Innovation in Russian District Heating: Opportunities, Barriers, Mechanisms

Abstract

Contrary to more advanced countries, Russia’s district heating hardly embraces radical innovations. Moving forward with breakthrough solutions, even if they have proven their effectiveness at leading European companies and are supported by federal and regional authorities, encounters significant obstacles. These obstacles include inflexible corporate management, including when interacting with customers, and inexperience in creating internal corporate startups and managing risks in the early stages of R&D.

The authors review the innovation activity of heating companies, analyze the difficulties in adopting innovations, and compare the strategies and performance indicators of Russian and Finnish energy companies. Special emphasis is given to the Moscow district heating system. Analysis shows that its’ strategic development in the past decade has focused primarily on reframing the organizational set-up, not innovation. As a result, business processes and cash flows were largely streamlined but European level of productivity was not achieved. The creation of a single vertically integrated entity in Moscow’s energy industry has limited the ability to develop alternative district heating and cooling systems. Energy infrastructure innovation centres are sparse and feature limited specialization and competition. Large companies tend to follow the ‘closed innovation’ model where R&D activities are concentrated within an organization, and focus on incremental innovations while lagging in radical innovations in cogeneration and trigeneration. Under these conditions, short-term planning dominates, while mid- and long-term planning are virtually non-existent.

The paper concludes with recommended measures to support the innovative development of Russian heating companies that can be split into institutional and corporate recommendations. The first group concerns stimulating competition in the heat supply market and creating a stable legal and investment environment. The second group calls for technological modernization, development of long-term corporate strategies that include investment programmes, systematic analysis of the best international practices for innovative development, and the formation of partner networks involving foreign innovative, consulting, and research centres.