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Energy foresight (vision of the future of energy industry) V.N. Knyaginin CSR “North-West” Foundation May 2010, Paris

Energy foresight ( vision of the future of energy industry )

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Energy foresight ( vision of the future of energy industry ). V.N. Knyaginin CSR “North-West” Foundation. May 2010, Paris. In 2008-2010, there was a number of events at world energy markets, which indicate that these markets are close to its fundamental modification. 2 >. - PowerPoint PPT Presentation

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Page 1: Energy foresight  ( vision of the future of energy industry )

Energy foresight (vision of the future of energy industry)

V.N. KnyagininCSR “North-West” Foundation

May 2010, Paris

Page 2: Energy foresight  ( vision of the future of energy industry )

2 >In 2008-2010, there was a number of events at world energy markets, which indicate that these markets are close to its fundamental modification

1. Natural gas market transformation due to: а) «gas war» between Russia and Ukraine, and b) the explosive growth of gas production from unconventional sources in the U.S. (shale gas), c) launch of significant volumes of liquefied natural gas on the world market and, through this, unification of American, European and Asian gas markets, and d) growth of spot market gas volumes, and e) reduction of market sector where there are long-term contract prices which are tied to the oil price.

2.

3.

4.

Growth of volatility in prices for hydrocarbon fuels. Confirmation of the carbon-based fuels market cycle: less than for one year (2008), oil prices reached their peak and then fell almost 3.5-fold and grown almost in 2 times again.

Growth of investments in alternative energy industry. 5 years in a row in the U.S. and already for 9 years in the EU - wind energy industry ranks the second in the amount of new generating capacity input. In 2009, 139.1 billion dollars were invested in the clean energy industry all over the world. In January 2009, 142 States have signed an agreement to establish an International Renewable Energy Agency (IRENA).

Appearance of new players from other sectors on energy market. In early 2010, the U.S. Federal Energy Regulatory Commission granted the Google Energy a license to purchase and resell electricity on market.

Page 3: Energy foresight  ( vision of the future of energy industry )

3 >

1The uncertainty of future has increased dramatically for global energy markets participants: the polar estimations of unfolding processes, marketing strategies that diverge from its focus

Page 4: Energy foresight  ( vision of the future of energy industry )

4 >Fuel and energy market players estimate the future of energy industry in polar ways and therefore build their strategy in different ways. Forecasts constructed in accordance with these strategies, are alternative.

Basic resources of

the future

The main trend in demand

Organization of the market

Organization of the energy system

Fuels and energy market

Capacity market for energy production and generation

Postcarbon Energy (zero CO2 emissions)

"Carbon" and "nuclear” renaissance, the growth

of gas sector, energy efficiency

Ultra-large amounts, multiple overlapping

Electrification, “digital power”, system flexibility

Centralized systemsDecentralized systems, Smart grid+Micro grid+ VPP

Peak oil

Market liberalization

Market politicization

Passed Is yet to comeIEA, ВР, Total, McKinsey and ect.

OPEC, CERA and ect.

Exporters (OPEC, GECF, NOC and ect.)

Raw supercycle

Major importers (ЕС, US DOE and ect.)

Mining companies and traditional energy systems

«Green lobby» and technology companies

Traditional power systems and fuels suppliers

Suppliers on “seller`s market”

Consumers in the «buyer`s market»

New suppliers, suppliers - customers

Mining companies and traditional energy systems

Technology companies,

realtors

There is a possibility of saving the system during the modernization

The radical modernization of energy industry is essential

Page 5: Energy foresight  ( vision of the future of energy industry )

5 >The forecasts of energy industry future depend on the vision of the future of society and the dominance of traditional or innovative sectors in national economy, as well as on its location in the camp of consumers (the core of world markets) or suppliers (world markets` periphery). Is it possible that the received data is not the result of modeling, but of the faith and political decisions?

The share of renewable energy (excluding hydro) in the total electricity generation by 2030

Forecast of the highest levels of production of liquid hydrocarbons in the world by 2030

Alternative scenarios for coal mining in the U.S. (1970-2030): depending on environmental constraints the production may either grow by 0,9% per year, or fall by 60% by 2030

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Page 6: Energy foresight  ( vision of the future of energy industry )

6 >

2

There are two basic ways to answer the challenge of “the zone of uncertainty” expansion.

The first is “energy efficiency +": the modernization of the existing energy system with its centralized electrical supply networks, large-scale generation, carbon energy industry, damped its negative elements (the substitution of oil, reducing CO2 emissions, etc.).

The second is «new paradigm»: conversion to the new energy industry based on renewable resources and some other energy system`s architecture based on decentralized Smart grid.

Page 7: Energy foresight  ( vision of the future of energy industry )

The current energy industry with its core elements was formed in the end of XIX – ХХ century 7 >

The first hydroelectric power station was run by Siemens in 1881, central DC power stations Edison - in 1882, AC power stations Westinghouse - in 1886. The main technologies in the coal, nuclear energy industries, internal combustion engines and power transmission have been developed around 1980. In the years 1850-1950 the increase of energy consumption in the world amounted to 1.45% per year, the basic fuel was coal. In years 1950-2000 the growth accelerated to 3.15% per year, the basic fuels were oil and gas.

Centralized energy systems

Energy and fuels market

ConsumersPortfolio of the

resources, dominated by coal, oil, gas, nuclear

fuels

Major energy companiesTechnologies of

energy generation

Demographic increase, industrialization No resource constraints

Economic growth The organization of the city, economic geography

Page 8: Energy foresight  ( vision of the future of energy industry )

Forecasts of increase of energy consumption across countries and industries, QBTU (2020 год)

Sector of final consumption and transport Industry Total

Light tracks transportation

Heavy and m

edium tracks

transportation

Motor transport

Residential buildings

Com

mercial property

Iron industry

Petroleum chem

istry

Pulp and paper industry

Oil refinery

Other industry

Emerging

countries

Other countries 5,3 3,3 2,2 14,9 3,3 3,6 4,1 0,6 0,1 20,7 58,3

Russia 0,8 0,2 0,3 0,7 0,9 -0,1 0,9 0,4 0,1 -0,3 4,0

India 2,3 1,0 0,0 3,2 1,4 3,7 1,3 0,1 0,4 1,1 14,5

China 4,8 1,7 0,9 11,6 5,5 9,7 8,8 0,8 0,4 8,2 52,4

Near East 2,4 0,9 0,4 4,8 0,5 0,2 3,3 0,0 0,6 5,0 17,9

Advanced

country

Japan -0,5 -0,1 0,3 0,0 1,1 -0,5 0,0 -0,3 -0,5 -0,1 0,4

Northwestern Europe -0,5 0,4 0,9 1,7 0,8 -0,1 1,0 0,2 -0,5 1,4 5,2

USA-1,8 0,6 0,7 1,5 1,7 0,1 1,4 -0,8 -0,5 2,9 5,7

Total 11,8 8,2 5,6 38,1 15,3 16,7 20,8 1,0 0,5 2,9 5,7

80 79 159

Source: McKinsey Global Institute X> 5 QBTUX< 0 QBTU 5 QBTU> X> 2 QBTU 2 QBTU> X> 0 QBTU

8 >The history of economic and technological progress shows that making the process of resources consumption more efficient , we stimulate the growth but not the reduction of these resources’ consumption.

William Stanley Jevons, The Coal Question; An Inquiry concerning the Progress of the Nation, and the Probable Exhaustion of our Coal-mines. London: Macmillan and Co., 1866

Page 9: Energy foresight  ( vision of the future of energy industry )

9 >At the same time in a situation when it is necessarily to formulate a principal response for the challenges of modern energy industry (exhaustion of available resources, emissions of CO2, the lack of incentives for consumer self-management of energy production) - there are new solutions, showing that the paradigm of energy development can be possibly changed in general. First of all business processes will be reconstructed, and they will open the way for other technologies

By creating Better Place, Shai Agassi has not just found an easy solution for customers to switch to electric cars (you buy the car, but the battery is leased from the network company’ - "tanker", according to the principle, tested by issuers of plastic cards) and its service (the battery is changed at the petrol station), but also has implemented a restructurization of the market: not kilowatt hours are sold but electricity-miles (the principle of mobile network operator services).

Mark W.Johnson and Josh Suskewicz, How to Jump-Start the Clean-Tech Economy // Harvard Business Review, November 2009

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In January 2009 г. Better Place announced that it had signed an agreement with HSBC, representing the group of investors (HSBC, Morgan Stanley Investment Management, Lazard Asset Management, etc.), agreement on a new stage of equity financing in amount of $ 350 million. This transaction is one of the largest investment in a campaign of clean technologies. Capitalization of Better Place will reach through this 1,25 billion dollars. "

Page 10: Energy foresight  ( vision of the future of energy industry )

10 >In industrialized countries the transition to the buildings of low and / or zero emission of heat is carried out. The technological solutions for autonomous energy supply that meet the "digital demand" are integrated in these buildings. Facilities (including industrial and transport facilities) become not only the consumers but also the suppliers of energy. The sale item for real estate market is changing: they sell not the building but the facility with a certain set of functions.This way the cities are designed. They acquire a fundamentally new architecture, integrate the electric vehicles as distributed batteries, etc.

  EU France Germany Hong Kong USA (California)

Act Directive 2002/91/EC (2002)

Decision on the characteristics of new buildings (2006)

Act on Energy Conversation (2009)

Act on Energy Performance of Buildings (2009)

California Public Resources Code (1976-2008)

Responsible authority

Governments of EU-countries

Agency for Environment and Energy

Ministry of Economy and Technology

Electricity and Technology Authority

Energy Committee of California

Priorities To reduce the electricity consumption in the EU countries

Reducing energy consumption during operation of buildings by 15%

The overall reduction of energy consumption

Development and introduction of energy efficiency standards for buildings

To enact and update energy efficiency standards for buildings

Requirements Not valid Regulations on standard RT-2005 (heating):80-130 kWh/m2 per year (central heating)130-250kWh/m2 year (electric heating)

The average standard - power consumption 100 kWh/m2 in a year All buildings are subject to energy certification.

The allowable quantity of energy discharged by buildingsElectric lights 8-20W/m2Air conditioning - the energy required for the temperature 22 - 24 °Elevators- 6.7 – 275.5kW/h

Detailed construction regulationsVary depending on the climatic zone

Requirements for energy efficiency of buildings and facilities in some countries

Page 11: Energy foresight  ( vision of the future of energy industry )

It is possible that we should start to discuss the changing of the whole energy system paradigm - a model of "new paradigm“ 11 >

Transformation of energy consumers into energy producers, and of energy buyers in a centralized system into capacity buyers who produce resources allows 1) to increase role of self regulating by consumption, 2) to mobilize technology for decentralized energy generation, and 3) to add value to local resources, fourthly, to go to the Smart consumption, growth, cities.

Smart grid

Capacity market

Consumers-Producers

Portfolio of resources, dominated by available

in the local place

Urban communities, developersIT + energy

industry

«Echo»-boomers, Millennials, «green» consciousness

Restrictions on emissions of CO2 and water resources

stress, lack of resources

«Smart», stable growth Resources producing cities, Postcarbon City

Page 12: Energy foresight  ( vision of the future of energy industry )

12 >So far, it seems that the choice between two principal models of energy industry (“energy efficiency +“ and "new paradigm") is only to be made. But it is clear that the existing energy system comes into conflict with a number of social subsystems and has no resources for overcoming these contradictions. There is no modernization which is able to correct this situation.

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Page 13: Energy foresight  ( vision of the future of energy industry )

13 >

3

There are many signs that the scenario of transaction to new energy industry has already become formed. Electrification of the energy demand, increasing share of renewable energy sources (hereinafter - RES) in energy balances, growth of demand for the digital energy (in 2030 in developed countries up to 30%), the transition of the OECD to the buildings with low or even zero consumption of heat toward the 2020-30 years – all this will require Smart grid. Smart grid, in its turn, will set the selective requirements on the architecture of energy system and generating utilities (the maximum flexibility, informatics). If we add to this picture the requirements on the restrictions of water use and CO2 emissions reduction, than we will see the discriminatory profile in a number of generation technologies. Due to the low prices natural gas may become the dominant resource in the transition period. “EU Third Energy Package“ (since 2011) creates the necessary legal framework. Are we in a “associated solutions system”?

Page 14: Energy foresight  ( vision of the future of energy industry )

14 >«System of associated solutions»: as it is

The era o f p ipeline gas

LN G

non-conventional( )shale, ect.

Global gas market formation

- new supplie rs,libera lization of sector,“short” contracts andspot-prices

gas as a basis o ffue l and energyba lance

P ost-industria lcity

“ ”greenhouse

city, p roducting the resources

L au n ch in g o f O E C D cy c le o frea l es ta te p ro d u c tin g th e re so u ce s

m icrogrids

centra lized “passive” energysystem s

sm art s ing le -endedgrids

sm art, superconductive active gridsIC T & so ft

superconductivity

RE S form ation (w ind)(< 30% )of e lectric pow er ba lance

sm art and active grids- VPP

“ ”recentw ave o f coa l rena issance

The era o f gaso line and crudeoil d iesel

“ ”-

oil peaknew price band

- increase of China and Asia in whole, “expensive”oil and gas, due to the bindingof prices

c oal disc riminationfram e o f clim ate agenda

“ ”

nuc learrena issance

III+

IV genera tion

R enewable nuclear energy(c losed fue l cycle )

hybrids

1-s t generation b iofue ls2-nd generation b iofue ls

increase in Asia,reduction in the O EC D

stabilization o f the w orldoil m arke t

H 2 EV

Oil dec adenc e”

C C S“ ” c lear c arbon energy industry( )natural gas w ith C C S and coal m ix

w ind tu rb ine PV com petitiveCSP

com petitive The e ra of “clean energy”, RE S > 40% of electric energy balance

2008-2014 2020-2025Ye ars

C itie s tran fro rm a tio n

energy sto rages

Page 15: Energy foresight  ( vision of the future of energy industry )

There is a high possibility that the transition to a new power industry has already begun, and its relatively complete structure will be formed between the years 2020-2030. This transition will be completed through the efforts of players in the center of the global energy market

15 >

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Page 16: Energy foresight  ( vision of the future of energy industry )

16 >

4 Where is Russia’s place in a transition to a new global energy architecture?

Page 17: Energy foresight  ( vision of the future of energy industry )

A movement in the space of global energy industry for Russia should be converted into a "road map" that has various components: technological, market, resource, environmental and regulatory

17 >

1. Technological component

Large carbon generation Large non-carbin generation

N on-carbon distributed power industry

Centra lized single-ended grids

Centra lized supe rconductive single-ended grids Sm art, active grid

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y“L

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cons

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Con

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1.

2.

3.

E n e rgy e ff ic ien cy

E n erg y effic ien cy +C arb o n le ss en erg y

“”

N ew p a rad ig m

U SA

R ussia

F o rm e d b y C S R “ N o rth -W e st”:

China

Japan

India

Austra lia

heat-iso la tionlighting efficiencyco- and trigeneration

CC Swind and so lar APS III IVsm art houseseco-houseshybridssuperconductive m aterials

и

VP PSm art and m icro gridsEvshydrogen carsD ER , DSRstorage

Technology p la tform for fu ture energy industry

Page 18: Energy foresight  ( vision of the future of energy industry )

18 >A movement in the space of global energy industry for Russia should be converted into a "road map" that has various components: technological, market, resource, environmental and regulatory

2. Resource and environmental component 3. Regulatory component

0%

8%

16%

24%

32%

40%

48%

U SA Japan

Russia

Australia

M exico

BrazilChina

India

G lobal Local

P roposing o f the em ission allowances on g lobal m arket

Large vo lum es at a low price

S m all volum es ata h igh price

Am bitious targetsfor reduction of em issions

No targets

C openhagen

S o u rce : N ew E n e rgy F in an ce

C openhagen P laying F ie ld - Am bition vs O pening

R egulation at the largest energy m arkets

Buyer`sm arket

Seller`sm arket

Tariff curbing Energy quality prom otion (incl. in accordance w ith energy types)

M ain tasks for regulator(-s) :

Access to the m arket and price transparency

China

US AJapan

B razil Australia

Russia

M exico

India

ЕU

S o u rce : E x p e rt rev iew ( in c l. IE A )

Page 19: Energy foresight  ( vision of the future of energy industry )

19 >What tools does Russia’s Government (or business?) have in order to manage country’s energy system development along the “road map"of global energy? All answers end with "but ...“

1. Restructuring (liberalization) of internal energy market is to be completed after 2014 (including the liberalization of the retail market), but there is no clarity either in law or in the technological side of this issue. For now it leads to upgrading the old energy industry (centralized networks, traditional generation, etc.).

2.

3.

4.

There are national oil companies (NOC) and alliances with exporters of primary energy (OPEC, GECF, etc.). But it delays the liberalization of gas market, puts Russia under increasing pressure of international institutions (eg., the implementation of the EU Third Energy Package). There is no answer to the question of whether there will be a liberal and competitive internal market for gas. If yes, according to which model will it be built?

Tariff regulation. But it is typical of traditional centralized energy industry, not dispersed.

Energy Efficiency Programme. But it is clear that it is just a way to upgrade the existing energy grid.

Page 20: Energy foresight  ( vision of the future of energy industry )

Electricity energy industry reform was the most ambitious action of the previous stage of energy development in Russia. But it does not give the opportunity to finance modernization of centralized power production system in future.

1992

Creation of RAE “UES of Russia”

1998

Non-payments crises

2000

The beginning of reform preparation

Adoption of № 35-FL «On electrical energy industry » и №36-FL «On the functioning of the electrical energy industry in transitional period»

2003 2006

Creation of wholesale market for electricity and power

2008

Full liberalization of prices for industrial consumers

20142011

Termination of specific separation of energy companies and the sale of them

Full liberalization of electricity prices

The main problems of electric power are not solved yet:The crisis of generating capacityLack of investment in the industryLack of financial and administrative transparency of the industry Low efficiency

Electric power industry restructuring (core of the reform):-Specific separation of the companies -Privatization of competitive industry sector -Partial privatization of the natural-monopoly sector -Creation of a competitive market: imposing of free pricing in the competitive sector- Maintaining the state control over transmission and distribution networks, scheduling and State Corporation “Rosatom”

Page 21: Energy foresight  ( vision of the future of energy industry )

Oil and Gas Sector: Focusing on the completion of market liberalization would actually lead to the preservation of the existing system. There are no reasons and motives for the restructuring of the gas market.Problems:Low efficiency•Almost exclusive domestic market (Gazprom - 70%):•Government regulation of domestic gas prices•Depreciation of gas transmission and distribution networks•Growth in domestic consumption along with the exhaustion of resources

Creation of RAE “Gazprom”

1992 2001

RF Government Ordinance "On ensuring

non discriminatory access to transmission systems"

2007

RF Government Ordinance “On

improving the state regulation of gas

prices”

2011-2013

The planned transition period (calculation of

Russia's domestic gas prices by a formula - based on European

prices for gas)

The elimination of state regulation of gas prices for industrial consumers

2014

Current reform - liberalization of the domestic gas market:•phased liberalization of domestic gas prices for industrial consumers• linking the gas tariffs for the population with the needs of producers• ensuring non-discriminatory access to transmission system for independent gas producers

Профиль добычи

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

80,0

90,0

100,0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

млн.т в год

Роспан

Ямальскиепроекты

Уват

ВЧ

Каменное

Браунфильды

The development of large oil fields, the implementation of major new projects

Production profileMm tones/year

Rospan

Yamal projects

Uvat

HF

Kamennoe

Brownfields

Regulated market307 BCM Free market

89 BCM

JSC “Gazprom”

Independent gas producers

External suppliers(Central Asia)

Oil companies

Gas on regulated prices

Imported gas

Gas from independent producers

Associated petroleum gas

Page 22: Energy foresight  ( vision of the future of energy industry )

The share of primary energy resources in export

<85% <80% <70%

The share of LNG in export 4-5% 10-11% 14-15%

The share of Asia-Pacific countries in export

16-17% 21-22% 26-27%

Direct foreign investment >5% >8% >12%

The stated priorities of the strategy:•energy security•improving the efficiency of the fuel and energy complex, energy conservation• improving the financial sustainability and efficiency• minimization of energy producing negative impacts on the environment

The main factors determining the development of the Russian electric power industry:• extent of integration into the world energy space • scale of realization of resource-and energy-saving technologies• development of mineral resource base

Overcome the crisis in the economy and electric power industry

Highly effective use of traditional energyThe gradual transition to the energy system of future

Improving the energy efficiency of economy and electric power industry , innovative development of oil and energy complex

Priorities

Terms

Stages and foreign policy in the energy strategy of RussiaComparison of energy policy priorities in Russia, the USA, China

Russia's energy strategy postulates the need for gradual transition to the «energy system of future», but does not take into account the strategies of major global players and does not respond to questions concerning the global agenda

Page 23: Energy foresight  ( vision of the future of energy industry )

23 >

5 Why to hold a foresight in Russia in such situation?

Page 24: Energy foresight  ( vision of the future of energy industry )

Foresight is needed during country’s integration into the global energy system’s future’s «schematic design», and to participate in discussions and joint planning (coordinated vision of the future) with the other participants. It is late to appeal to other "future’s picture” while making formal decisions, as inconsistent positions can be reduced only through a "power play"

24 >

Page 25: Energy foresight  ( vision of the future of energy industry )

What questions should the Foresight answer and what is the direction of the Foresight?

Mar

kets

Tech

nolo

gies

Reg

ulat

ion

Coal

Oil

Gas

Nuclear

Renewable Energy Sources

Transformation terms

Carbon

Paid ССS

Smart-grid

Non CO2

Sustainable development

Energy efficient buildings

Security of supply

RES VS «atomic renaissance»

Future of the coal

Tax VS emissions trading

Energy Balance of the center and periphery

Smart transportUrban renewal

The corporate structure of the market

Cheap shale gas

ICT

Copenhagen

What should be the next stage of reforming the RF

power industry?

Does Russia participate in the transformation of global energy

sector?What are the key

technologies for Russia?

How could the “agendas” for RF and, for example, for EU be coordinated?

Global Agenda: bifurcation points Politics of RF

Which version of the further energy development scenario it

must meet?

Development in consumption

Sharing of oil and gas market

Increase in Asia

Cities

Production

Refinement

Generation Nuclear plants III+

«New» gas market

Limit of global market in Nuclear Energy Station

Upscale of wind- and helium- generation

Market of Investment in Renewable Energy Sources

Rise of value and risks in oil development

EU Third Energy Package

Feed-in tariffsTax incentives

for RESET-plan

DIrected R&D

Smart meters

The concept of supply quality

Digital demand

Balance: Cost-reliability-accessibility

Networks

Page 26: Energy foresight  ( vision of the future of energy industry )

Identifying of the key ideas. Preliminary

agreement

Presentation of the official position

Developing of coordinated official position

Creating of a platform for global negotiations. Clarifying of the

positions.

Development and submission of the report “Energy Foresight: the role of Russia in worldwide policy

Discussion of the report

Series of international conferences with participation of representatives of key organizations.

Agenda of the International Energy Forum Russian Fuel and Energy in ХХI century

Modernization of the Energy Strategy of Russia

Regulatory provision of priority areas realization.

National standards for buildings and facilities

Copenhagen

G8 \ G 20

IRENA

May 2010- September 2011

January-December 2011

2012September-October

Scheme of the Russian Power Industry Foresight implementation

Page 27: Energy foresight  ( vision of the future of energy industry )

27 >

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