Policy Approaches to Improvements in Russia’s District Heating Sector Igor Bashmakov Center for Energy Efficiency, Moscow, Russia Market and Technology Developments in Small-Scale Heat Generation International Workshop, Baku, Azerbaijan, October 20, 2005

Ten steps to reform Russia’s DHS markets 1. Mandatory development of sustainable municipal energy plans Clear targets and policies to achieve themClear targets and policies to achieve them Reliability, security and safety requirementsReliability, security and safety requirements Energy systems synergy and accounting for energy substitution (DHS zones, gas supply zones, etc.)Energy systems synergy and accounting for energy substitution (DHS zones, gas supply zones, etc.) Load density analysis and level of energy supply centralizationLoad density analysis and level of energy supply centralization 2. “Menu” of well-designed heat market models to select from, and corresponding market rules and contractual arrangements Single network system with free access (many heat sources working for one network)Single network system with free access (many heat sources working for one network) Indivisible system (limited number of sources working for one network with high density of heat loads)Indivisible system (limited number of sources working for one network with high density of heat loads) Planned decentralization for zones with low heat load densityPlanned decentralization for zones with low heat load density

Ten steps to reform Russia’s DHS markets 3. Regional and municipal heat supply reliability and efficiency standards for municipal indicative planningfor municipal indicative planning Base year Base year Target year Target year Performance monitoring and heat system operator evaluationPerformance monitoring and heat system operator evaluation 4. Separation of DHS products: heat supply and comfort supply services Metering and billing systemMetering and billing system Customer – energy service company or final consumerCustomer – energy service company or final consumer Organization of collective consumer (especially in multi-family buildings)Organization of collective consumer (especially in multi-family buildings) Turning the heat consumer into heat buyer by setting association of communal services payers (ACSePs) and attracting ESCOs on the competitive basis to provide leastcost heat comfort to ACSePsTurning the heat consumer into heat buyer by setting association of communal services payers (ACSePs) and attracting ESCOs on the competitive basis to provide leastcost heat comfort to ACSePs

Ten steps to reform Russian DHS markets 5. Energy efficiency improvements as an important resource for municipal energy planning and launching “profits-from-savings” mechanisms to generate revenue source to repay DHS rehabilitation investments 6. Transition, where necessary, to accounting for really consumed and metered heat or comfort service, to more accurate norms for consumers who are not equipped with meters 7. Providing more operational freedom to DHS companies and new system of interaction with municipality 8. Clear evaluation of consumers’ purchasing power to stay within the limits of affordability

Ten steps to reform Russian DHS markets 9. Make heat pricing flexible Seasonal heat pricesSeasonal heat prices Learn mobile phones tariff schemesLearn mobile phones tariff schemes Fuel allocation methods at CHPsFuel allocation methods at CHPs Elimination of cross-subsidies and setting right price signals to inspire the rational level of DHS centralizationElimination of cross-subsidies and setting right price signals to inspire the rational level of DHS centralization Transition from the “cost plus” principle to sustainable “upper limits” tariffs given transparent correction rules set by “pricing formula”Transition from the “cost plus” principle to sustainable “upper limits” tariffs given transparent correction rules set by “pricing formula” 10. Development of powerful information instruments and “IKEA-like” pre-fabricated technical and managerial guidelines Tales on lost heat for kids Tales on lost heat for kids Plus 20 Plus 20 From A to Z in housing communal services From A to Z in housing communal services Manuals for DHSs maintenance experts Manuals for DHSs maintenance experts