New money is expected from old thermal power plants – Newspaper Kommersant No. 4 (7449) dated 01/12/2023

The industry proposes to reduce the amount of guaranteed payments for power capacity, which will be received by old thermal power plants after modernization. The business wants the facilities to receive at least 15% of their income through the sale of electricity on the exchange. The measure, according to consumers, will force power engineers to increase the efficiency and production of facilities. Generating companies criticize the proposal, pointing to the low profitability of electricity sales. The initiative is unlikely to increase the efficiency of thermal power plants, but it could reduce competition and increase facility prices, experts warn.

The “Community of Energy Consumers” (which unites industrial consumers) proposed to the Ministry of Energy to reduce the share of the mandatory payment for energy capacity for projects for the modernization of old thermal power plants by increasing their income from the sale of electricity. Refurbished facilities must receive at least 15% of the total payment from day-ahead market profits (RSV, the competitive electricity trading sector), the association says in a letter (Kommersant has a document dated December 12, 2022). The Ministry of Energy did not answer “Kommersant”.

Now it is assumed that the modernization of the TPP will pay off from the proceeds that it will receive from the mandatory payment of wholesale consumers for capacity, as well as the sale of actually generated kilowatt-hours (set through the RSV coefficient). Now the minimum size of the coefficient is 4%.

More than half of the already selected projects (65%), according to Kommersant’s estimates, have a minimum DAM coefficient of 4%, that is, these facilities, regardless of the volume of generation, are guaranteed to receive 96% of the income through payment for capacity. The highest coefficient of 38% was set for only 16 projects. This trend reflects the desire to maximize more stable revenue in the capacity market, says Maxim Dyakin from Vygon Consulting.

An increase in the RSV ratio will force generating companies to increase the efficiency of facilities, consumers believe. According to them, an increase in the DAM coefficient to 15% can increase the fuel efficiency of a power unit in the European part of the Russian Federation and the Urals by at least 12%, and their load – up to 57%.

In Siberia, the fuel efficiency of projects can increase by 8% with a load of 55%. As a result, this will lead to a decrease in the prices of the RSV.

The proposal of consumers “has no justification and does not take into account the real situation on the DAM,” Kommersant was told in the “Council of Energy Producers” (CPE, unites generating companies). They say that the sale of electricity “is characterized by low profitability”, including due to the high share of mandatory pricing (NPPs and HPPs), the forced operation of TPPs and low price volatility. The price dynamics of the RSV has been lagging behind the growth in fuel prices for many years. “The actual average profitability of operating plants on the steam power cycle is no more than 3-5%, and in some periods it is negative,” the CPE says.

Independent analyst Yury Melnikov notes that many old plants in the Russian Federation are technologically very close to the maximum efficiency of the steam power cycle at their steam parameters.

A significant increase in efficiency by 10–30% is possible only when the technological process is replaced from a steam-powered one to a gas turbine or combined-cycle one. For coal-fired thermal power plants, such growth is achievable only with the transition to the use of super- and ultra-supercritical steam parameters, he says. But Russia does not have such technologies.

Energy efficiency can only be significantly increased for gas turbine projects, but their cost is significantly higher, agrees Maxim Dyakin: “Increasing the DAM ratio to 15% is likely to lead to an overestimation of capital costs in applications for the selection of modernization projects.”

The Market Council (energy market regulator) doubts that the initiative will lead to an increase in the efficiency of thermal power plants. “The selections are carried out at a one-part price of electricity, so the bidder will be able to declare a high DAM ratio in relation to a project with a low expected marginality of electricity sales (corresponding to a low DAM ratio) by overestimating the declared capital investments, which will keep the projects profitable without increasing fuel efficiency,” they say. there. In this case, the competition will most likely decrease and more expensive objects will be announced, which will lead to an increase in prices for their capacity.

Polina Smertina