The Modernization Program Bound to Have a Long-Term Effect

High-priority and challenging issues of the industry – price constraints, competitive mechanisms, localization of energy were discussed at the round table Modernization of the Russian Energy. Forecasts for Further Evolution” that was organized by the Council of Power Producers and Gazprom Energoholding and held as part of the Russian International Energy Forum.

The session moderator, Alexandra Panina, Chairman of the Supervisory Board of the Council of Power Producers told the audience about the hard tasks that the government set for the generating companies – introduction of higher to lessen the impact of inflation, the construction of remote power facilities and localization.

According toAndrey Maximov, Deputy Director of the Department for the Development of the Electric Power Industry of the Russia’s Ministry of Energy, the system does not attract investments without additional stimuli. “Gas generation in our country is a dominating sector and it has to be modernized. A well-proven mechanism for attracting investments is introduction of Capacity Delivery Contracts. According to these contracts, as the results of the reorganization of UES (Unified Energy System) tell us, by January 1, 2019, about 25 GW of generating facilities were built, the total amount of funds invested was 1.2 trillion rubles,” – said Mr. Maximov. According to the speaker, the contracts following the guidelines similar to the ones on which Capacity Delivery Contracts are based have been used to attract investment in new construction in the places of potential shortage in power, as a result of which facilities with a total capacity of 620 MB were built. Criteria for project selection have been developed. The most important criterium is the lowest price for electricity for consumers during the project payback period (16 years). If there is a deterioration of the characteristics of the equipment, the manufacturer does not get a return on investment capital to cover lost income. “This procedure will allow for a correct comparison of projects, taking into account the supplier’s revenue from all commodity markets (electricity and heat), creating incentives for the owner to load the upgraded equipment as much as possible,” – the speaker said.

It is in two months that the next selection of modernization projects for 2025 will be held in accordance with the Rules of the wholesale electricity and power market. Maxim Bystrov, Chairman of the Board of NP Market Council, spoke about the results and forecasts. “According to the results of the first selection, the volume of submitted bids exceeded the demand more than 2.5 times, important projects for the industry were selected to promote the development of innovations and to solve environmental and social problems,” – explained Maxim Bystrov. A transparent criteria system of the Government Commission has now been developed. In addition to the economics of the project and low prices, preference will be given to those who are willing to take part in the generation of heat, solve environmental problems, qualitatively increase efficiency. An important factor will also be the criticality of the technical condition - projects with a developed park resource and a worse technical condition will have the best chances.

Vasily Kiselev, Director of Energy Consumers Association, strongly disagrees with market players: “Today, it is necessary to determine the areas and scope of modernization. We agree that facilities in the Far East need to be modernized, but on a competitive basis and with a mandatory technological price audit. At the current moment, it is useless to engage in deep modernization. A major overhaul is needed, and it should be done without attracting external capital. We should not rush to have the next selection for a long time. At the moment, we have to take a break and watch what will be happening in the gas construction.”

Svetlana Nikonova, Director of the Department of Housing and Communal Services Development at the Ministry of Construction of Russia, voiced the position of her department: “We solve a common task, but we view it differently. The Construction Ministry believes that the priority direction is the modernization of the CHP, the competition should be aimed at solving this problem and technologically distributed. According to Ayrat Sabirzanov, Director for Economics and Finance of Tatenergo JSC, one cannot give priority to any of the segments, otherwise there will be no competition. “It is necessary to eliminate any preferences to any generations and remove all kinds of barriers,” – said Mr. Sabirzanov. Mikhail Bulygin, Energy Market Director, Gazprom Energoholding, agrees with his colleague: “We looked at the statements of public companies, analyzed them and saw that the principle “did not repair – received preferences and subsidies”, alas, works.” Nevertheless, according to the common belief of the participants, the modernization program after further elaboration and improvement will have a long-term effect – higher reliability and efficiency of the Russian energy sector.

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The Modernization Program Bound to Have a Long-Term Effect

High-priority and challenging issues of the industry – price constraints, competitive mechanisms, localization of energy were discussed at the round table Modernization of the Russian Energy. Forecasts for Further Evolution” that was organized by the Council of Power Producers and Gazprom Energoholding and held as part of the Russian International Energy Forum.

The session moderator, Alexandra Panina, Chairman of the Supervisory Board of the Council of Power Producers told the audience about the hard tasks that the government set for the generating companies – introduction of higher to lessen the impact of inflation, the construction of remote power facilities and localization.

According toAndrey Maximov, Deputy Director of the Department for the Development of the Electric Power Industry of the Russia’s Ministry of Energy, the system does not attract investments without additional stimuli. “Gas generation in our country is a dominating sector and it has to be modernized. A well-proven mechanism for attracting investments is introduction of Capacity Delivery Contracts. According to these contracts, as the results of the reorganization of UES (Unified Energy System) tell us, by January 1, 2019, about 25 GW of generating facilities were built, the total amount of funds invested was 1.2 trillion rubles,” – said Mr. Maximov. According to the speaker, the contracts following the guidelines similar to the ones on which Capacity Delivery Contracts are based have been used to attract investment in new construction in the places of potential shortage in power, as a result of which facilities with a total capacity of 620 MB were built. Criteria for project selection have been developed. The most important criterium is the lowest price for electricity for consumers during the project payback period (16 years). If there is a deterioration of the characteristics of the equipment, the manufacturer does not get a return on investment capital to cover lost income. “This procedure will allow for a correct comparison of projects, taking into account the supplier’s revenue from all commodity markets (electricity and heat), creating incentives for the owner to load the upgraded equipment as much as possible,” – the speaker said.

It is in two months that the next selection of modernization projects for 2025 will be held in accordance with the Rules of the wholesale electricity and power market. Maxim Bystrov, Chairman of the Board of NP Market Council, spoke about the results and forecasts. “According to the results of the first selection, the volume of submitted bids exceeded the demand more than 2.5 times, important projects for the industry were selected to promote the development of innovations and to solve environmental and social problems,” – explained Maxim Bystrov. A transparent criteria system of the Government Commission has now been developed. In addition to the economics of the project and low prices, preference will be given to those who are willing to take part in the generation of heat, solve environmental problems, qualitatively increase efficiency. An important factor will also be the criticality of the technical condition - projects with a developed park resource and a worse technical condition will have the best chances.

Vasily Kiselev, Director of Energy Consumers Association, strongly disagrees with market players: “Today, it is necessary to determine the areas and scope of modernization. We agree that facilities in the Far East need to be modernized, but on a competitive basis and with a mandatory technological price audit. At the current moment, it is useless to engage in deep modernization. A major overhaul is needed, and it should be done without attracting external capital. We should not rush to have the next selection for a long time. At the moment, we have to take a break and watch what will be happening in the gas construction.”

Svetlana Nikonova, Director of the Department of Housing and Communal Services Development at the Ministry of Construction of Russia, voiced the position of her department: “We solve a common task, but we view it differently. The Construction Ministry believes that the priority direction is the modernization of the CHP, the competition should be aimed at solving this problem and technologically distributed. According to Ayrat Sabirzanov, Director for Economics and Finance of Tatenergo JSC, one cannot give priority to any of the segments, otherwise there will be no competition. “It is necessary to eliminate any preferences to any generations and remove all kinds of barriers,” – said Mr. Sabirzanov. Mikhail Bulygin, Energy Market Director, Gazprom Energoholding, agrees with his colleague: “We looked at the statements of public companies, analyzed them and saw that the principle “did not repair – received preferences and subsidies”, alas, works.” Nevertheless, according to the common belief of the participants, the modernization program after further elaboration and improvement will have a long-term effect – higher reliability and efficiency of the Russian energy sector.

More