Russia Adopts Law on Energy Savings and Energy Efficiency

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SUBJECT: Russia Adopts Law on Energy Savings and Energy Efficiency

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1.(SBU) Summary: On November 24 2009, Russian President Dmitry
Medvedev signed a law on energy savings and energy efficiency. The
long-awaited legislation creates a framework to meet a goal to
increase the country's energy efficiency by 40%. In particular, the
law restricts the sale of incandescent light bulbs, sets
requirements for energy efficiency labeling on products, sets energy
efficiency requirements for new buildings, and provides for
obligatory metering in residential buildings. The legislation is
focused on improvements in the residential, communal, and
budget-financed areas; and to a less extent provides stimulus or
incentives to private businesses. While a promising start,
coordination and implementation will be a challenge. One test will
be pilot projects approved under the Presidential Commission for
Modernization and Technological Development of Russia's Economy. End
Summary.

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Main Provisions of the Law
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Provision 1 -Restrictions on Incandescent Bulbs

2. The law prohibits manufacturing, importing, and selling
incandescent bulbs of 100 watts and more from January 1, 2011. The
law recommends a timeframe for eventual prohibition of
manufacturing, import, and sale of 75 watt bulbs and more from 2013
and for 25 watt and more, from 2014. A request is addressed to the
Russian Federation Government to adopt rules of waste disposal for
spent compact fluorescent bulbs.
Provision 2 -Energy Efficiency Labelling
Manufacturers/importers must provide energy efficiency class
labeling on the following products:
Electricity-consuming household appliances-from 2011
Computer and office equipment-from 2012
Other goods as determined by the Russian Federation Government-from
2013 and further

Provision 3 -Mandatory Commercial Accounting of Energy Resources

3. All legal entities and state institutions must be provided with
energy resource metering devices by January 1, 2011, and pay for
consumed resources on the basis of the meters' data. Owners of
residential houses or apartments in blocs and compounds will have
the right to apply to the resource provider for meter installation,
subject to payment [of associated costs] by installments over five
years. Should the consumer fail to have installed a meter within the
designated timeframe, the resource-providing organization is bound
to install such a metering device and the consumer is to cover
associated costs on terms of payment by installments over five
years.

Provision 4 -Energy Efficiency Requirements for New Buildings,
Structures and Facilities


4. All buildings, structures, and facilities (except individual
homes built for one's own use, religious buildings, and small
buildings) being commissioned after new construction or capital
repairs shall comply with energy efficiency requirements and have
energy resource metering devices both at the time of commissioning
and during the operation of the building. The energy efficiency
class of new multi-apartment buildings must be determined and
displayed on the facade of the building.

Provision 5 - Budget-funded Institutions and Government Procurement


5. The law sets a goal of an annual 3% reduction in energy
consumption for all federal budget institutions from 2011. Cost
savings resulting from this reduction will go to the institution's
salary funds. The purchase of incandescent bulbs of any capacity to
be used for lighting is forbidden from 2011. With respect to
government procurement, the Russian Federation Government shall
approve minimum energy efficiency specifications for goods, work and
services, as well as requirements applicable to energy service
contracts concluded by budget-funded organizations.


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Provision 6 -Requirements for the Maintenance of Common Property in
Multi-Apartment Buildings and Recommendations for Garden and Dacha
Associations of Individuals


6. The Rules of Common Housing Property Management by Apartment
Owners in a Multi-Apartment Building are complemented with mandatory
energy saving and energy efficiency arrangements. They may include,
among other provisions, replacement of bulbs with energy efficient
models, availability of a double external door at house entrance
with a door closer, devices to regulate lighting in the entrance,
and window and entrance door sealing. Recommended energy saving and
energy efficiency arrangements are also established for the common
property of garden and dacha associations of individuals.

Provision 7 -Mandatory Energy Audits


7. State agencies, natural monopolies, fuel and energy complex
facilities and organizations in which the annual energy consumption
exceeds 10 million rubles (about $345,000) are required to carry
out energy audits once every five years. The purpose of energy
audits is to collect and process data on the use of energy
resources, estimate potential savings and design necessary energy
saving and energy efficiency activities. Energy audits will result
in a passport to be submitted to an authorized federal agency, which
shall determine requirements applicable to such passports.

Provision 8 -Energy Saving and Energy Efficiency Enhancement
Programs


8. The law calls for energy saving and energy efficiency enhancement
programs to be developed by all state-owned companies, budget-funded
institutions and regulated organizations as well as regions and
municipalities. The law establishes minimum requirements for
regional and municipal programs. The programs shall specify target
indicators of energy efficiency enhancement and actions toward
achieving them.

Provision 9 -Energy Service Contracts


9. The law describes energy service contracts conceived to
facilitate energy savings by individuals and legal entities without
investing their own funds, i.e. to be financed by energy service
companies. Payment under an energy service contract will be funded
by a portion of saved resource costs. The law introduces obligations
for resource-supplying organizations and managing organizations to
propose certain energy saving and energy efficiency arrangements to
the population, including through implementation of energy service
contracts.

Provision 10 -Transition of Long-Term Tariff Regulation


10. A major incentive to increase energy efficiency of natural
monopolies and organizations of the district utility sector is the
application of long-term (for three or more years) tariff solutions
and a return-on-investment method with concurrent fixed corporate
commitments pertaining to quality and further development of the
services provided. Under such regulation, companies will get serious
incentives to reduce costs, including energy costs, and to increase
the efficiency of resource use because any savings are retained by
the entity. The law provides for a mandatory transition to long-term
regulation within the following timeframes:
In the electric power sector
For the FSK (Federal Grid Company)-from 2010
For utilities of the MRSK (interregional distribution utilities)
holding group-within 2010
For other electric utilities-from 2012
In heat supply-from 2012

Provision 11 -Establishing a Single (Interagency) System for Energy
Efficiency Information and Analysis


11. A State Information System will be established in order to
systematize collection and exchange of energy consumption
information at federal, regional, and municipal levels; obtain
analytical data on the use of energy resources and energy saving

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potential; and to inform Russian Federation constituents and
population about energy saving opportunities and best practices.
Provision 12 -Forms of State Support for Energy Saving and

Enhancement of Energy Efficiency


12. The law provides for the possibility to apply increasing
multipliers to the depreciation rate or investment tax credits, as
well as reimbursement of interest paid on loans for the
implementation of energy saving and energy efficiency enhancement
projects.

Provision 13 -Technical Regulation


13. The law establishes several requirements which pertain to issues
subject to technical regulation (requirements to buildings, product
trade, marking, waste disposal). In order to coordinate with
technical regulation legislation, a concept is prescribed under
which provisions of this law shall be effective until respective
technical regulations have been adopted.

Provision 14 -Supervision of Implementation


14. The law establishes an integral system of control and
responsibility for a breach of legislative provisions in the area of
energy saving and energy efficiency enhancement, including through
detailed stipulation of administrative liability for a breach of law
and identification of agencies that will monitor the violations in
question.

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"Laws too gentle are seldom obeyed; too severe, seldom executed"
(American proverb)
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15. (U) Even a law perfectly written is useless unless there are
effective mechanisms in place to implement this law. In August 2009,
Prime Minister Putin ordered the Ministry of Economic Development
(as lead) and several Federal Agencies to develop normative acts
needed to implement energy efficiency legislation. The list of
normative acts includes 49 documents in the form of Presidential
decrees, Government resolutions, and Federal agencies' resolutions.
In addition, for each of the normative acts, a list of implementing
activities outlines the responsible federal agency, and a timeframe
for their realization. The first normative acts are to be approved
by the Government before the end of the year. Among the first to
come is a Government decree to define responsibilities among
various Federal agencies, including the Ministry of Economy,
Ministry of Energy, Ministry of Industry and Trade, Ministry of
Regions, Federal Antimonopoly Service, Federal Tax Service, and
others in the area of energy saving and increase of energy
efficiency.

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Pilot Energy Efficiency Projects
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16. (SBU) One way to test whether the new legislation works will be
pilot projects that have been approved under the Presidential
Commission for Modernization and Technological Development of
Russia's Economy. The first project involves installing devices to
register and regulate energy consumption. This project, managed by
the Complex Energy Systems Company, will be implemented in selected
cities and apartment blocks. Ministry of Industry and Trade is in
charge of the second project to develop production of effective
lighting systems in Russia. The third and fourth projects involve
modernizing some city districts and small towns with the subsequent
spread of their experience to other parts of the country, and the
development of an energy-efficient social sector. Tyumen, Kazan,
Vorkuta, Apatity, and Ekaterinburg have been selected as pilot
cities. The fifth project deals with small-scale complex energy
systems and the introduction of new technology in this sector. The
sixth project will see the implementation of new work on
superconductors and biofuel. Prospects for developing solar and
hydrogen energy should be explored further. According to Deputy
Minister of Economy Voskresensky, all pilot projects, with the

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exception with the one on innovative technologies, will receive no
financial support from the Federal budget. Mechanisms such as ESCO
(Energy Service Companies) or concessions will be tested while
implementing these projects.


17. (SBU) Comment: The law on energy saving and energy efficiency
is a real breakthrough considering long-standing Russian neglect of
energy saving and energy efficiency issues. However, implementation
is a concern. Assuming the law is put on force, and all by-laws are
approved on time, much will depend on whether the government will be
able to manage such a complicated task. Thus far, coordination
among the various government agencies involved is not very good.


18. (SBU) The government rejected the idea of creating a single
agency which would be responsible for implementation of the energy
efficiency legislation and all related programs. Having energy
efficiency responsibilities disbursed among various agencies without
clear responsibilities, constant coordination, and strong leadership
could make implementation of the law quite difficult. In addition
to the organization structure, it would be important to have the
energy efficiency legislation synchronized with other legislation,
such as legislation on heat supply, technical regulation and others.


19. (SBU) Another concern is that the law is heavily focused on
residential, communal and budget-funded sectors; while providing
very little stimulus to private businesses to enhance their energy
efficiency. According to Deputy Minister of Economic Development
Voskresensky, this was done on purpose because the government
believes that the main stimulus for businesses is the plan for
energy price liberalization and no other stimuli are needed. And
last, but not least, the government will have to make an enormous
effort in order to educate the population to effectively use energy
resources. Radically changing people's mentality is probably the
major task of the new energy efficiency legislation. End comment.
BEYRLE