Vologda District Heating Rehabilitation

There are many financial and operational challenges in Russia’s district heating sector. Energy use in Russia for district heating and related activities is around 50 per cent of total internal consumption of fuel and energy intensity on average is approximately four times higher than in the European Union. The investment backlog for district heating and energy efficiency is severe, particularly considering rising gas and oil prices. Inefficient, obsolete heating systems create vast energy and water losses. Caps on tariffs growth for heat generation and distribution companies significantly affect investments into energy efficiency in Russia. Consequently, modernisation investments and institutional reform of the district heating systems would result in emission reductions through lower energy use and increased willingness by the population to pay for the consumer-controlled services based on actual demand.

The government has initiated a comprehensive Energy Efficiency (EE) Programme by adopting the Energy Strategy of the Russian Federation, laws on heat and energy efficiency and a methodology for setting tariffs based on return on the regulatory asset base for heat distribution. These laws create new mechanisms, markets and opportunities in the sector both for existing generation and distribution companies as well as private investors.

All Russian regions are now required to prepare regional EE programmes which are supposed to pinpoint and address key hot spots for improved energy efficiency and Vologda City administration has already started to procure installation of heat meters in budget institutions (schools, kindergartens, etc.). The local housing management companies are also considering installation of meters in the buildings using funds of the district heating company or their own funds. The City and the region are now developing a Regional Energy Efficiency Programme, which will include many additional components. The district heating and individual substations project proposed to be financed by the EBRD loan and the NDEP grant is therefore an integral component of a broader programme and will substantially contribute to progress the energy efficiency agenda in Vologda, with strong demonstration effects.

The NDEP grant will finance acquisition and installation of approximately 150 additional individual heating substations. This investment is crucial for the modernization strategy of the entire district heating system in Vologda as it will allow the consumers to control their heat provision. It will significantly influence the progress of tariff reforms by creating incentives for the customers to save energy and control their consumption of heat, speed up further modernisation of buildings (other energy efficiency measures), improve heating comfort for the consumers and increase their willingness to pay for the provided services.

Environmental Benefits

Significant environmental benefits of the Project will accrue in the form of reduced gas consumption, GHG emissions and water consumption. It is estimated that the Performance Implementation Programme (PIP) from the loan, local funds and NDEP grant will save approximately 5.6 million m3 of gas, 1.6 million kWh of electricity, 5.9 thousands m3 of water and reduce the amount of purchased heat by 2,035 Gcal per year. This will significantly improve energy efficiency of the district heating services, reduce GHG emissions approximately by 12,500 t/a of CO2 equivalent, thus reducing environmental and public health risks and improving quality and reliability of the municipal services in the City.

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