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Vyacheslav Solomin: thermal and hydropower plants should compete in equal economic conditions

 

Statement of Vyacheslav Solomin, acting CEO of OJSC EuroSibEnergo, on the draft Decree of the Government of the Russian Federation on Amending the Regulations on the Wholesale Market of Electricity and Capacity Regarding the Issues of Wholesale Market Participation of Hydroelectric Power Plants Located in the Second Price Zone of the Wholesale Market.

Undoubtedly, the adoption of this decree is not unexpected for generating companies in the second price zone. In Siberia there are surplus capacities which we need to utilize as efficiently as possible, and it is commercial logic that we should apply when doing so, especially as far as environmentally friendly power generation is concerned. Hydroelectric power plants account for about half of power generation in Siberia; they also act as regulators of the power system (for instance, offsetting uncontrollable deviations in Kazakhstan’s power system). Moreover, the high percentage of hydropower generation results in lower consumer prices (compared to European Russia). Besides, HPPs submit price-accepting bids both for electricity and for capacity, keeping down prices set by thermal power generators in the market.

The draft Decree of the Government refers to partial liberalization of prices for HPP capacity (capacity of other power generators, as well as electricity itself, has been sold at free prices for a long time). This is an informed and timely decision. Currently, HPPs must submit only price-accepting bids to the market, i.e. they participate in the pricing process on the side of consumers. At the same time, commissioning of power generating units at the Sayano-Shushenskaya and Boguchanskaya HPPs and new facilities forming part of power grid infrastructure has enabled a considerable reduction in electricity prices in Siberia (this year alone, the price for capacity in the region has fallen by over 30%). Under the circumstances, thermal and hydropower plants should compete in equal economic conditions, and competition should be based on cost reduction and improvements in internal efficiency rather than control imposed on the best-performing generating companies, as HPPs cannot earn revenue from heat sales, unlike thermal power plants.

Besides, partial liberalization of capacity will enable HPPs to conclude direct bilateral contracts with consumers allowing both sides to set long-term prices. This is the logic of the market. These contracts may be concluded at a price that is lower than the market price; in fact, this is what used to happen until 2011.

But until the Government makes the final decision, it is too early to speak of an economic impact on generating companies in the second price zone. Interests of all categories of consumers, particularly households, should be taken into account when reintroducing market regulation. In this case, volumes under regulated contracts and the procedure used by relevant authorities (the FTS) for setting prices will remain unchanged. Given the existing model of the capacity market and the amendments to be made, the government will retain control over prices in the electricity market in any case.

Press service of OJSC EuroSibEnergo

February 05, 2014
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