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Electric Power Industry in the Far East: Expansion of the Competitive Pricing Zone and Integration with the UES of Russia
6 September 2022
10:00—11:30
KEY CONCLUSIONS
Market pricing is vital for the Far East energy system development

As you know, there is no market technology in the East, there is no market pricing, there are no competitive relationships. There is 100% government regulation, and that is probably the problem. So, let us try to figure out what to do about it. <...> The prerequisites are the accumulated burden, the scale of the problems that exist in the electric power industry in the Far East — Nikolay Shulginov, Minister of Energy of the Russian Federation.

Technically, not much will change right there in the moment (when market relations are launched – Ed.), only the long-term and medium-term incentives and the opportunity to modernize power facilities will change. In this sense, reliability should improve in the medium and long term. And the very moment of transition will somehow affect pricing <...> it will also be a smooth transition taking into account regulated contracts. The launch of the market will give long-term advantages, the moment itself does not present any disadvantages — Fedor Opadchiy, Chairman of the Board, System Operator of the United Power System.

It is necessary to attract new individuals who will build new facilities. Obviously, market pricing is the cornerstone factor of long-term influence on investors' decisions — Vitaly Korolev, Deputy Head, Federal Antimonopoly Service of the Russian Federation.

We certainly support the market coming to the Far East. The prerequisites now include the fact that about 20% of the united energy system is not really ours, i.e. it belongs to our colleagues, such as SGK, Alrosa, and Gazprom. We are also seeing more connections; we see that the system operator is slowly making its way to the regions where it was not historically present before. We believe that the market will come here — Viktor Khmarin, Chairman of the Management Board, General Director, RusHydro.

If we are talking about the grid, at the moment we would really like to move to the market. However, right now the regulatory model is probably the only model that we can exist in for various reasons — Andrey Ryumin, General Director, Chairman of the Management Board, Rosseti.

Far East is expected to join the second pricing zone

There is an instruction from the President of Russia to strengthen the connection between Siberia and the Far East, which will lead to the creation of a single market space. And given that this will be a single market space, we cannot allow the market in the East to develop using any other technologies other than those that exist in Siberia and Europe — Nikolay Shulginov, Minister of Energy of the Russian Federation.

In terms of joining pricing zones, let me remind you how we joined Crimea, a rather large constituent entity of the federation. The energy industry there was very different too, and there was no separation of activity types. Still, we did finish this complicated process in a year under the competent leadership of the Ministry of Energy. Thus, I can say that we are ready for this, and we have thought a lot of things through — Maksim Bystrov, Chairman of the Board, NP Market Council.

There is no need to call it a third pricing zone. Once there is a full-fledged electricity connection with the second zone, we will get additional synergy effects. Those will show that cheap electricity can flow from the second pricing zone to the Far East and dilute the currently more expensive generation — Vitaly Korolev, Deputy Head, Federal Antimonopoly Service of the Russian Federation.

To be honest, I do not like the concept of the ‘third pricing market’. <...> It feels like we are developing a separate market and calling it a traditional zone, like we are trying to implement some special conditions in the Far East. It seems to me that we should add the East to the second pricing zone, and make it unified — Nikolay Shulginov, Minister of Energy of the Russian Federation.

ISSUES
Siberia and Far East are too far apart

There are a few things you simply cannot get away from. The first is geography. <...> Irkutsk – the closest to the Far East city with half a million inhabitants that belongs to the second pricing category in Siberia – is 3.4 thousand km away from Khabarovsk. <...> In this sense, the pricing zone is still destined to be third, even if we call it second, because competition demands that they should be hundreds of kilometres from each other, not thousands — Stephan Solzhenitsyn, Chief Executive Officer, SGK; Member of the Board of Directors, SUEK.

High fuel costs are a problem

In addition to direct mechanisms for attracting investment in modernization, it seems very important to get an impartial price indicator of the real cost of fuel that is used at plants in the Far East. <...> In fact, we often have price spikes that create a rather complicated situation with fuel supplies — Fedor Opadchiy, Chairman of the Board, System Operator of the United Power System.

We understand that in order to ensure a competitive price in the Far East, it is necessary to provide the primary fuel from which electricity is generated at acceptable prices, which is coal and fuel oil. And wherever it is possible to do so, it is necessary to conduct gasification — Vitaly Korolev, Deputy Head, Federal Antimonopoly Service of the Russian Federation.

SOLUTIONS
Market pricing will attract investment and provide competition

What tasks will we end up solving if we launch market pricing and competition in the Far East? <...> This is an opportunity to attract investment by creating competition between producers. The second is to increase efficiency. Today, as you know, we are not talking about efficiency when it comes to regulation — Nikolay Shulginov, Minister of Energy of the Russian Federation.

The estimates that we need to get from the model calculations should be public in terms of what both consumers and market participants should see, how the state plans to develop competition in the Far East — Vitaly Korolev, Deputy Head, Federal Antimonopoly Service of the Russian Federation.

The material was prepared by the Russian news agency TASS