Structure Of The Russian Power Industry Economics Essay

General information about the power industry of Russia. The Russian power system capacity is 210 GW ( 3.5 times the size of the system in the UK ) , where 70 % is thermic, 21 % hydro and 9 % atomic, and 700,000 kilometer of high- and low-tension lines ( D. Kennedy, 2002 ) . The chief power industry of Russia was the electric energy keeping company Unified Energy System ( UES ) and some private power workss. In 1992, the RAO “ UES of Russia ” was founded for the better organisation of the power sectors and was accountable for the sweeping market map. The Federal Government holds the 52 % of portions of RAO “ UES Russia ” .

First phase of restructure

In the 1990s, the chief aim of Russia was to reconstitute the power sector and make a competitory environment between private electric companies. About 27 % of the power workss ( 34 energy production industries ) were passed on RAO “ UES of Russia ” [ S.I. Palamarchuk et Al, 2008 ] . Additionally, Federal Grid Company, the transmittal system operator, and the Central and Regional Dispatching Centers were transferred in RAO “ UES Russia ” . Nuclear power workss were connected with “ RosEnergoAtom ” and were managed by the Government [ S.I. Palamarchuk et Al, 2006 ] .

Equally far as the ordinance is concerned, two organisations were responsible for the ordinance in the power sector. First, the Federal Energy Commission was responsible to command the costs and the net incomes of manufacturers and the scene monetary values for services provided by RAO “ UES Russia ” . Second, the Local Energy Commissions regulated the costs of local power manufacturers and the monetary values that the concluding consumers had to pay [ S.I. Palamarchuk et Al, 2008 ] .

RAO “ UES of Russia ” was accountable for the organisation and the map of the sweeping market. Furthermore, the local power companies were accountable for the retail market. The sweeping market consists of 34 electricity production workss of RAO, 10 atomic power workss of “ RosEnergoAtom ” and many local power houses. It is deserving to be mentioned that the single-buyer theoretical account was followed since RAO “ UES of Russia ” had the exclusivity to purchase the electricity from the manufacturers and sell it to the providers [ L. Lovei, 2000 ] . The monetary values were calculated as the per centum of the entire cost of the degree of the purchased electricity. The sweeping monetary values varied sing to the costs of transmittal. The retail monetary values varied depending on the type of consumer. This means that there is a different pricelist for big industries, commercial, agricultural, residential and so forth. The consequences of restructuring are the undermentioned:

1. Local houses were confronting fiscal jobs and could non cover their disbursals because the regulated retail monetary values were low ( table 1 ) [ M.A. Lamourex et Al, 2003 ] .

2. Many people did non pay on clip or others did n’t pay at all. For many old ages the industries were providing the electricity to people who did non pay. As a consequence, the debts were so high that the industry could non get by with.

3. The heat production reduced. There were no motivations to better efficiency, to salvage energy and to back up a more rational power coevals and ingestion. Particularly, the electricity ingestion increased to 23 % in 1998 comparing to 17 % in 1991. However, the electricity cost increased by 11 % and the net incomes decreased from 25.5 % in 1993 to 11.3 % in 1999.

4. Independent houses could non travel into the market.

5. The fiscal support in the industry was 5-6 times less than was required.

6. The ordinance was uneffective. The monetary value mechanism was out of day of the month and there were non inducements for cost decrease. Furthermore, the system of cross-subsidies from industry and companies to residential consumers found in all CIS states ( Commonwealth of Independent States ) deformed even worse the monetary value construction ( D. Kennedy, 2002 ) .

Up to 2000, Russia power sector was confronting immense jobs. Figure 2 shows the construction of the power sector in 2000. It was an imperative demand to reform the statute law and the construction of the power sector.

A new phase of restructure

In 2001, the Russian Government tried for deregulating and for the formation of a competitory market in order to hike energy production and support efficient energy usage in Russia ( BOFIT 2003a, No. 22 ) . The monetary value liberalisation is really of import for the market mechanism in order to pull the necessary investings in the sector. The official day of the month of the beginning of the restructure is March 26, 2003 when the president signed a set of Torahs and many bing Torahs were corrected for the map of the sweeping and retail market.

The restructure of RAO “ UES of Russia ” was indispensable to better efficiency. The keeping RAO “ UES of Russia ” has been unbundling since 2002. The figure 3 represents the restructuring of RAO “ UES of Russia ” which was divided into a few independent houses: the Federal Grid Company and the System Operator, which belong to the State, seven private Wholesale Generating Companies and the non-profit Administrator of the Trading System company. The Federal Grid Company ( FGC ) was created in 2002 to pull off and spread out the national transmittal webs. The “ System Operator ” company was besides found in 2002 to pull off the UES and to supply dependable electricity supply. So, the transmittal of the electricity and the proficient control ( despatching ) are natural monopolies. The Administrator of the Trading System ( ATS ) is a non-profit entity for the organisation and direction of the sweeping market. ATS puts local fringy monetary values on the topographic point market, and controls merchandising understandings and payments for electricity in the sweeping market. Six Wholesale Generating Companies ( WGenCo ) were created by private investors and unite the assets of big thermal workss which belonged to RAO “ UES of Russia ” in the yesteryear. Besides, one independent bring forthing company ( GenCo ) which consists of 8 atomic power workss is controlled by the Ministry of the Nuclear Energy and belongs to the State.

Furthermore, the restructure of the local power companies was critical. The chief intent was the unbundling of vertically incorporate public-service corporations into profile-based companies and the creative activity of competitory conditions in the electricity market. The electricity and heat power workss were divided from the local power houses and set up 14 territorial bring forthing companies ( TgenCos ) to spread out their care and to accomplish less dearly-won fiscal loans for development and Reconstruction. The TgenCos joined power workss within neighbouring parts and bring forth electric and thermic energy ( WgenCos produce chiefly electric power ) . The local distribution electric webs were transformed into 12 interregional distribution grid companies ( DistCos ) to give entree to the webs for concluding consumers. Refering the supply, many private houses were founded. As a consequence, the monetary value of the services was decreased because of the competition. Figure 4 shows the restructure of the local power industries.

Equally far as the sweeping monetary values are concerned, the usage of the individual purchaser theoretical account was replaced by a new monetary value mechanism. In the sweeping market of Russia, electricity and capacity are traded at regulated and free monetary values. The state is divided into non-price zones where due to miss of competition electricity is traded at regulated monetary values ( long-run regulated contracts between the market agents ) , and two monetary value zones where trading at free monetary values is possible ( Figure 5 ) ( Rinat Abdurafikov, 2009 ) . There is no ordinance in offer monetary values of manufacturers. The annual duties for power sector are regulated by the Federal Tariff Service ( State Regulator ) . For the computation of the duties, it is required the cognition of the degree of the service provided by every house on the market. The new topographic point market has local fringy monetary values because costs of production differ from one power works to another and possibilities for electricity conveyance are limited. One of the advantages of locational pricing is that the costs of congestion are made known, which allows for even better allotment of grid investings and provides market signals for investings in new capacity.

Sing the retail monetary values, figure 6 shows the construction of the retail monetary value market. The monetary values that the concluding consumers pay are determined by the electricity and capacity constituents ( free and regulated ) and the cost of services ( deliver and sale ) . These costs are paid as web duties, duties of the SO and ATS and gross revenues markups. Table 2 shows the duties of the system and commercial operators in 2009. In 2007, the 95 % of electricity volumes was traded at regulated monetary values. By the terminal of 2010, it is believed that a to the full competitory market will hold been introduced.

Equally far as the investings are concerned, the attractive force of external investors is depending on the degree of the fiscal hazard that the investors may take. The fiscal hazard can be extinguishing when sweeping and territorial GenCos are profitable and supply fiscal transparence, economic steadiness and expected direction actions. It is important that the State should be dependable via stable statute law and predictable policies in the power sector. It is deserving to advert that the period 2005-2008 the investing in energy with private engagement increased imposingly ( $ 3,000,000.0, $ 459,000,000.0, $ 13,552,200,000.0, $ 11,365,000,000.0, severally ) ( ) . We can presume that the purpose of Russia Government for liberalisation and attractive force of private investings has been succeeded to some extent. Additionally, the attractive force of investings is affected by the predictability of the monetary values. The inducements for investings are higher when the investors can calculate electricity monetary values. That can be achieved by the long-run bilateral trade.


To sum up, the structural and market reform of the power sector of Russia has been achieved and the former monopoly disappeared. Up to the terminal of 2010, Russia Government will hold achieved the unbundling of the coevals, transmittal and supply companies to a great extent. Besides, the sweeping market of production and gross revenues concern will be wholly competitory.


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