In the 1980s electric power industry of the country started showing signs of
stagnation: generation capacities were renewed slower than electric power consumption
increased.
In the 1990s, when the economic crisis in Russia broke out, the volume of electric
power consumption substantially reduced, and renewal of capacities practically stopped.
The whole situation in the power sector was characterized by the following data:
As far as technological indicators are concerned (i.e. fuel rate, average efficiency of
equipment, operating power of stations etc.) Russian power companies were falling behind
their analogues in developed countries.
There were no stimuli to increase efficiency, encourage energy saving, and plan power
generation and consumption more rationally.
In separate regions regular power interruptions took place. The country faced a global
energy crisis, and probability of major power failures increased.
There was no pay discipline, and non-payments were widespread.
Power sector enterprises didn’t provide financial and information transparency.
Access to the market was closed for new independent market players.
All this led to the necessity to restructure electric power industry, creating stimuli
to increase efficiency of power companies and providing opportunities for attracting more
investments to the sector. Otherwise, under further expansion of external economic
cooperation, Russian enterprises could lose economic competition not only in foreign
markets, but also at home.
In recent years Electric Power Industry of Russia has undergone radical changes: change
in State regulation system of the industry, competitive electric power market formation,
creation of new companies.
Reorganization is aimed at increasing efficiency of power plants operating, creating
conditions for Electric Power Industry development on the basis of stimulation of
investment activity and finally providing consumers with sustainable and regular power
supply.
During the restructuring period sector structure changes as well: separation of natural
monopoly functions (power transmission, dispatching) from potentially competitive ones
(production and supply, repair works and services); new structures responsible for
separate activity types are being created instead of former vertically integrated
companies which exercised all the above mentioned functions.
Generation, sales and repair companies will become mainly private and enter into mutual
competition. On the contrary, State control tightening occurs in natural monopoly spheres.
Thus conditions for competitive electric power market development are being created,
which implies that market prices are not regulated by the State, but formed on demand and
supply basis, while market participants compete reducing their costs.
Goals and objectives of the Reform were determined by the Russian Federation Government
Resolution ¹ 526 of July 11, 2001 "On Restructuring the Electric Power
Industry of the Russian Federation".
Companies being created in the course of the reform are mainly enterprises,
specializing in separate kinds of activity (generation, power transmission etc.) and
controlling corresponding profile assets. As far as separate activities are concerned,
newly established companies surpass former regional monopolies: they either consolidate
profile enterprises within several regions or become All-Russian.
Thus, trunk grids pass on to the Federal Grid Company, distribution grids are to be
transformed into interregional distribution grid companies (IDGCs), functions and assets
of regional dispatch administrations are transferred to the System Operator.
Generation assets are also consolidated into interregional companies of two types:
generation companies of the wholesale market (wholesale generation companies – WGCs) and
territorial generation companies (TGCs). WGCs contain power plants, specializing mainly in
electric power generation. TGCs contain predominantly combined heat and power plants
(CHPs), which generate both electric and thermal power. Six out of seven WGCs are being
formed on the basis of thermal power plants, one (namely Hydro WGC) – on the basis of
hydrogeneration assets. Thermal WGCs are constructed according to extraterritorial
principles, while TGCs contemplate stations within neighbouring regions.
AO-Energo restructuring process was launched in 2003, when first pilot projects were
implemented. These are restructuring projects of Kalugaenergo, Orelenergo, Bryanskenergo,
and Tulenergo. In 2004 structural changes entered their most active phase. Restructuring
process involved more than 30 companies. By April 2004 restructuring of the first regional
power company (Kalugaenergo) has been completed, and by the end of the year 5 AO-Energos
have been broken up into profile-based companies.
2004 also saw creation of interregional companies. During the last months of 2004the
first three WGCs and two TGCs were created (and underwent state registration procedure).
The RAO UESR Board of Directors decided to establish four IDGCs. Moreover, new dispatching
vertical was practically formed in 2004: functions performed by regional dispatch
administrations were transferred (with some exception) from AO-Energo companies to the
System Operator.
In 2005 restructuring process involved most of AO-Energo companies, and considerable
part of them has been split up by the end of the year. 2005 also saw establishment of most
planned interregional companies: the last of seven WGCs has been registered by March, and
by August four IDGCs and thirteen out of fourteen planned TGCs have been established.
In December of 2007 – January 2008 the target structure formation of all thermal WGCs and
TGCs was completed, as well as the first stage of HydroWGC consolidation.
Spin-off of grid companies has been completed. All 56 trunk grid companies were established on the basis of
reorganized AO-Energos.
In 2007, pursuant to the decision of RAO "UES of Russia" Board of Directors on the reconfiguration of IDGCS
of April 27, 2007 and Russian Federation Government Resolution ¹ 1857-r of December 27, 2007,
the number of IDGCs was increased to 11 (excluding IDGC of the Far East).
Since September 1, 2006 the new rules of operation of wholesale and retail electricity markets have
come into force. As a consequence, the wholesale electricity (capacity) market saw a transition to regulated
contracts to be concluded between buyers and generation companies, the free trade sector (FTS) was liquidated,
spot market – day ahead market (DAM) was launched. In accordance with Russian Federation Government Resolution
of April 7, 2007 there are plans to replace regulated contracts by free (unregulated) ones by 2011.
The rules of operation of retail markets suggest that gradual liberalization of retail markets should go in parallel
with wholesale market liberalization. It is important to note that during the transition period electricity tariffs
for the population will remain regulated.
Thus, in the course of the reform former monopoly structure of electric power industry is
being liquidated: the majority of vertically integrated companies disappear, and new
companies to be established within the target sector structure take their place.
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