POWER January 2013 - 45

POWER IN RUSSIA
the world, behind the U.S., and in the 1950s, it
pioneered the world's very first nuclear power
plant (the 5-MWe Obninsk reactor) and then
two commercial-scale nuclear power plants. It
also began building what was then the world's
largest hydroelectric plant, in Krasnoyasrsk.
By the 1960s, as power output soared to
290 billion kWh, national electrification had
reached 80%. Yet, even as economic growth
slowed and power output increased from 741
billion kWh in 1970 to 1,728 billion kWh in
1990 (or about 17% of global generation), capacity
failed to keep pace with the gargantuan
needs of the Soviet Union's energy-hungry
industry. The 1970s were marked by an ambitious
Soviet program to expand nuclear
power, and the country had already put into
operation 25 reactors by 1986, the year that
the Chernobyl disaster in the Ukraine punctured
Russia's-and the world's-enthusiasm
for nuclear energy expansion.
The sector saw an even more climactic turning
point in 1992, in connection with the collapse
of the Soviet Union, as some republics
declared independence from the union, and
eventual bankruptcy, as a weakened central
government saw profits from state-owned enterprises
evaporate after mass, rapid privatization.
During this chapter of the industry's history,
the Ministry of Electric Power was dissolved,
and the Unified Energy System (RAO-UES)
-which had been established in 1956 as the
Soviet Union's single energy distributor-was
reborn as a state-controlled holding company
that assumed control of 72 vertically integrated
local power companies (oblenergos) accounting
for 70% of Russia's electricity generation.
The remaining share was divided between
another state monopoly, Rosatom, responsible
for nuclear power, and a few small, independent
power companies. Blocks of UES's
shares (the entity still owns practically all of
the nation's transmission and distribution networks)
were then sold to workers (numbering
600,000 at the time) and the public and, later,
to domestic and foreign investors, leaving the
government with a 53% controlling stake.
As the country sank into a severe post-Soviet
depression, while electricity prices were
continually suppressed by the government to
subsidize its high-energy intensity industries,
economic reforms created an acute shortage
of funds and stalled a number of power projects.
UES was effectively crippled, running at
a deficit of $1 billion on annual revenues of $7
billion, unable to invest in new capacity, grid
improvements, or plant modernization efforts.
Russia's once-bright electricity future
dimmed.
A Revolutionary Reform
Then in 1998, Russia's slumbering economy
awoke and began growing at an unprecedented
January 2013 | POWER
annual gross domestic product (GDP) rate of
6% over the next decade. Soaring electricity
consumption soon highlighted the country's dilapidated
power infrastructure. Due to neglect
and outright theft, transmission and distribution
losses in some regions, notably in North
Caucasus, were reportedly more than 30%.
Conceding that the state alone could not
bear the costs required to maintain and upgrade
its power infrastructure, the Russian
government finally agreed to a proposal by
newly installed UES head Anatoly Chubais,
who had previously led privatization efforts
of state properties as a minister in Boris
Yeltsin's administration in 1991, in the immediate
aftermath of the Soviet collapse.
Chubais argued that, if unreformed, the Russian
power sector would not support future
economic development, and that if the stillmassive
UES were reformed, it would need
to be designed to attract private investment.
After much discussion and scrutiny of dozens
of models presented between 1999 and
2000, the Russian Duma (consisting of its
parliament and upper house) in 2001 finally
approved a reform plan that called for an unbundling
of the incumbent monopoly, creating
an independent regulator, privatizing generation,
and liberalizing electricity prices.
In March 2003, the Duma set the legal
basis for the reform while approving an Energy
Strategy spanning from 2003 to 2020
(though a newer, adjusted one was later adopted
in 2009) that provided state consensus
on the country's energy future. And, despite a
few hiccups, reform has sped ahead, fired by
broad-based political support.
Russia Transformed
In 2008, UES's holdings were unbundled:
Generation, transmission, and distribution are
today structurally divided and managed by
companies with diversified ownership. Generation
is produced by 14 territorial power
and heating companies (indicated by the Russian
abbreviation TGK) and seven wholesale
power-generating companies (OGK). An antimonopoly
service prohibits a single private
owner from controlling more than 20% of
generating capacity in one of eight defined regional
zones. The state retains 100% interest
in nuclear-through the State Atomic Energy
Corp. (Rosatom)-as well as most hydropower
and major transmission facilities.
Among the sector's major players are Gazprom-which
evolved from dissolution of the
Soviet-era Ministry of Gas Industry and continues
to be 50.1% owned by the Russian government-and
a handful of foreign companies,
including E.ON, Enel, RWE, and Fortum.
The Ministry of Industry and Energy has
primary responsibility for the power sector,
while the System Operator (or Centralized
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Dispatching Administration), a 100% stateowned
open joint-stock company, has been
set up to ensure the dispatch of electricity
and stable functioning of the nation's unified
grid. The wholesale market is supervised by
the Market Council, a noncommercial partnership
that is governed by a supervisory
board comprising representative market participants,
the Russian government, and other
market infrastructure bodies.
Russia has also begun the formation of a
competitive wholesale market, and prices in
the power market have been gradually liberalized
in recent years. About 80% of electric
power is traded at nonregulated market prices.
While the portion of state-regulated prices is
expected to diminish, as required by the reforms,
some state control is expected to continue
throughout Russia (with the exception
of certain geographically isolated regions, including
the Russian Far East, Kaliningrad, and
the Arkhangelsk regions) until at least 2014.
Participants in the wholesale market also
trade in capacity (on the basis of up to 10-year
capacity supply contracts concluded at competitive
prices), obligating generating companies
to maintain a certain level of generating
capacity and sometimes involving obligations
to maintain or repair existing generation facilities
as well as to build new ones.
The Power Sector Today
Russia is today one of the world's top producers
and consumers of electric power, with
more than 220 GW of installed capacity (for
comparison, U.S. installed capacity is approximately
1,000 GW). In 2009, the country
consumed 849 TWh, a number that has been
forecast to increase to 946 TWh by 2014 to
accommodate plans for export to countries
like China, Finland, Turkey, and Poland and,
later, possibly to Pakistan and Afghanistan.
Its fleet primarily consists of about 440
thermal plants, mostly fired by natural gas;
only about 77 are coal plants. Thermal generators
account for roughly 68% of total capacity,
followed by hydropower (at 21%),
and nuclear power (11%), according to statistics
from the Russian Ministry of Energy
(Figure 2). For details about Russia's current
power profile and plans to expand it, see the
web supplement associated with this issue on
www.powermag.com, " Russia's Power. "
Thermal Power. In Russia, geothermal
and solar are considered thermal generation,
but the bulk, 154.7 GW, is fueled by gas and
coal. The country has some behemoth plants
like the oil- and natural gas-fired 5.6-GW
Surgut GRES (Figure 3, GRES is an abbreviation
from the Soviet era that denotes a state
district power station), and among its larger
coal-fired plants is the 3.8-GW Reft Power
Plant. A common priority for wholesale gen45
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POWER January 2013

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