Clean coal projects

With the main provisions of Russia’s “Energy Strategy until the year 2020” document projecting a 75% increase in coal production and for an increasing role for coal in electricity generation, it is important to encourage the use of modern, efficient and cleaner coal combustion technologies.

For this reason, and to order to promote the most efficient EU Clean Coal Technologies, Russia has been considered a priority in the call for proposals under the CARNOT programme related to the promotion of the clean and efficient use of solid fuels.

Four CARNOT projects are currently underway related to Russia:

• “Cost Effective Clean Coal Improvements to Russian Utility Plant”. The objective is to gain better market and technical information to facilitate the technology transfer of relatively low cost methods to improve the efficiency and environmental performance of conventional coal-fired power plants in Russia.
• “Promotion of Renovation Activities in the Russian Energy Sector”. This study will be a market assessment of the perspectives for rebuilding/rehabilitating coal-fired power plants in Russia to increase efficiencies and thereby reduce the greenhouse gas emissions. Data is currently being collected on the Russian coal-fired power sector in co-operation with the VTI All-Russia Thermal Engineering Institute with a view to suggesting measures for the modernisation of selected power plants. The results of this work were presented at a workshop held in Moscow on 26th-27th May. This is being followed by field visits to the most representative Russian coal-fired power plants.
• “Circulating Fluidised Bed for the Clean and Very Efficient Retrofit of an Existing Coal-Fired Power Plant”. This project is studying the rehabilitation of the “Novocherkasskaya GRES” coal-fired power plant, with the focus on the operational problems and determining the most appropriate technical solutions, bearing in mind the quality of the coal used and the increasing environmental constraints. Currently data is being collected from similar Clean Coal Technologies world-wide. This will be followed by the work on the specific plant, which will result in a detailed technical description and cost estimation of the Circulating Fluidised Bed technology, as adapted for the plant, being prepared and presented to the plant’s operators. The replication potential of this project across Russia and Eastern Europe will then be assessed and a training seminar will be held aimed at the local market actors and decision makers.
• “Pre-Engineering Studies for a new Integrated Gasification Combined-Cycle (IGCC) Plant based on the Puertollano Elcogas Plant Experience: IGCC technology possibilities in the new Russian power sector”. The Puertollano IGCC plant, at 335 MWe, is the largest in the world and the consortium of eight major European utilities and three technology suppliers behind the project was supported by Community Research and Demonstration funds from 1992 until 2000. The IGCC concept is based on a coal gasification process, which converts coal into a synthetic gas which is then subject to an exhaustive cleaning process. The result is a combustible gas which is virtually free of pollutants and which can be burned with high efficiency in a combined-cycle electricity generating unit (Further information on the Puertollano project can be found on the CARNOT on-line case studies website). In addition, this technology presents two important possibilities:
  • CO2 capture, which the possibility then of sequestration;
  • Hydrogen production. This can be used in the refining sector and, in the future, in fuel cells.

The objective of the project is to develop the concept for an improved IGCC plant, based upon that used at Puertollano. Potential locations for an IGCC will be identified in Russia and the pre-design adapted to meet the site conditions, namely the characteristics of the local coal, the demand for the co-generation of steam for local district heating and local environmental regulations. In addition, the economic viability and market potential in the opening Russian electricity market will be assessed.

Electricity interconnections

The interconnection of the Russian and continental EU electricity grids has been recognised as one of the projects of “common interest” at the EU-Russia Summit of October 2001. The full integration of the electricity markets will bring substantial benefits in terms of the development of a free competition, improvement of security of electricity supply and the creation of new opportunities for business cooperation in the electricity sectors of both Russia and the Member states of the EU.

In order for integrated markets to function in an acceptable, efficient and secure manner, a level playing field must be ensured. This requires that all parts of such a wider market are organised on the basis of equivalent basic rules with respect to the degree of market opening, giving equal access on the Russian market to EU companies as well as equal access on the EU market for Russian companies, as well as other important market rules such as regulation of network access and unbundling. Furthermore, environmental protection and safety standards for electricity production must be comparable, including the level of nuclear safety.

A first meeting of Russian and EU electricity experts took place in Brussels on 25th March 2003 and permitted a first exchange of views on issues of market opening, non-nuclear environmental standards and issues related to accurate pricing. The issue was discussed again at a round table on electricity hosted in Moscow on 16th October 2003. It is intended that the experts should submit a report of all relevant issues by mid-2004. Following this, a common strategy on a progressive integration of the European and Russian networks and electricity markets should be developed, including options for the conclusion of a formal agreement.

With respect to the technical challenges of interconnecting the two networks, Union for Co-ordination of Transmission of Electricity (UCTE) have carried out a pre-feasibility study which was presented to their Annual General Assembly in May. On this occasion it was agreed to launch a broad technical feasibility study on the synchronous interconnection of CIS countries to the continental EU grid. The terms of reference are currently being prepared and it is anticipated that the study will take up to two years to complete.

Long term contracts for natural gas

Long term gas contracts have played an important role in the development of the European gas market by providing a risk sharing arrangement between producers and buyers, enabling in turn important new production and infrastructure projects to be undertaken. While these are an essential element for energy security, these contracts must necessarily evolve with the effective disappearance of boundaries within the EU. The strategies of commercialising natural gas must be adapted to the principles of a competitive and integrated market, and notably to competition rules.

On 6th October, the Commission announced that a settlement had been reached with the Italian oil and gas company ENI and Gazprom regarding a number of restrictive clauses in their existing contracts. At the same time, the Commission announced that it had closed its probe into the gas supply relationship between Gazprom and Gasunie of the Netherlands as it had verified that these contracts did not contain territorial sales restriction clauses.

While other contracts are under investigation, most prominently two companies in Austria and German, the Commission expressed its confidence that an agreement will soon be found leading to the deletion of the contested clauses.

Non-commercial risk guarantee mechanism

Report of the Independent Experts

Independent experts were mandated by the two sole interlocutors to examine the projects defined in the October 2001 EU-Russia Summit as being of “common interest” and to come forward with ideas on how the realisation of these projects could be facilitated. Their report [129 KB] suggested the creation of a “guarantee fund” which would guarantee the payment of compensatory awards decided by arbitrators following a dispute in relation to specific contracts covered by this fund. This Fund would not involve Commission financing nor would it be managed by the Commission. Private sector and International Financial Institutions could contribute.

The development of the financial mechanism linked to major energy production or transportation projects could, combined with the identification of some projects as being of “common interest”, facilitate the development of such projects which will help to enhance the energy security of the EU. It would not be designed, in some way, to favour Russia over other important energy suppliers to the EU. It would be designed to facilitate the investments by European energy companies in Russia, bearing in mind the fairly widespread perception that there is an important level of non-commercial risk in investing in Russia compared to other, more mature, energy producers.

Current situation

A full feasibility study of this proposal from the experts has been launched with the European Investment Fund. This will:

• Assess the economic viability of the proposed scheme,
• Provide an in-depth and comprehensive analysis of its financial and technical feasibility,
• Propose a financial and operational outline for the guarantee fund, and its technical modalities. This should include identifying and validating the interest and extend of commitment of the necessary partners and stakeholders, and the political and financial support necessary,
• Define the steps to be taken, as well as the calendar, for the establishment, operation and supervision of such a fund.

The services of the EBRD will be closely involved in the study, specifically in further work to be carried out on with respect to their market test report highlighted above and taking advantage of the considerable practical legal expertise of the EBRD in operating in Russia. The EIB will also be associated if necessary.

PSAs (Production Sharing Agreements)

The Russian authorities have decided in the Spring of 2003 that they will maintain only a limited number of Production Sharing Agreements (PSA’s as they believe that their ongoing reforms are now making their general investment climate attractive enough for more standards forms of investment. PSA’s would, in future, only be for projects which failed to attract investors when they were offered for tender.

The Commission believes that PSA’s will continue to be a necessary legal framework for the realisation of some capital intensive projects in environmentally challenging areas.

As noted in the third joint report by the two single interlocutors presented to the November 2002 EU-Russia Summit, it is important for underpinning the attractiveness of legal frameworks such as concessions and joint ventures for investments to ensure appropriate access to the energy transport networks and for appropriate rules providing a stable framework to ensure non-discriminatory access to the energy transport networks. It is also important that energy prices reflect the commercial imperative for investing companies that at least the capital and operating costs can be recovered.