“A market is not a balloon to launch into the sky” – Kommersant

Why does the Far East need free prices for electricity and capacity, Kommersant was told by the head of the Market Council (regulator of energy markets) Maxim Bystrov.

— The launch of market mechanisms in the Far East has been discussed for a long time. Why is the process sped up now?

— The Far East is now our everything. The growth in electricity consumption in the unified energy system of the East is already about 4% versus 1% in the first and second price zones (the European part of the Russian Federation, the Urals and Siberia.— “b”). We have seen this trend over the past few years, and now it is clear to everyone that the region has become the main transport and logistics corridor for directing the main cargo flow to the East.

Such development must be supported by investment in infrastructure. That is exactly why there are investments in Russian Railways and power grids, generation also needs to be built. With the formation of the price zone, a mechanism for attracting investments in the energy sector will be built there.

– How will the work be organized?

— For many years, due to the lack of a market, investment projects in the energy sector and their executors in the region were appointed by decisions of the authorities. In 2012, long before the traffic flow turned to the East, the president was instructed to build four power plants in the Far East (Yakutskaya GRES-2, Blagoveshchenskaya CHPP, Sakhalinskaya GRES-2 and CHPP in Sovetskaya Gavan.— “b”), for which the state allocated 50 billion rubles. (through the additional issue of RusHydro.— “b”). Then they decided to build and modernize four more stations there (Khabarovskaya CHPP-4, the 2nd stage of the Yakutskaya GRES-2, Vladivostok CHPP-2, Artemovskaya CHPP-2 RusHydro.— “b”). Later it became clear that additional capacities were needed for the Eastern test site (power units at the Neryungrinskaya GRES and the Partizanskaya GRES of RusHydro.— “b”). And every time separate decisions of the government were required.

When a price zone appears in the region, a market mechanism will be built. The “system operator” (energy system manager) will analyze the situation, and if an energy shortage is detected, the regulators will choose a mechanism: either the modernization of old facilities, or the construction of new ones, possibly network construction. Projects will be selected at competitions at the lowest price, which is likely to attract new investors to the region.

– Strong network links between Siberia and the Far East will last until 2028 at best. Isn’t it more logical to launch the market together with new chains?

– Launching the market is not launching a balloon into the sky. It is necessary to extend to the energy system of the East all the norms of legislation that work in price zones. With Crimea (has been attached to the first price zone since 2017.— “b”) turned out relatively quickly, but even then it took us a couple of years to launch market mechanisms. Here the region is larger and more complex, and it is more difficult and expensive to build a network connection there. We want to be fully prepared just in time for the emergence of connections. In addition, a phased launch of the market in the Far East, as expected, can be carried out taking into account existing network links.

— Are there grid restrictions for free flows between energy regions within the unified energy system of the East? Is there competition from a technological point of view?

– There is a concept in the energy sector “copper board” – this is an ideal system in which electricity can be transmitted to any consumer from any point from any generator. We, of course, do not have such a copper board even in the first and second price zones. Our market model is a nodal one, in which there are sections (a set of power transmission lines between power districts controlled by the dispatcher.— “b”), which do not allow, for example, to transmit all the generated electricity during repairs. Approximately the same story in the Far East – there are no special differences from the first and second price zones. It certainly does not interfere with the market. The market just contributes to the development and emergence of price signals that may indicate a lack of generation or networks.

– Is there a risk that inefficient stations will not close even with the advent of the market, but will simply switch to a forced operation mode due to weak network connections?

– Can’t be ruled out. We need to look at the specific situation. The procedure for selecting forced stations is transparent. If the station generates losses for the owner, but the power system needs it due to the regime-balance situation, then the entire price zone pays the facility a forced tariff. If the plant is needed by a specific region for heat supply, then only this region will pay for it. By the way, the number of stations operating in forced mode in the UES of Russia is decreasing.

— Is there an assessment of the tariff and price consequences of launching the market in the region?

— The price consequences strongly depend on the scenarios that are laid down in the development of the market. There should be amendments to the law on the electric power industry and draft government decrees regarding the rules for the operation of the price zone in the Far East, after which there will be an understanding of the functioning of the new price zone – the expansion of the second price zone (Sibir.— “b”). In any case, the implementation of any of the options currently under consideration is not expected to see sharp price increases.

– When will the first estimates be ready, given the plans to launch the market at the end of 2023?

– When there will be an understanding with the regulatory framework. In November 2023, it is planned to launch only the first stage, when the bulk of electricity will be sold under RC (regulated contracts for the supply of energy at tariffs.— “b”). Gradually, the share of sales under RD will decrease.

— This year, tariffs in the region have increased by 50%. Will the market price be higher than tariffs?

— Prices in the region have really seriously increased. But you need to understand that the Far East Generating Company (part of RusHydro.— “b”) suffers losses at high coal prices. In 2022, the government decided to include shortfalls in income from previous periods in the tariff. Moreover, this process is spread over several years: the regulator will return losses to RusHydro for more than one year, so we can expect further objective growth in tariffs. Even if the price of coal falls, and now there is such a trend, RusHydro still needs to recover losses from previous years. The story is socially very complex, but economically correct: if you have consumed a resource, then you must pay an economically justified price for it.

We are now actually increasing the base. Day Ahead Market (DAM, Electricity Trading Sector.— “b”) is based on the fuel component: stations will receive an honest price for fuel, which, in fact, is now being returned to them by the FAS in the tariff.

– Let’s assume that the price of DAM will remain at the level of tariffs for thermal power plants. But the price for HPPs instead of the current penny tariffs will increase many times due to the transition to price acceptance. Will it greatly increase the average price?

– Firstly, the current tariffs of TPPs, in addition to actual fuel costs, include compensation for significant shortfalls in revenues for past periods. The RSV price reflects only actual fuel costs and should be lower. Secondly, for the transitional period, regulators may provide for trade specifics for HPPs. And the generation of hydroelectric power plants in the region is not so large; Zeyskaya, Bureyskaya, Nizhne-Bureiskaya and the cascade of Vilyui hydroelectric power plants are located here.

– At the price of power, too, should we expect a surge in prices?

— Not worth it. At first, the price of capacity for power plants will be equal to the price of CTO (competitive power take-off.— “b”) in Siberia.

– Now the highest tariff for electricity at the Maiskaya GRES “RusHydro”. Will it become a trailing station that will broadcast the price to everyone?

– Indeed, her tariff this year is 8.96 rubles. for 1 kWh. But Mayskaya GRES is a tiny plant with a capacity of only 6 MW! In none of our preliminary scenarios does it close the price. In addition, due to its size, this station will be able to operate in the retail market.

– Which station can become the closing one?

– Hard to tell. It depends on the calculation model. In different periods of time, these will be different generating facilities, including new and modernized ones, which will be built in the Far East by the time of the full transition to the market.

— Is there a discussion of price implications with the industry that has investment projects in the region?

– It’s being done. Discussions are already being held at the site of the Ministry of Energy, the Market Council takes an active part in them. It is clear that now we are talking more about basic things. A more substantive discussion will begin at the stage of public discussion of changes to the regulatory framework. There is no task to do it badly, there is a task to do it right so that the system does not depend on any voluntaristic and lobbying efforts. There will be fair and transparent prices determined on the basis of competitive procedures. In the case of the market, all price components can be viewed on our website, on the ATS website, or requested from us. All major consumers will become members of the Market Council, which means they will be able to come to our Supervisory Board, ask questions and give instructions. Transparency and honesty is already a big positive factor.

– Due to the growth of tariffs this year, can the surcharge for the first and second price zones, which goes to the Far East to compensate for the price difference, increase?

– Now this allowance is de facto received only by technologically isolated territories of the Far East. But formally, in the document regulating the distribution of the surcharge, the surcharge is due to all regions of the Far East, where tariffs break through the base level of the average Russian price for electricity. This year, the FAS has set the base price at about 6 rubles. for 1 kWh. If the new tariffs in the Far East are higher than the average Russian level, then, probably, it will be necessary to give a surcharge to other territories of the region. But we must not forget about the rise in electricity prices in the rest of Russia, because of which the base average Russian rate will also grow. But again, there was a logic that we give a premium only for the development of investments in the regions of the Far East. Moreover, the allowance for 2023 has already been formed.

– Can FAS recalculate the size of the allowance and increase its volume for 2024?

– The amount of the allowance is determined by the government within the established time frame. These deadlines have not yet arrived for 2024.

– There are only two companies in the region now – RusHydro and SGK, and the latter has only one Primorskaya GRES. How is the increase in the number of participants expected?

— Mechanisms for influencing the competitive environment of the market exist, including in the form of relevant FAS tools. When the market starts working, in theory there should be interested people. Also, an increase in the number of participants can occur in a natural way as a result of the construction of new facilities under the KOM NGO mechanism (mechanism for competitive selection of new generation.— “b”).

– RusHydro already has projects for the modernization and construction of new thermal power plants, which will pay off through payments from price zones. How will this fit in with the launch of the market?

Yes, it will fit. In the current model, the first and second price zones will participate in the capacity payment only in terms of the return on investment and in shares corresponding to the shares of their peaks in the total peak power consumption. The rest of the investment and compensation for all operating costs will be paid by consumers in the Far East.

Interviewed by Polina Smertina