Opening of the Russian interim wholesale power market

RAO Unified Electricity System of Russia (RAO UESR) is the holding company that partially or fully owns the seventy-two regional electricity supply companies and most of the large thermal and hydroelectric power stations in the Russian Federation. It is the largest electric utility in the world in terms of installed capacity. The massive system that it operates is very seriously in need of significant new investment for the refurbishment and modernisation of plant, and the Russian government does not want to provide the required amounts entirely from its own funds. Therefore, in order to meet these demands, the government recently began an ambitious programme to reform the power industry. The structural and legislative changes were intended to introduce competition to the wholesale and retail power markets, both to increase efficiency and to attract the necessary private sector investment.

The previous contractual arrangements between participants in the Russian electricity sector were developed in the absence of a competitive market. As such, they do not meet the requirements of the electricity sector reform programme. CMS Cameron McKenna participated in the design of the competitive electricity market and was retained by RAO UESR to design the contractual framework of relationships between the competitive market participants and the market infrastructure organisations.

The first phase of the reform programme, involving a limited wholesale competitive market, is now underway pursuant to a government decree issued on 27 October 2003. In accordance with that decree, the interim market began operations on 1 November. The competitive wholesale market is administered by a separate, independent, non-profit entity, the Administrator of the Trading System (ATS). According to ATS Chief Executive Dmitry Ponomaryov, thirteen organisations took part in the first trading day. These comprised seven producers and six buyers, many of whom are subsidiaries of RAO UESR. According to ATS, 30,257 megawatt-hours of electric energy were sold in the free trade sector, totalling about 1% of all the electric energy sold in Russia on the day. Nineteen million roubles worth of electric energy was traded during the weekend of the opening of the interim wholesale power market and the weighted averaged price was 5.3% less expensive than the regulated price at the non-competitive Wholesale Federal Market for Energy and Capacity (FOREM).

By 2005-2006, arrangements should be in place to permit full liberalisation of the electricity sector. Looking long-term, the success of the reform programme will in part be measured by the level of private sector investment into the Russian electricity sector. The challenge will be for the Russian government and electricity sector participants to maintain their commitment to establishing a robust and coherent regulatory and contractual framework so as to facilitate and encourage this much-needed investment.

For further information on Russian power markets please contact Mark Moseley on +44 (0)20 7367 3240 or at [email protected]