Regulatory environment and macroeconomic indicators

BALANCE OF GENERATION AND CONSUMPTION OF ELECTRICITY (CAPACITY)

In 2007, power consumption reached 1,003 billion KWh nationwide, an increase of 2.3 percent on 2006.

Over 98 percent of all electricity output (985.6 billion kWh) was consumed in the areas of centralized electricity supply, i.e. in the areas of operation of the seven integrated energy systems and isolated energy systems of the Far East of Russia.

The three major integrated energy systems—Urals IES, Center IES, and Siberia IES—consumed 692.6 billion kWh, or more than 70.3 percent of Russia's total electricity use. In 2007, electricity use in the North-West IES, the Middle-Volga IDES, and the South IES amounted to 253.6 kWh, or 25.7 percent, with the East IES consuming 39.4 billion kWh, or 4 percent of all electricity consumed in the UES of Russia.

In year-on-year terms, electricity consumption grew most rapidly in the Urals IES (up 2.9 percent), the South IES (up 2.7 percent), and the North-West IES (up 2.6 percent). The electricity use in the Middle-Volga IES, the Siberia IES, the Center IES, and the East IES grew 2.2 percent, 2 percent, 1.9 percent, and 0.8 percent, respectively.

Among the regions of Russia where electricity consumption grew significantly were Moscow and the Moscow Region (3.4 percent), Republic of Udmurtia (6.0 percent), Rostov Region (3.3 percent), Novgorod Region (4.5 percent), Stavropol Region (4.0 percent), Saint-Petersburg and the Leningrad Region (up 4.1 percent), Sverdlovsk Region (up 3.1 percent), Chelyabinsk Region (2.9 percent), Chechen Republic (10.3 percent), and Republic of Khakassia (20.4 percent).

2007 saw increased demand for electricity from the less energy-intensive manufacturing sectors, primarily, the machine-building industry. By way of comparison, the surge in electricity consumption in 2006 was mostly due to the increased domestic demand for products of energy-intensive heavy manufacturing sectors such as metallurgy, manufacture of metalware, oil refining, chemical industry, and manufacture of non-metal mineral products, as well as the oil and gas sector.

In 2007, the Russian Federation generated 1,015.9 billion kWh of electricity.

In the areas of centralized electricity supply, the electricity generation to meet the power use (including 11.7 billion kWh of net electricity exports) amounted to 997.3 billion kWh, up 1.9 percent on 2006. Nuclear power plants, hydropower plants, and thermal power plants generated 158.3 billion kWh (up 2.4 percent year on year), 177.7 billion kWh (up 2.1 percent year on year), and 611.7 billion kWh (up 1.5 percent year on year) of electricity, respectively. The power plants supplying electricity to retail markets generated 49.6 billion kWh in 2007 (up 5.3 percent on 2006).

MASTER PLAN FOR THE SITING OF ENERGY FACILITIES AND SYSTEM OF POWER BALANCE FORECASTS

In 2007, on the commission of the Russian Government, the Ministry of Industry and Energy of the Russian Federation with the participation of OAO RAO "UES of Russia", FGUP "Rosenergoatom Concern", OAO "Gazprom", OAO "Russian Railways", and coal companies developed the Master Plan for the Siting of Energy Facilities until 2020 based on the long-term forecast. Among the drafters of the Master Plan was ZAO "Agency for Power Balance Forecasting" (APBE).

Under the Master Plan, the key priority in the long-term development of generation, in line with the Government's policy, is to achieve an optimum fuel balance in the electricity industry by maximizing the potential for the development of the nuclear, hydro-, and coal generation sectors.

In 2006-2020, the total amount of investments needed for expansion of the electricity industry according to the base-case scenario will make about RUB20.7 trillion in current prices.

The principal provisions of the Master Plan were reviewed and approved at meetings held in all the Federal Districts of Russian with the involvement of regional executive authorities and administrations of the Presidential Plenipotentiaries in the Federal Districts.

The amounts of coal to be produced for the needs of the electricity industry, as well as the sites for new coal-fired power plants were agreed with Russia's major coal companies. The amounts of natural gas needed for the expansion of gas-fired power plants were basically agreed with OAO "Gazprom".

The part of the Master Plan relating to the required volumes of coal freight was correlated with the action plan to develop the rail transportation system as envisaged in the Strategy of Development of the Rail Transport in the Russian Federation until 2030.

The Master Plan was approved in the Russian Government's Order No. 215r of 22 February 2008.

FORECAST BALANCE SYSTEMS

Since 2002, RAO "UES of Russia" has used a regular model for preparing medium-term forecasts for the development of energy companies and the aggregate medium-term projected balance for the electricity industry. Since 2005, this work has been done by ZAO "Agency for Power Balance Forecasting". In 2007, The Agency completed preparing the Forecast Balance of the Electricity Industry for the Period Until 2010.

The Agency started a new-format forecast activity, viz. development of the Projected Balance for the Electricity Industry for 2008-2015, which will be used to monitor the progress in implementing the Master Plan.

The first part of the Projected Balance for the electricity industry for 2008-2015, which includes the projected electricity consumption and projected balance of capacity, was approved by Chairman of the Management Board of RAO "UES of Russia" Anatoly Chubais on 11 March 2008.

The projected electricity consumption was prepared assuming two different scenarios, the best-case and the moderate-case scenario. The best-case scenario of projected electricity demand provides that 1,163 billion kWh of electricity will be consumed nationwide in 2010, 1,408 billion kWh in 2015, with the electricity demand growing by an average of 4.3 percent annually in 2008-2015. The moderate-case scenario envisages electricity consumption of 1,120 billion kWh nationwide in 2010, 1,340 billion kWh in 2015 with the electricity demand growing by an average of 3.7 percent annually in 2008-2015.

To accommodate the projected domestic electricity consumption, taking into account electricity exports, by 2010 electricity generation in the areas of centralized electricity supply in Russia should exceed 1,159 billion kWh assuming the best-case scenario and 1,119 billion kWh assuming the moderate-case scenario. By 2015, the electricity demand will grow to 1,431 billion kWh (best-case scenario) or 1,365 billion kWh (moderate-case scenario).

Taking into account the electricity to be generated by the NPP as projected by FGUP "Rosenergoatom Concern" (175 billion kWh in 2010 and 257 billion kWh in в 2015) and the long-term average annual generation by the HPPs (173 billion kWh in 2010 and 199 billion kWh in 2015), and the electricity generation by TPPs in 2010 will make 771-811 billion kWh, and in 2015 908-974 billion kWh, depending on the electricity consumption scenario.

The total demand for installed capacity of power plants in the area of centralized electricity supply will grow to 239 GW in 2010 and to 286 GW in 2015 for the best-case scenario, and, for the moderate-case scenario, to 232 GW in 2010, and to 275 GW by 2015.

The areas of the Center IES, Urals IES, and Siberia IES account for the greater part of the aggregate demand for installed capacity.

Taking into account the plans of generation companies and independent energy producers relating to decommissioning and commissioning of generation facilities, the installed capacity of Russia's power plants in the area of centralized electricity supply in 2008-2015 will grow by 84 GW, including the increase by 28 GW in 2008-2010. In 2011-2015, the installed capacity of power plants is projected to grow by 56 GW. As a result, in 2010 the installed capacity of Russia's power plants in the area of centralized electricity supply will reach 243 GW and 299 GW in 2015.

Based on these projections, a programme was prepared for new generation capacity additions. The aggregate amount of capacity to be brought on line in 2008-2015 is 91 GW, including 13 GW at NPPs, 13 GW at HPPs, and 65 GW at TPPs.

CAPACITY BALANCE IN THE AREA OF CENTRALIZED ELECTRICITY SUPPLY IN RUSSIA, GW: Best-Case Scenario*

CAPACITY BALANCE IN THE AREA OF CENTRALIZED ELECTRICITY SUPPLY IN RUSSIA, GW: Moderate-Case Scenario*