Russian Electricity Reform: An IEA Perspective522 1327 2616 4383 March 3781 3580 April May 493...

Russian Electricity Reform:An IEA Perspective

International Association of Energy Economists

July 2004

Isabel MurrayRussia Desk Officer

Office of Non-Member CountriesInternational Energy Agency

ContextOECD REGULATORY REFORM REVIEW

• Russia - 1st Non-OECD country to be reviewed

• Government regulatory capacity as well as 3 key sectors:– Rail– Telecoms– Electricity

• IEA has taken the lead on Electricity• Timeframe – Publication

– IEA: late-2004– OECD: early-2005

Proposed ReformsGoals & Objectives

• Improving efficiency and transparency• Promoting efficient investment • Ensuring reliable electricity supplies

• The Russian Government has recognised that the achievement of these goals would be:

“…impossible without changing the existing system of economic relations and immediate structural reform of the electric power industry…”

Proposed ReformsMarket Structure

• Vertical unbundling of RAO UES and regional energos– Generation– Transmission– Distribution– Retailing businesses

• Horizontal unbundling – Generation– Retail

• Separation of network ownership and system operation

• Wholesale market administrator (ATS)

Proposed ReformsCurrent Market Structure

Energo 1Energo 2

Energo 3Energo …

Energo …Energo 72

Plant 1Plant 2

Plant …Plant 36

Wholesale

Thermaland HydroPlants

Large Power Plants

Independent EnergosIrkutskenergo / Tatenergo / Bashkirenergo

RAO UESHV Grid

RAO UES Central

Dispatch

Network Retail

Municipal Grids

Distribution companies

EnergoLV Grid

10 Nuclear Power Plant

Sites

FOREM

RAO UES

Proposed ReformsTarget Market Structure

Genco 1Genco 2

Genco 3Genco 4

Genco 5Genco 6

Genco 7Genco 8Genco 9

Genco 10

Wholesale

Thermal8-10 GW

Hydro8-10 GW

14Territorial Gencos

Federal Grid Company

System Operator

Network

Inter-regional Distribution Companies

Retail

Retail cos

Retail cos

Retail cos

Guaranteeing Suppliers

Nuclear Genco

Market Operator

(ATS)

Proposed ReformsTarget Market Structure

Genco 1Genco 2

Genco 3Genco 4

Genco 5Genco 6

Genco 7Genco 8Genco 9

Genco 10

Wholesale

Thermal8-10 GW

Hydro8-10 GW

14Territorial Gencos

Federal Grid Company

System Operator

Network

Inter-regional Distribution Companies

Retail

Retail cos

Retail cos

Retail cos

Guaranteeing Suppliers

Nuclear Genco

Market Operator

(ATS)

???

Proposed ReformsMarket Design

• Legislative basis / foundation

• Key components of the Wholesale Market:– Bilateral Contract market– Day-ahead Spot Market– Intra-day Balancing Market

• Nodal Pricing– Locational Marginal Pricing - 5500 nodes – Importance of Financial Transmission Rights

(FTRs)

Proposed ReformsRegulatory Framework

• Comprehensive and integrated regulatory framework has been proposed (Government Decision 865-r, 06/03):

• Regulation of entry (and exit in some cases) to wholesale and retail markets

• Regulation of market structure, market operation and conduct

• Regulation of prices and access to network services and to other regulated services

• Regulation of new investment• Regulation to protect consumer interests.

Elaborationof basic laws

Proposed ReformsImplementation Strategy

2001

July 2001 June 2004 2006-2007

20042002 2003 2005 2006 2007 2008

Unbundling of AO Energos

Restructuring of UES

Attraction of large-scale investments

Stage 1 Stage 2 Stage 32009-2010

Mar

ket

Stru

ctur

e

Creation of FGC / SO / ATS

Wholesale Genco Auctions???Creation of new entities



2001

July 2001 June 2004 2006-2007

20042002 2003 2005 2006 2007 2008

Establishment of the 5-15 MarketTesting of transition market



Development & Intro of Financial Mechanisms



Laws for the market’s functioning Opening of the

competitive market

Mar

ket

Stru

ctur

e


Wholesale Genco Auctions???

Mar

ket

Des

ign

Elimination of cross subsidies

Creation of new entities

0

20

40

60

80

100

120

140

160

180

Mln

.kW

h

100

200

300

400

500

600

Rub

/MW

h

Trading volume

Price in the competitive sector

Price in the regulated sector

November December January February

522 1327 2616 4383

March

3781 3580

MayApril

493 490,85508,8 498,93

393,59

462,2

431,43

477,79 481,44

276,94

264,25 251,95

3987 2022

June (15 days)

483

Source: NP ATS

5-15 Market: Volume & Price Dynamics Market Design



2001

July 2001 June 2004 2006-2007

20042002 2003 2005 2006 2007 2008

Establishment of the 5-15 MarketTesting of transition market



Development & Intro of Financial Mechanisms




competitive market

865-r Timetable

Mar

ket

Stru

ctur

e


Wholesale Genco Auctions???

Mar

ket

Des

ign

Reg

ulat

ory

Fram

ewor

k

Info

rmat

ion

Dis

clos

ure

Non

-D

iscr

imin

ator

y A

cces

s

Ant

i-M

onop

oly

Pric

ing

Inve

stm

ent

Polic

y

App

eals


Creation of new entities


Issues Market Structure

2001

July 2001 June 2004 2006-2007

20042002 2003 2005 2006 2007 2008





Mar

ket

Stru

ctur

e



• Market Structure

• Competitive Nationally

• Concerns regionally

• Inter-regional connections - network

Russian Electricity Capacity

Far East11 GW

Siberia48 GW

Urals21 GW

Northwest21 GW

Center41 GW

Volga37 GW

South15 GW

Total Capacity 205 GW

Russian Electricity Generation & Transmission Capacity

Northwest21 GW

Center41 GW

South15 GW

Siberia48 GWVolga

37 GW

Urals21 GW

Far East11 GW

Finland / Norway 1300 MW

2500 MWBelarus

1300 MW

Ukraine

1160 MW

420 MW

Georgia

100 MW Kazakhstan

320 MW

230 MW100 MW

Mongolia

China

70 MW

30 MW

240 MW 80 MW

250 MW

1250 MW

250 MW


Issues Market Structure

2001

July 2001 June 2004 2006-2007

20042002 2003 2005 2006 2007 2008





Mar

ket

Stru

ctur

e



• Diversity of Ownership

• Most likely Russian Investors

• Will they be committed to making electricity a core business?

IssuesMarket Design

2001

July 2001 June 2004 2006-2007

20042002 2003 2005 2006 2007 2008

Establishment of the 5-15 MarketTesting of

transition market

Development & intro of Financial Mechanisms



competitive market

Mar

ket

Des

ign


• Investment Signals

• Capacity Mechanisms

• Financial Markets

• Price Caps

IssuesRegulatory Framework

2001

July 2001 June 2004 2006-2007

20042002 2003 2005 2006 2007 2008


865-r Timetable

Reg

ulat

ory

Fram

ewor

k

Info

rmat

ion

Dis

clos

ure

Non

-D

iscr

imin

ator

y A

cces

s

Ant

i-M

onop

oly

Pric

ing

Inve

stm

ent

Polic

y

App

eals

• Tariff Rebalancing

• Need to get rid of cross-subsidies

• Competitive Neutrality Issues

• Owner / Regulator / Participant

• Ensure enough resources to Antimonopoly Service

Institutional Framework• Government Restructuring• Effective Co-ordination between Policy, Regulatory and

Institutional Bodies– Market Operator and System Operator – Federal Tariff Service and regional bodies– Different government agencies

• Institutional Arrangements– Independence and integrity– Regulatory decisions should be – and be perceived to be:

• Robust• Objective• Consistent• Transparent

– Federal Tariff Service – responsibility for setting regulated tariffs– Federal Antimonopoly Service – responsibility for access and competition

Russian Electricity Sector Reform Some Observations

• Ambitious implementation timeframe

• Impressive progress to date

• Substantial challenges ahead

SPACIBA!

Questions / Comments

[email protected]

Russian Electricity Reform: An IEA Perspective522 1327 2616 4383 March 3781 3580 April May 493...

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