with the funds saved as a result of energy-saving measures, as a rule after completion of the project. The typical term of energy service contracts is several (up to 5-7) years. The maximum term of a contract is limited only by the capacity of Russian banks to provide credit to energy-service companies (ESCs) executing such contracts.
At first sight it seems to be the ideal arrangement for solving the problem of energy conservation. Nevertheless 6 years have passed from the adoption of the Federal Law 261, but the market for energy service contracts started to develop as such only during the last couple of years.
There are several reasons for this situation: the first, and the main reason, is that payment under an energy service contract is effected after its completion and based on its results. In other words: deliver first, pay later. The energy services system actually shifts current funding of energy-saving measures from enterprises to energy service companies and finally to the banks which extend credit under such contracts. However the majority of financial institutions view financing of ESCs as high-risk investments and consequently they are prepared to work only at high interest rates. Long payback periods also discourage growth of the number of projects.
Development of ESCs is also hampered by the lack of a generally accepted methodology for estimating the economic effect of energy-saving measures, thus leading to investment risks. It should also be noted that energy service activities must be developed on the basis of an energy audit, however many Energy Certificates are of very low quality and provide a poor basis for developing any systems. Apart from that, the patchwork nature of many municipal lighting networks necessitates consultation with interested third parties – private companies which own some of the municipal energy supply facilities.
These are just some of the challenges that face pioneering energy service companies.
Nevertheless the Russian market of energy service contracts is showing a growth trend. This is basically caused by the fact that a number of leading Russian banks (Sberbank, Vnesheconombank, Gazprombank) have started financing energy conservation projects. It is worth noting that Gazprombank owns an in-house energy service company called GPB-Energoeffect.
As far as other problems are concerned, practice shows that they can be solved subject to concrete commitment of municipal authorities and enterprise owners to the improvement of energy efficiency.
According to an estimate by Sberbank, before 2015 about 3.5 trillion rubles will be invested in energy conservation activities including ESCs, of which 2 trillion will be in credit instruments. The potential of the energy service contract market is no less than 500 billion rubles per year.
Today energy service is mainly prevalent in street lighting modernization projects and modernization projects in energy-related facilities and production enterprises. These include individual large and very large projects (valued at hundreds of millions of rubles).
It is difficult to give the precise number of ESCs in the Russian Federation – according to some estimates they number well over a thousand. Mainly ESCs are Russian companies. Among these there are many representatives (subsidiaries) of energy-saving equipment manufacturers and energy supply companies.
Today the Russian energy service market is penetrated by foreign companies. For example, FENICE RUS LLC (a subsidiary of Italian EDF Fenice) is undertaking a number of large-scale projects with AvtoVAZ, including a lighting modernization project with an energy-saving of 14,900 MWh/year. The project is planned for 10 years, and commissioning of the equipment is expected in 2014.
Large projects are being undertaken by the previously mentioned GPB-Energoeffect, which in 2013 modernized 16 boiler houses in Nizhny Novgorod with total capacity of 200 Gcal/h. The total contract value is more than 2 billion rubles, making this contract probably the largest in the energy service field.
– One of the most promising directions of energy service is modernization of luminaires – believes Vadim Dadyko, General Director of AtomSvet LLC. – This is due not only to high proportion the total energy demand of enterprises being accounted for by the lighting, but also to the availability of advanced LED-based luminaires in the market. LED lamps and luminaires consume 8-10 times less electricity than incandescent lamps and tens of percent less than gas discharge lamps. Moreover, their service life is several times longer than that of gas discharge lamps, and the luminaires themselves require practically no maintenance throughout their service life.
All this favours the application of LED lighting products at facilities with special requirements, where reliable and consistent illumination in harsh or extreme environments is required, for example the luminaires produced by the Russian company, AtomSvet. They are distinguished from similar products by the unique optics system that ensures minimal optical losses and guarantees a maximum degree of dust and moisture protection of the systems, as well as high impact and vibration resistance.
The obvious advantages of LED lighting favour the selection of LED lamps and luminaires as one of the main types of equipment in execution of energy service contracts. This is evidenced by the fact that a progressively growing number of LED lighting manufacturers are offering energy services. Notwithstanding the fact that the majority of them have only just begun to provide such services, this sphere promises to become one of the most lucrative in the future – for both LED lighting manufacturers and for their customers– companies and enterprises.
Kiril Manuhin, Area Manager, AtomSvet LLC:
“In execution of an energy service contract an integrated approach is essential –inspection of the, recognition of potential for energy saving, development of a lighting project, estimation of the economic effectiveness, estimation and justification of the co-financing structure, delivery and installation of equipment, designer supervision and finally warranty and post-warranty servicing. Employment of this approach and of advanced technology, together with cooperation with international leaders of the related sectors, enables us to offer integrated solutions: from illumination of industrial and utility facilities to street lighting, including that in severe climatic conditions.”
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