Vladimir Shlyomin

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b>The regional division of Russia’s Tax and Dues Ministry in the city of Yekaterinsburg has registered a generating company of the wholesale electric energy market putting it in the category of joint-stock companies under the name OGK-5 JSC. The company includes 4 thermoelectric power stations, two of which are located in the Urals, the third one operates not far from Moscow and the fourth station is at the foothills of the Caucasus. This event symbolizes the beginning of the important phase of restructuring the state monopoly RAO UES of Russia and forming a competitive market.

April 2003 can be considered the starting point of reforming Russia’s electric power engineering. At that time the existing legislation was changed and that made this reform possible in principle. By now, the Government has selected ten future participants of the competitive market of electric power production. These are the so-called wholesale-generating companies (OGK), each having several electric power stations. By experts’ estimates, at present, they account for about 40% of the country’s electric power production.
These companies are formed by the extraterritorial principle, i.e. a Siberian electric power station may join the same structure with an electric power station that operates in the Urals or in Russia’s European part. Six companies include thermoelectric power stations, while the four others have hydroelectric power stations. As for nuclear power plants, they will constitute a separate OGK with the status of a state unitary enterprise. The share of nuclear energy in the country’s total energy balance comes to 18%, while its prime cost is one of the lowest.
Practically all electric power is sold in Russia via the so-called Federal market of energy and capacity or FOREM. Its rules and tariffs are set by the State. But a year ago a sector of electric power sales for open prices has emerged. It is called the "5-15" market meaning that producers can freely sell from 5 to 15% of their electric power production volume. As reforms are moving on, this sector will be steadily growing and, as time goes by, it will become dominant.
The first results of the new market’s operations look encouraging to consumers. Tariffs on electricity in the free sector have been significantly lower than in FOREM: by 10% at the start and already by 20% today. However, the reason for the drop of tariffs has been paradoxical: as it turns out, the demand for a cheaper electric power has been lacking as the supply in the "5-15" market is about twice as high.
Experts put forward the following explanation of this paradox. First, this year’s autumn in Russia happened to be much warmer than usual and this sharply reduced energy consumption against planned volumes. Second, not all participants have an access to the free market and many still buy electric power in FOREM. A number of experts believe that the most important reason is the lack of experience among consumers, who failed to establish systems of business accounting in time. For example, one of large companies that secured the access to sales in the "5-15" market said: in order to have a technical potential for using this market, it will need from 1.5 to 2 years.
"A mode of functioning of an electric power free market is yet to be established", believes Vasily Zubakin, the member of the RAO UES Management Board. "There is a need to develop a mechanism for evaluating assets with the due consideration to the industry’s development forecasts", he says.
"The complexity of forming a competitive market comes to the necessity to level starting positions for all wholesale generating companies", thinks Vladimir Khlebnikov, who heads the Center of FOREM agreements and calculations at RAO UES.
The comparative analysis proves that competitive opportunities for OGKs as they enter the market should be leveled, in the first place, on the basis of prime cost of electric power production. This indicator depends most of all on type and quality of fuel being used, since the fuel component accounts for 50% to 60% of all expenses. It is clear that OGKs using gas, which is approximately 1.5 times cheaper than coal, have certainly a lower prime cost of production. Hardly any company can compete with them in the free market, if no additional regulating mechanisms are introduced. In experts’ opinion, regulations should also take into consideration a number of other criteria, such as companies’ installed capacity, its load level, equipment’s age, its wear extent, etc.
As for the reform of electric power engineering as it is, in the words of Vasily Zubakin, "this policy is fixed in laws and it keeps being carried out, even if terms are to be adjusted".