Experts of the Analytical Center Believe Switch of Regions from Oil and Oil Products to Local and Renewable Types of Fuel is Perspective

15 october 2015

Experts of the Analytical Center studied perspectives, practicality and stimulus of switch of heat supply of Russian regions from oil products to local and renewable types of fuel from the point of view of their economic efficiency, energy safety and conditions that limit such switch.

The switch of the heat supply sites that use oil and oil products to local and renewable types of fuel in many municipal formations has an economic potential however each case should be examined separately performing analysis of availability of fuel and energy resources and infrastructure limitations on the regional and municipal levels. Such a conclusion was reached by the participants of the Round Table “Replacing oil-fired boilers is one of the first steps in the development of small-scale power generation that could generate real benefits” that took place on 14th September at the Analytical Center.

The report of the Analytical Center "Assessing the perspectives and practicality of the switch of the Russian Federation constituent entities that use oil products for heat supply to local and renewable types of fuel", presents a preliminary evaluation of efficiency of switch of heat supply sources from oil and oil products to local and renewable types of fuel. According to experts, there are several factors limiting the widespread switch of the sphere of heating from oil and oil products to the local and renewable types of fuel - is economic efficiency, energy security and the economic and regulatory constraints.

The presence of local types of fuel in the region does not always means the economic feasibility of their use, experts say. However, examples of separate investment projects show that the switch from oil products to the local and renewable local types of fuel provides savings in total costs of boiler by reducing fuel costs, and also provides economy of the subsidies for the region at the expense of decrease of the economically justified tariff.

As for energy security, in many cases, the need to ensure a stable supply of local and renewable energy resources in the boiler during each heating season is a serious obstacle to the substitution of oil in the boiler. Experts believe that this may have various causes - lack of size or the instability of the resource base, difficulties in transport logistics, a limited number of alternative suppliers.

The switch is also curbed by such factors as uncertainty about the level of future tariffs (for the payback period of the investment project), mismatch of terms of return of invested funds and preservation deadlines of saving of additional funds received as a result of increased efficiency in the composition of the necessary gross revenue, limits in creating public-private partnerships, high interest rates on the loan, low interest of municipalities in upgrade of boilers on oil products and even lack of information for potential investors to assess the practicality of the project.

Experts consider that removing of restrictions of an institutional nature can be at the federal level. For this purpose the Analytical Center developed a draft Action Plan for the improvement of state regulation to encourage reduced consumption of oil and oil products in the field of heat supply (including economic efficiency, energy and environmental security).