The Far East faces Chinese tariffs
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Energy consumers in the Far East will pay a new export duty on electricity supplies to China. As Kommersant found out, Inter RAO proposes to increase its profitability on sales in China by the amount of the duty, which will reduce subsidies for consumers in the Eastern energy system. The Ministry of Energy supported the position of Inter RAO and has already received the approval of Deputy Prime Minister Alexander Novak. According to regulators, now, taking into account the duty, Inter RAO’s supplies to China are unprofitable, and their complete stop is more dangerous for consumers, since it could increase their payment by 8 billion rubles. in year. The industry believes that to solve the problem, new players must be allowed to export.
Inter RAO (Russian electricity export operator) proposes to increase the profitability of its electricity supplies to China by the actual amount of the new export duty (“Kommersant has seen the draft changes to the energy market regulations”). Now the regulator artificially limits the margin of energy sales to China at 5%, directing the remaining money to reduce tariffs in the Far East. Until 2022, the export profitability was 30%, but in 2023 it decreased due to an increase in tariffs in the region at which Inter RAO purchases energy for export.
The duty from October 1 is 7%, which makes the supply unprofitable for Inter RAO.
Inter RAO confirmed to Kommersant that they are working on changes to regulate the profitability of supplies.
Inter RAO’s position was supported by the Ministry of Energy, and Deputy Prime Minister Alexander Novak approved bringing the issue to the nearest supervisory board of the Market Council (energy market regulator), sources told Kommersant. Deputy Head of the Ministry of Energy Pavel Snikkars explained in a letter to Mr. Novak that increasing profitability will allow maintaining and possibly increasing energy supplies to China (“Kommersant saw the document dated October 3”). The appeal notes that payments for energy supplies are made in yuan, and the price is based on the cost of energy production in Heilongjiang province. Judging by Chinese customs statistics, the average price of energy supplies from the Russian Federation to China from the beginning of 2023 is $43.8 per 1 MWh.
China is now one of the largest energy export destinations for the Russian Federation with a share of about 35% of total sales, writes Pavel Snikkars. For many years, sales volumes in China amounted to about 3 billion kWh per year, and in 2022, sales volumes reached a record 4.7 billion kWh. At the end of eight months of 2023, the figure amounted to 2.7 billion kWh, and in August there was a sharp decrease in flow due to energy shortages in the Far East.
Inter RAO announced at the end of September that it was negotiating with the PRC to increase the sales price by the amount of duty and a possible reduction in volumes due to losses. But China refused to cover Russian duties, which is why Inter RAO announced a reduction in flows. Mr. Snikkars’ letter notes that the Chinese side sent a letter to Inter RAO with “a strong demand to maintain supplies due to the enormous impact on the Chinese energy system.” As a result, supplies to the isolated region of China were maintained at a volume of up to 120 MW.
A complete stop of exports to China will increase electricity prices for domestic consumers in the Far East, reminds Pavel Snikkars.
Thus, since 2012, due to limiting the profitability of Inter RAO exports, consumers in the Far East received more than 25 billion rubles. subsidies. If exports stop, consumer payments for energy capacity will increase by 6 billion rubles. Obligations to pay for electricity transmission services will increase by RUB 2.5 billion.
The Community of Energy Consumers (unites industrial consumers of electricity) believes that “the practice of shifting regulatory and other risks onto consumers can be stopped by creating competition among exporters.”
Losing the Chinese market with an actual profitability level of 30% would be wrong, says Sergei Sasim, director of the Center for Research in the Electric Power Industry at the Higher School of Economics. The refusal to supply electricity to China will lead to negative consequences for consumers in the Far East, increasing the price on the wholesale market by 8–10%, the analyst continues. In his opinion, against the background of such consequences, the decision to increase the permissible margin of the exporter looks reasonable and logical. However, the increase level does not have to be 7%. Another option would be to exclude electricity from export duties.
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