‘This amazing sum of 2 trillion is very frustrating’

“We lose huge money because of the guidelines”

Net zero in electrical energy is to lead to cheaper production and not become an additional burden for the economy, Skolkovo Foundation’s experts from Moscow defined the key message to reform the sector. At the plenary session of the Russian conference Energy Development Priorities, New Technological Lay-Out and Russia’s Exit to Future Markets, they explained design solutions that can optimise the “inflated” prime cost of electrical energy generation in Russia.

Chairman of the Tatarstan State Council’s Committee for Housing Policy and Infrastructural Development Alexander Tygin, Vice Minister of Industry and Trade Marat Minibayev and many other invited guests listened to their concept with interest. For many of them, it became a discovery that there could be saved money with too high state capacity norms, which are founded during the construction of various plants and civil facilities.

Delivering a speech at the conference, Director General of Systemic Design Agency Roman Girenko said that the current tariffs cover 80% of the energy generation prime cost, and only the other 20% are used as quasi-investments in repairing networks and equipment. Such high expenses, he thinks, are conditioned precisely by the unreasonably excessive guidelines that survived the Soviet era. For instance, electrical load guidelines in construction are too high. This causes the installation of excessive transformer and energy capacities, which aren’t used but are a burden for the whole energy system.

“100% consumption is only on paper, in fact, 30% is used,” his colleague from Skolkovo Foundation explained from his seat in the hall. “While 70% of the capacity remains in reserve. We lose huge money at the construction stage. And there are a lot of such local examples, regulation needs to change,” persuaded them.

Consequently, the guidelines put pressure on the tariff revenue of all electrical energy market players. By Roman Girenko’s estimates, the total load across the country is assessed at 2 trillion rubles, which is an additional load on the consumers.

To test in Tatarstan

The Skolkovo experts believe that the optimisation of guidelines can free huge financial resources from tariff revenue. Roman Girenko says that sixty to forty must be the optimal ratio when two-thirds of the tariff covers the production prime cost and one-third is spent on upgrades. They offered to elaborate mechanisms to reduce operation costs and relevant investment.

“Why to build new facilities if the equipment here costs 2 trillion rubles?” his colleague from the hall backed him up.

“Do you offer to cut costs only due to the reserve?” Alexander Tygin was surprised.

“Yes, consumption is some 15-60% depending on the type of the facility,” Roman Gireyev replied.

“You cannot change the whole country at once!” Alexander Tygin disagreed with some lack of confidence.

“It needs to be tested somewhere. If it works, it should expand,” Roman Girenko insisted.

“This point has been heard much in the last 10 years during the implementation of large projects,” Tygin reminded him. “Crazy reserves are designed not only in energy but also absolutely everything.”

Developing the theme, Roman Girenko offered to do an experiment in Tatarstan on testing new guidelines in electrical energy.

“Do you want to create a test field in the republic?” Alexander Tygin clarified.

“Why not?” Roman Girenko was surprised in turn. “Energy is a core sector for the economy. In this respect, the detected reserve will give more,” he promised.

After that, his colleagues explained they had discussed this issue with Russian Vice Minister of Energy Yevgeny Rybakov the previous week. “Everybody is coming, talking but nobody is doing. Come on, up and do it,” they communicated the federal “blessing.”

“If there is a goal in the region, it will be supported,” Girenko assured the audience. “Because this amazing sum is very frustrating.”

Tatarstan in the lead in investment programme execution

Meanwhile, head of the Electrical Energy Regulation Office of the Russian Federal Anti-Monopoly Service Dmitry Vasilyev reported on a transition to a long-term tariff regulation. In June 2021, Vice Premier Andrey Belousov approved it to control tariff growth. According to him, the concept envisages single tariff regulation mechanisms and a refusal of the long-standing “costs plus” approach. Its essence is to synchronise investment programmes of companies with the tariff policy and territorial development programme in a region. Now they are often fragmented. Tariffs must be adopted for at least five years, ideally, for 10.

Then he talked about the results of investment activity in housing and utilities in 2020. According to the Russian Federal Anti-Monopoly Service (FAS), investment programmes in water supply were 59% executed, the performance in water discharge is 69%, in heat supply is 95%. The FAS offers to adopt a single order of approval, agreement and inspection of the execution of investment programmes. Electronic execution reports are offered to be introduced for this purpose.

“Investment programmes must be explained and provide a real improvement. All this is present in energy, and we think it needs to be applied to housing and utilities,” he said.

But the first steps in long-term regulation have already been made. Vasilyev says that applications for investment programmes must be submitted until 10 November. If they are approved by the Russian FAS, the region will be permitted to fix tariffs above the highest index long-term, he said.

Not interested in investments in energy?

Meanwhile, the Tatarstan energy system generates less electrical energy than the region consumes. The utilisation of capacities at plants hasn’t been a hundred per cent. Vice Minister of Industry and Trade of Tatarstan Marat Minibayev paid attention to this problem at the conference. He says that since the beginning of the year, production has risen by 14%, but there is a negative imbalance in absolute terms.

“As it is known, 2020 was full of troubles. Here, energy grew. Moreover, 14% more electrical energy was generated than during the same period in 2020, which means that our production outstrips consumption. It is a very good tendency,” Minibayev said.

However, 27,7 billion kWh is forecasted to be generated and 29,5 kWh to be consumed in 2021.

“Today our own generation doesn’t cover all consumption in the republic. 84,6% of our plants operate, the other amount of consumption is provided by power exchange outside the republic. Our strategic task is to completely cover the republic’s needs for electrical energy generated by us. The work in this area has been done for years,” noted the vice minister of industry and trade.

“I don’t even think this should be paid attention,” Alexander Tygin commented on this tendency later for Realnoe Vremya. “In general it is good that buying energy outside we don’t create our own capacities. Money must be used in the sector with the biggest sectoral profit. Why invest them in additional capacities if the market has energy and for an affordable price? If the market didn’t have it, then we could concern, it would be a tragedy. Now there are enough capacities. Buy, and the price is the same both at our own and the neighbours’ CHPPs,” he thinks.