Interview: Sergey Pikin, Director of Energy Development Fund

Engerati’s partner, Synergy, interviews Sergey Pikin, Director of Energy Development Fund. The interview focuses on the future development of the electricity market and the potential of Russia’s energy efficiency programs. Mr Pikin is one of the main speakers at Smart Utilities Russia to be held 29-30 January 2013.
Published: Tue 11 Dec 2012

Considering the rise of tariffs for electricity and electrical power no longer being treated as a cheap product, is it likely that interest towards 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 power sector overhaul and its development. However, there is no other way out today, since there has actually been no development in Russian power sector for about two decades. This is where all the present problems and the ineffective industry operation 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 future so that it would reach the much discussed figures. At least, we will be able to bring the Russian economy more in line with the energy efficiency level of European countries.

In your opinion, what kind of energy efficiency programs will be employed in Russia? Will it be dynamic pricing, TimeOfUse 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 a power market model is important to achieve energy efficiency, since all the recourses 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 happens to be 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, which has no significant effect for the end consumer. 

Will commercial or residential consumers be able to employ these programs? 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 it. However, the problem with the energy efficiency appears to be the greatest for small and medium users, who don’t have the sufficient amount of own funds to finance a serious modernization program. Unfortunately, project financing schemes are unavailable to them and it is namely this kind of financing that makes it possible to drastically change the situation.

What financial, regulatory or technological instruments are necessary to make the consumers participate in demand-side management programs and to level up the 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 sale electricity round the clock and regulate power load. If a model provides for that, the consumers will have a motive to participate in the trade. The currently employed 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.

Will 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? 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 a regulatory system, any system of rules should be a smart one. Besides, it should be designed for a 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 Director of the Energy Development Fund from 2007. He is also involved in projects of long-term forecasting scenarios for the power industry, including engineering projects for the construction and modernization of power generation and transmission facilities. Russian Energy Ministry has awarded Mr Pikin with the "Best Expert Energy" award in 2011. He is a Member of the working group of the National business initiative to improve the investment climate in the Russian Federation in the field of "Improving access to energy infrastructure." He is a Leaders’ Club member (NGO "Leaders Club to promote business initiatives"), initiated by president V.Putin.

Sources

Smart Utilities Russia-Interview with Sergey Pikin, Director of Energy Development Fund