# Presentation: 041579

## Heat Subsidy Shift Program in Russia

**William U. Chandler**
**Director AISU, PNNL, USA**
**Presented at U.S. Baltic Power Sector Investment Seminar. Vilnius, February 3-4, 2000**

## Major Problems of Heat Supply: Boilers

**Lack of financing and l****ow fuel stocks**
**Shortened heat supply season and lowered temperatures**
**A****bsence of fuel and heat metering **
**S****hortage of qualified boiler personnel**

## Major Problems of Heat Supply: Networks

**High degree of wear **
**Frequent failures**
**Heat waste and leaks**
**Insulation breaks and heat losses**
**Disruption of efficient hydraulic regimes**
**Multiplicity of owners **

## Major Problems of Heat Supply: Public Buildings

**Shortage of funds to pay for heat services**
**Poor quality of heat supply**
**Lack of heat meters**
**Poor building insulation and maintenance**
**Lack of qualified personnel**
**Lack of financing to improve facilities’ energy efficiency**

**14 deg C indoor temperature  **
**Magadan**

## Why Subsidies?

**Salaries and pensions average only $100 and $20 per month**
**High fuel-labor cost ratio**
**Zero technical price elasticity (no meters, no valves)**
**Complicated building ownership structure**
**Political tool in election years**

## Heat Subsidies Share In Municipal Budgets: from 10 to 35%

## Program Structure

**Regional legislation and policy**
**Boiler house efficiency improvement**
**Heat distribution system modernization**
**Public buildings retrofits**
**Residential building metering and efficiency**
**Buildings Thermal Performance Standards**
**Monitoring and verification systems**

## Program Development Process

**Reach agreement with city administration**
**Collect and analyze data**
**Develop efficiency projects**
**Analyze economic and financial aspects**
**Identify financial options**
**Suggest policy solutions**
**Prepare feasibility study**
**Discuss options with city officials and potential lenders**
**Develop business plan**
**Organize project management and monitoring systems**

## Boiler-house efficiency

**Improve management (data collection, certification & regulation of heat tariffs)**
**Equip boiler-houses with fuel and heat meters**
**Modernize boiler-houses**
**Switch to gas**

## Heat distribution system modernization

**Meter heat provided by electric utilities and enterprises**
**Modernize heat distribution system**
**Upgrade heating points and pump-houses**
**Provide distribution system diagnostics and operations feedback**

## Energy efficiency in public buildings

**Building certification**
**Energy audits**
**Metering**
**Thermal efficiency improvements**
**Electrical efficiency improvements**

## Conducted All Over the Russian Federation

**Cheliabinsk**

**Izevsk**

**Yu.-Sakhalinsk**

**Zheleznogorsk**

## Shaking the Money Tree

**Subsidy shift--from fuel to capital**
**Oblast budgets and regional efficiency funds**
**Heat supply company investments**
**Russian, foreign, and multilateral banks**
**Consumer expenditures**

## The CENEf Subsidy Shift Mechanism

**Maximizes use of internal city financial resources**
**Avoids additional tax burden and tariff increases**
**First case: In 1997, Kostroma re-allocated $1.2 million to new budget item, *****“Energy conservation program”***
**Replication: Many Russian cities now use the subsidy shift mechanism**

## Costs and Benefits: 15 Cities

| Annual heat subsidies | 210 million $US |
| --- | --- |
| Total recommended six-year investment  | 340 million $US |
| Estimated annual savings | 105 million $US |

## Savings Monitoring and Verification

**CENEf developed monitoring and verification systems for three Russian cities**
**Each locality requires specific modifications in municipal budget planning, heat supply contracts, and program design**
**These systems permit loan repayment from savings and to account for a balance between shifted subsidies and program savings.**

## Ending Financial Eclipse

**The Subsidy Shift Program:**** **
**Eases municipal budget crisis**
**Improves utility balance sheets**
**Reduces economic waste**
**Mitigates greenhouse gas emissions--as a side effect**

*Last Eclipse of the Millennium *(Photo: W. Chandler)