The Ministry of Energy wants to integrate the Far East into the energy market

The Ministry of Energy proposes to expand the second price zone of the wholesale energy market (WECM), which includes Siberia, by joining the Far East to it. Energy Minister Nikolai Shulginov stated this on September 6 at the session “Power Industry of the Far East” of the EEF-2022 (the recording is available on the forum website). Fedor Opadchiy, Chairman of the Board of the UES System Operator (Energy System Manager of the Russian Federation), specified that the experiment on the integration of the Far Eastern Federal District could start as early as the end of September.

Shulginov noted that the integration of the Far Eastern regions into the energy market will attract additional investment in the energy sector of the region “due to increased competition”, and will also create conditions for improving energy efficiency. The official stressed that now, due to state regulation of energy tariffs in the Far East, “there is no sufficient resource to ensure the efficiency of electricity production and the possibility of reducing its cost.”

The Russian energy market is divided into two price zones (the first includes the European part of Russia and the Urals, the second – Siberia), as well as several non-price zones with regulated tariffs. In price zones, the cost of electricity for industrial consumers is determined at auction (a tariff scheme is always in effect for the population). The non-price unified power system (IPS) of the East that remains entirely on the tariff includes the power systems of the Amur Region, Khabarovsk Territory and the Jewish Autonomous Region, Primorye and Yakutia, connected by 220 kV and 500 kV transmission lines.

According to Maxim Bystrov, Chairman of the Board of the Market Council (regulator of energy markets), from the point of view of the already created infrastructure, “there are no difficulties with connecting the Far East” to the price zone, which includes Siberia. As an example, he cited the positive experience of including the Crimean Peninsula in the Unified Energy System (UES) of Russia, which, following a referendum, became part of the Russian Federation in 2014.

The fact that there will be no technical problems with connecting the Far Eastern Federal District to the second price zone, at the session WEF Opadchiy also confirmed. He added that the IPS of the East is now developing dynamically and by 2028, an increase in electricity consumption by 25% is expected. According to SO, in 2021 electricity generation in the IPS increased by 6.9% to 46.9 billion kWh, electricity consumption – by 5.3% to 42.9 billion kWh.

The operation of the IPS of the East in an isolated mode, according to Opadchy, today “reduces the possibilities for optimizing the modes of equipment and the power system as a whole.” “There are also restrictions on the transmission of electricity within the power pool – to the southern part of the Primorsky Territory energy system, the western part of the Amur Region, the central part of the Yakutsk energy system,” he said. He also recalled that the share of old TPP equipment, commissioned more than 30 years ago, in the IPS of the East is 10% higher than the national average.

The accession of the IES of the East to the market, according to Bystrov, will create the possibility of including the Far Eastern Federal District in the TPP modernization program through the CSA mechanism (capacity supply agreements guarantee the investor a fixed income through additional payments from consumers of the wholesale energy market. – Vedomosti), as well as holding tenders selections under the CSA RES program for the development of renewable energy.

According to Bystrov, it is possible to begin the liberalization of the energy market of the Far Eastern Federal District with the “5-15” scheme, which was used at the dawn of the creation of the all-Russian electricity market in the 2000s. (the first trading on the energy exchange took place on November 1, 2003). According to this principle, generators were required to supply 5 to 15% of the generated electricity to the wholesale market, consumers – to purchase up to 30% of energy on the exchange. According to Opadchy, at the end of September, it is planned to launch in the Far East “a kind of analogue of a balancing market (a segment of the wholesale market where deviations from planned consumption are purchased. – Vedomosti”) without competitive pricing, but with all the technologies that work in the first and second price zones. “From the point of view of the technological readiness of the infrastructure <...> We have completed almost the entire chain. The issue is regulatory, and, of course, pricing,” he said.

Ekaterina Mozharova, Senior Director-Head of the ACRA Corporate Ratings Group, recalls that discussions around the creation of a wholesale energy market price zone in the Far East have been going on for years. Since 2017, consumers of the wholesale electricity and capacity market (WECM) in the first and second price zones (through the so-called Far Eastern surcharges. – Vedomosti) have been paying extra for equalizing (reducing) energy tariffs in the Far Eastern Federal District. “This mechanism was originally designed for three years, but in 2020 it was modified and extended until 2028,” she recalled.

Increasing competition in the Far East with its integration into the UES of Russia and connection with the Siberian HPPs, according to Vygon Consulting Senior Consultant Maxim Dyakin, will ensure competitive pricing and probably help reduce electricity prices for wholesale consumers. The expert added that, although the infrastructure of the IPS of the East is already ready to be connected to the market, the optimal solution to this issue will require the construction of an energy bridge to Siberia, which is scheduled only by 2028. That is, it will not be possible to quickly integrate the Far Eastern Federal District into the energy market, in his opinion, will not work.

During the session, Rosseti CEO Andrey Ryumin said that the company is pulling two transit lines from Siberia to the Far East, which will be built before 2028. Construction of a 500 kW transit line, which will increase electricity transmission to 700 MW, according to Ryumin, will only after 2028

Bystrov pointed out at the WEF-2022 that the lowest average price of 1 kWh for consumers of the first price category (small and medium-sized enterprises with a connection of less than 670 kW of power) is now developing precisely in Siberia – at the level of 4.67 rubles, and in the Far Eastern Federal District, even taking into account subsidies, is 5.19 rubles. At the same time, in the first price zone it is even higher – 6.14 rubles. After the transition to market pricing in the Far East, according to Bystrov, “something close to the first price zone” will turn out.

At the same time, NRA Managing Director Sergey Grishunin draws attention to the presence of a dominant supplier in the Far East represented by the company “RusHydro” (produced 143.8 billion kWh in 2021), which accounts for up to 90% of generation. Because of this, the allocation of the region to a separate price zone, in his opinion, is devoid of logic.

At the same time, the infrastructure of the region, according to Grishunin, is not yet ready to be connected to the UES of Russia, as for this it was planned to build at least two high-voltage power lines, one of which is 500 kW. “Therefore, it is now proposed to include only a part of market mechanisms without pricing in order to test their work and prevent a price jump for consumers,” Grishunin said. The launch of market procedures in the energy market of the Far East without the construction of a transmission line for power flows from Siberia, according to Grishunin’s estimates, could lead to a rise in the price of electricity in the Far Eastern Federal District by 20-40%.

IPEM Deputy General Director Alexander Grigoriev agrees that when creating a single price zone in Siberia and the Far Eastern Federal District, “problems will surely arise”: “A stable power flow between the IPS of Siberia and the IPS of the East is carried out through a DC link at the Mogocha substation with a capacity of 200 MW, which is definitely not enough.” The full integration of the Primorsky and Khabarovsk Territories, as well as the Amur Region into the WECM, according to Grishunin’s estimates, will take at least 3-4 years.

Valery Dzyubenko, deputy director of the Community of Energy Consumers (energy-intensive industry lobby), told Vedomosti that for a full-fledged market and competition in the Far Eastern Federal District, it is necessary to “multiply increase the number of players”, strengthen communication with the IPS of Siberia and develop power grids in the Far Eastern regions. “It is premature to include the Far East in the price zones without solving the above problems. In the coming years, this decision will only make it easier for Far Eastern energy companies to access non-market allowances and increase the tariff and price burden on industry and the economy of Siberia,” he added.

The transition to market pricing is the right trend, says a representative of the Association “Council of Energy Producers”: “This will help attract investment, incentives will be created to improve the efficiency of generation – primarily by optimizing electricity consumption for own needs of stations, optimizing specific fuel consumption and operating costs. It is important that the transition to free pricing be smooth, with no significant cost implications for consumers.”

Representative “RusHydrodeclined to comment, SGC and En+ did not respond to inquiries.