Russia`s impressive Power Sector Reform
May 18, 2008
On July 1st, Russia will have completed the first part of its power sector reform, the separation of electricity generation from transmission. The Federal Grid Company, 100 percent owned by the Russian State, will have the monopoly of power transmission, while power generation will lie in the hands of several, mostly big generation companies, owned by private interests, including EU utilities, and the state. Russia will therefore have achieved the “unbundling” of the electricity- but not gas – sector, something that still remains to be completed in the EU.
The liberalisation of electricity and gas prices will be completed by 2011. Electricity is already traded at the power exchange, where everybody can buy and sell electricity at spot or future prices, in the same way as in the EU. Gas prices will be raised every year by 25 percent in view of reaching international levels by 2011.
In view of making this new structure efficient, the sector plans to invest € 120 billion until 2012 for the upgrading of generating plants and of the grid.
Almost 60 percent of electricity come from gas- or coal fuelled plants, the remainder from nuclear and hydro-plants. Other renewable sources of energy like wind, sun or biomass do not yet play any significant role.
That may change after 2013, when Russia will have to take more serious commitments for reducing C02 emissions under the new international climate framework. Under the Kyoto Protocol Russia did not have to take any quantitative commitments, as its emissions were below the high 1990 levels, which had been inflated by the wasteful energy use during Soviet times.
Russia has benefited from its ratification of the Kyoto Protocol, which allowed EU companies to trade off investments in energy efficient projects in against their C02 reduction commitments.
Russia is amply endowed with fossil and renewable energy resources. Its theoretical wind energy potential is huge, 700 GW, more than sufficient to cover its future domestic power demand and export sizable amounts of “green electricity” to Western Europe and China. So are its coal reserves. But in order to use these in a sustainable way, it will have to develop carbon sequestration and storage (CSS) as a matter of urgency.
Russia is far behind the EU in terms of renewable energy and optimal standards for energy efficiency. This is likely to change during the next few years, as electricity rates will go up. In the fall of 2007, Russia has adopted its first legislation concerning renewable energy.
Considering their uneven resource endowment, Russia and the EU should allow electricity to flow freely within a common Eur-Asian power market. Both sides would benefit from such an ambitious deal. But this requires a high degree of harmonisation of their respective standards and, even more important, an infinitely higher mutual trust. As long as EU consumers are afraid of potential Russian blackmailing they will remain loathe to become even more dependent on Russian energy energy supplies. But whatever such an ambitious perspective, both sides will have to reinforce their cooperation in the energy sector, from scientific exchanges to mutual investments.
Author : Eberhard Rhein