Stephan Solzhenitsyn, Partner, McKinsey & Company
Kommersant | February 14, 2012
How do you characterize energy efficiency in Russia?
Russia continues to be a leader in energy intensity of GDP due to historical reasons, the economy's structure, and its geographic conditions. The overall decline in GDP energy intensity over the past decade has been mostly due to structural changes in the economy; the impact of implemented energy-saving measures has been insignificant.
The budget sector and private consumers are the most difficult to persuade. Consumers remain fairly disinterested in improving energy efficiency as heat and electricity tariffs remain low. The situation is better in the business world: private companies undertake energy-efficiency improvement projects as they often have attractive returns on investment. The entrance of institutional investors such as development institutions and funds and state corporations also exerts positive influence.
How much does Russia lag behind developed countries in terms of energy-efficiency technologies?
The market for energy-saving projects is in its infancy in Russia. This is due both to inadequate penetration of energy-service contracting practices and the difficulty of attracting loans to energy-efficiency and energy-saving projects, as well as insufficiently rigid standards in the construction sector and for household appliances and equipment.
What will be the impact of the energy-efficiency laws adopted as part of the presidential program?
The measures taken make one hope for a positive result. As old and inefficient equipment is replaced with new, Russia's GDP is becoming less energy-intensive. But Russia's GDP energy intensity would decrease without any measures simply as a result of natural improvements. Based on the economic-growth parameters envisaged by the government in its energy- resources development scenario, the energy intensity of GDP should fall by 18 percent by 2020 and 40 percent by 2030 against the baseline of 2007. Additional energy-efficiency measures should contribute an additional 10 percent.
What are the benefits and difficulties of switching from traditional bulbs to energy-saving lamps?
The main difficulties include the high cost of energy-saving lamps, lack of consumer awareness, and the “coercive” nature of change, which gives rise to distrust. As of January 1, 2011, no incandescent light bulbs of 100 watts or more may be sold in Russia, and all bulbs will be banned for sale in Russia as of 2014. The consumer will soon have no choice.
How can the cost of LED lamps and fixtures be reduced so they become a mass product? Would locating production facilities in Russia do the trick?
It is possible to localize production. As for the structure of production costs, the global market is developing so that lamp assembly—which is where we could participate in the processing chain—is the most significant cost component. The full production cycle consists of manufacturing the chip, packaging it, creating the module, and assembling the lamp. The last two stages are the most fragmented—a majority of players focus on them—while the first two are the most technologically intensive, and therefore pose significant barriers to entry. Many countries have chosen to localize the final stages.
Is there a risk of producers of low-quality but cheap energy-saving lamps capturing the market?
Most LED manufacturers are based in China developing countries in Southeast Asia. The trend can be seen in most high-tech industries: Asian manufacturers are quick to adopt new technologies and achieve the required product quality. We believe that LED manufacturing is following the same path.
Should Russia oppose the pressure of Chinese production the way Europe and the United States do?
Russia should consider having its own manufacturing facilities, but we can’t really compete with Asian manufacturers on price. As to introducing artificial barriers to Chinese goods, these often result in nothing but additional costs to the economy and lost profit.