MOSCOW -- In big Russian cities like Moscow or St. Petersburg, 30 percent of applications to connect to the electric grid are denied because the system of distribution wires hasn't been upgraded in decades, according to one energy expert.
Turn to solar? Not so easy; across the country, it is impossible to connect a solar panel to the electricity network. The technical specifications to feed electricity onto the network have never been written, and neither have the regulations to govern it, said another.
These are a few dispatches from the strange, retro world of the Russian power grid. Operating without much new investment since the heyday of the Soviet Union, it is showing its age. Experts who study and have worked on the Russian power system describe it as congested, undersized, monstrously inefficient, slow to repair and in need of $750 billion of investment in the next two decades.
"Russia's centralized energy system, once the basis of the country's energy security and -- thanks to economies of scale -- a guarantee of cheap electricity, is in the midst of a deep strategic crisis," Olga Prokofyeva, a board member of the Energy Group, an energy consultancy in St. Petersburg, said in an email.
Just where the money will come from has never been more uncertain. The Russian economy is teetering on recession, and this week the ruble has tumbled to historic lows. The Western companies who have been the grid's chief suppliers have been forced into an awkward position because of the ongoing conflict between the West and Russia over Ukraine (EnergyWire, Dec. 11). In the end, the biggest economic winner might be China.
The most remarkable thing may be that the Russian grid continues to run, year in and year out, with what amounts to a sort of heroism.
"The system operator in Russia is masterful at getting things working under the circumstances," said Christopher de Vere Walker, a Russian energy analyst for research firm IHS. "They feel the power system like a doctor feels your pulse. These are grandfathers in the system that have been able to avoid more crises than there could have been."
Huddling together for heat
The Russian system for delivering power within cities is so different from that in the United States that it deserves some explaining.
In the United States, a building's heat -- for both rooms and water -- is usually produced from an electric or gas-fired heater that is located onsite. Each building is on its own. In most Russian cities, both electricity and heat are doled out by district systems, established by Soviet central planners in the 1950s and 1960s and altered little since.
A district, which might encompass 2 square miles or more, has at its center a power plant. Almost all of Russia's are cogeneration facilities, producing hot water from leftover heat from the making of electricity. Drive across Moscow and one will see these gas-fired power plants and their red- and white-banded smokestacks poking up among the apartment blocks.
These district systems, also widely used in Scandinavia, were quite efficient when they were built. But most in Russia haven't had a significant upgrade in decades. The pipes are leaking and lack insulation, said Gianguido Piani, an Italian electric control-systems expert who spent 20 years working in Russia.
The water that leaves the plant is the exact same water that moves through a dweller's living-room radiator, not to mention the shower and the kitchen sink, and makes one's proximity to the power plant a defining feature of daily life.
An apartment tower located close to the plant has near-boiling water coursing through its radiators, emanating so much heat that a resident might need to open his windows to the January winter to cool off. Those far away, or in older, poorly insulated apartments, might need to plug in an electric space heater just to stay warm, Piani said.
Soviet-era grid fails the capitalists
Russia's urban electric grids were built between the 1950s and 1970s to serve an economy with little commerce and a steady, modest need for power, Piani explained.
But Russia's wave of prosperity in the late 1990s and early 2000s brought big plug loads to homes, like televisions and refrigerators. Money also gave rise to new power consumers downtown, like restaurants, shopping centers, theaters and illuminated billboards, which have seesaws in demand that Soviet planners never foresaw.
But the network of local wires, known as the distribution grid, has not kept pace. The result is that new enterprises bump up against a hard ceiling of electricity supply, with the only solution being a long wait or a bribe.
"On average, 30 percent of applications for grid connection go unsatisfied, and many face shifting deadlines," Prokofyeva said. Her assertion could not be independently confirmed.
The impact on economic development can be profound. In 2010, the Swedish furniture behemoth Ikea fired two of its executives for allowing a contractor to offer bribes in order to obtain an electrical supply at new stores in St. Petersburg. The scandal stalled the retailer's expansion in Russia.
The weak system of wires is the most obvious sign of an urban grid caught in a time warp. While the big cities like Moscow and St. Petersburg rely on modern digital switchgear, Piani said, smaller cities are a throwback to the 1960s and 1970s, where regional offices place orders for electricity by phone, and track developments on the grid with markers on paper maps.
The brutal and lengthy Russian winter is closely linked to the glacial pace of renovation.
Repairs can take place only in the brief warm season between May and October, Piani said, and during that window, grid operators are focused on avoiding a blackout, rather than improving service.
Despite its venerable equipment, Russia's big cities have mostly avoided blackouts. A heat wave in Moscow prompted one in 2005, and sometimes an especially cold winter day will lead to some customers losing power, even as critical infrastructure like railways and the subway keep working.
Reliability "is goal No. 1, No. 2 and No. 3," Piani said. "That makes sense when you think about the winter in Russia. To have a blackout in winter would be a real life-or-death matter."
All in all, it adds up to a system whose inefficiency is epic. Gas consumption per unit of electricity generated is 30 to 50 percent higher than in developed countries, analysts said. The International Energy Agency has reported that the energy intensity of the Russian economy is two times the average of its member nations.
But with Russia producing large volumes of natural gas year after year, there's little incentive to change. "Today, Russian power stations turn relatively cheap gas into expensive electricity," Prokofyeva said.
A Ferrari in the middle of a field
While Russia on the whole has an adequate supply of electrons, many of its big power plants are in the wrong places.
Many were purpose-built to serve huge factories, like petroleum plants or aluminum smelters, that were placed in the empty vastness of the countryside. Now, as the consumer economy has shifted power demand toward the city, many of these generators are hundreds or thousands of miles from the customers, leading to congestion problems.
"It's like having a Ferrari in the middle of a field," said de Vere Walker. "It's not any good if you can't drive it anywhere."
De Vere Walker has used Google Earth to map out Russia's power plants and transmission lines and has noticed a yawning gap.
Few transmission lines cross the belly of the country between West and East. Most march inefficiently down into Kazakhstan and up into the other half, he said, a legacy of when that country was a Soviet state.
In Siberia and the far East, where 20 million people live, there is often no connection to the nationwide power grid. Instead, users rely on diesel brought in by truck, boat or even helicopter. Governments in these far-flung establishments can spend more than half of their budgets on fuel, Prokofyeva said.
"In Siberia and the Far East, people say, 'Where there is no road there is no grid,'" said Alexey Volostnov, a Frost & Sullivan analyst in Moscow. "And in a lot of areas, there are no roads at all."
As the West steps back, China moves in
Russia's electricity sector is overwhelmingly dependent on Western companies for its equipment and services. Volostnov estimated that 85 percent of equipment is sourced from abroad, while much of the remainder is made by those same companies, only in Russian factories.
The sanctions imposed by Europe and the United States at the Russian energy sector don't block those sales, since they are aimed at the oil and gas sector, not electricity. But they are causing a chill all the same.
The biggest players in electricity -- Western conglomerates with many lines of business -- are in the uncomfortable position of denying sales to the oil and gas sector while trying to woo others. Siemens of Germany has seen a 30 percent plunge in orders in Russia and recently dropped its bid to build trains for the Moscow subway.
"The companies have to walk a very fine line and make sure they don't fall afoul of the sanctions, and that is making them more hesitant to participate in projects and play a role in Russia," said Edgar van der Meer, an analyst at NRG Expert, a Canadian analytics firm. "When it reaches the point where the cost of doing business in Russia is too high compared to the gains, we'll see them pull out."
Firms caught in this bind could include General Electric Co. of the United States, ABB of Switzerland and Schneider Electric SE of France, Meanwhile, European giants like E.ON of Germany and Enel of Italy operate power plants within Russia.
"The situation has become much tougher for expats and foreigners," said Piani, who ended a two-decade stint in Russia earlier this year and is now affiliated with the University of Applied Sciences Upper Austria. "A lot of trust and potential that has been built up the last 10 or 20 years is almost gone."
So far, however, there are few signs that Western companies are withdrawing from the Russian electricity business.
"We continue our business within the existing strategy and with full compliance with the law," said Schneider Electric spokeswoman Veronique Roquet Montegon in an email. Schneider Electric has invested heavily in Russia in recent years and counts it as its fourth largest market.
Sanctions aside, Western suppliers are confronting a deteriorating economy within Russia. Plummeting oil prices are having an outsize effect on the Russian economy, which counts oil as its dominant export, and the sliding ruble makes it more expensive for Russian firms to buy Western equipment.
"With most of sales of equipment coming from local production, depreciation of the local currency is not as impactful. However, for some of our product line we will increase the prices in ruble as all other international companies," Roquet Montegon wrote.
As uncertainty mars relationships with the West, China is stepping into the breach. Alongside massive deals to export natural gas to China, and for China to build large hydropower plants in Russia, Chinese grid suppliers are looking to expand here, including NR Electric and Shandong Electric Power Engineering Consulting Institute Corp., said Volostnov.
The deals that are emerging often come on terms favorable to China, funded through Chinese banks, and with requirements for use of Chinese equipment that may force Western companies to the sidelines, even though the equipment might not be as high quality as that in the West.
"A lot of these companies are used to GE machinery or Siemens machinery, but getting X amount of money from China might mean that you need for forgo that," de Vere Walker said. "When your money is tied up in the machinery and you need the machinery, beggars can't be choosers."
Dim for solar and calm for wind
In the United States, the conversation about the modernization of the grid is inseparable from the conversation about renewable energy, which is being adopted to some degree in every state. In Russia, that conversation has barely begun.
Under the former president, Dmitry Medvedev, the central government set a goal of achieving 4.5 percent penetration of renewables by 2020. But most observers agree that Russia will fail to meet that goal, since the rules that would encourage investment in solar, wind, geothermal and biofuels are appearing at a slow and fitful pace.
For example, Piani said, it is both legally and technically impossible to connect a solar panel to the Russian electric grid because the specifications and regulations that would make it possible simply don't exist.
Part of the problem is practical: The sun only shines regularly on a narrow band in Russia's south, and the best wind resources are near the Arctic Circle, more than a thousand miles away from population centers to the west.
And a government that gets more than half of its revenue from oil has less reason to pursue alternatives.
Russia, whose economy is 60 percent more carbon-intensive than other developed economies, has a power grid whose generation is more than 60 percent owned or controlled by the Kremlin. The central government also controls most of the electricity transmission infrastructure, analysts said.
The light bulb at the end of the tunnel
From this dire situation, several rays of optimism emerge.
One strain, spoken of often by Russian officials, is that Russia's new isolation from the West will galvanize the country to tap its deep wells of technical talent and find an industrial renaissance.
In the electricity business, de Vere Walker said, that will be a tough climb. Much of Russia's industrial and knowledge base for the electric grid was at companies that disappeared along with the Soviet Union. "For the most part, they're going to need to start from scratch, and that's not going to happen overnight. It's going to take years and years. And a lot of their grid needs renovation now," he said.
Another line of thinking, distinct from the first, is that the electricity situation is becoming so bad that industrial plants, and perhaps communities in the East and Siberia, could take matters into their own hands and commission their own small power plants.
"In the coming years, the mass rejection of centralized power services by energy consumers in favour of their own, independent power projects may become irreversible," Prokofyeva said in an email.
It may already be happening. The Dega Group, a Finnish firm, is working with E.ON to build standalone power systems in Russia. Uptake of these sorts of systems may spark a market for the sorts of cutting-edge products that are hot in the West, like microgrids, solar power, fuel cells and energy storage.
A third argument is that Russia's last-comer status means that it could rehabilitate its grid quite speedily as it takes advantage of new technologies that are being proven elsewhere. "Russia knows that other countries have solved this," Piani said. "They don't need to reinvent the wheel from the beginning."
Or maybe the problem isn't so hopeless after all. De Vere Walker noted that where an American engineer might see a generator on the brink of failure, a Russian might see one that could be flogged for another 15 years.
"We should be careful about overlaying our kind of philosophy, our thinking, our measurement for success or failure over their sense of success," de Vere Walker said. "Because they think they can keep the system running and ticking over."
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