Alexandra Panina – Board Member, Deputy Head of the Export Division, Interim Head of the Trading Block, Inter RAO
Long-range planning in the Russian power industry
The electric-power sector in the Russian Federation operates according to an efficient three-tier system of mid-and long-term planning. The first tier of this system is represented by the Energy Strategy – it was affirmed back in 2009 for the period through 2030 and as of today, public discussions of the Energy Strategy through 2035 are actively underway. This document, which is foundational, defines the goals and objectives of the long-term development of the country’s energy sector for the upcoming period, in particular – energy supply for the country’s economy that is innovatively reliable and responsive to emerging trends.
The key measures for reaching the aforementioned objectives will be as follows:
• continuing optimization of the structure of generating capacities in view of their performance indicators, while maintaining the priority of generating electric and thermal power in combined mode;
• implementing demand-side management measures;
• improving the performance indicators of TPP functioning and boosting the efficiency of power-system operational management;
• developing the sector’s competitive mechanisms.
One of the Energy Strategy’s key assumptions is the growth in power consumption in the Russian Federation by a factor of 1.2–1.3 by 2030 due, among other things, to the electrification of rail transport and the spread of electric cars. Against this backdrop, ensuring the reliable power supply of consumers will require an increase in the installed capacity of the country’s power plants by roughly 15 GW.
Within the scope of ongoing import substitution in the Russian power industry, a priority task is developing domestic high-capacity gas turbines which, when coupled with the advancement of energy conservation and improvement of the sector’s energy efficiency, should make it possible to reduce fuel consumption for power generation from 255.6 g/kWh by 2035 from the current level of 309.6 g/kWh.
Further, innovative development of the Energy Strategy envisions the development of intelligent energy systems based on «smart» grids (the «Energynet» roadmap) and storage technologies (addition of 20 GW by 2035 under the maximum scenario).
Russia’s Energy Strategy also charts a direction intended to support the use of distributed generation based on RER in isolated and hard-to-access regions.
Russia’s Energy Strategy is being used to formulate the document at the next tier of the long-range planning system – the General Plan for the Location of Power Facilities through 2035 . This document envisions the structure of generating facilities and transmission capacities for the purposes of ensuring a balance between the production and consumption of electric power and capacities, the appropriate breakdown of renewable energy and thermal generation, and contains the names of plants, which, over the long-term, must be modernized, decommissioned or replaced with new equipment.
Consumption will increase by a third to roughly 1,325 bln kWh/year by 035. UES of Russia capacity volume currently stands at 243 GW
The last tier of the system is represented by the Development Plan and Program of the Unified Energy System of Russia , which plays an important role in the country’s economy and is treated as a mid-range planning document. Among other things, the document’s value is predicated on its forecasting of demand for electric power and capacity in the territory of the Russian Federation within the scope of a seven-year period, thereby making it possible to formulate effective solutions for its satisfaction. The demand forecast is used in such vital economic processes as determining the composition of the required generating capacities for the coming six years, which has made it possible to shift to a long-term competitive power takeoff with a six-year horizon, whose implementation uses the demand value from the Development Plan and Program of the Unified Energy System of Russia.
UES of Russia electric-power and capacity balances
One of the high-priority tasks facing the energy sector is forecasting demand for the purposes of ensuring the reliability and efficiency of power supplies over the long-term.
The figure (Fig. 1) illustrates the dynamics of Unified Energy System of Russia’s power consumption according to the General Plan for the Location of Power Facilities through 2035. According to the presented diagram, the growth in power consumption is forecast at an average of 1.5% a year, which is similar to that of the past 2–3 years. Demand growth of 1.5% means that, by 2035, consumption will increase by a third and amount to roughly 1,325 bln kWh/year. UES of Russia capacity volume currently stands at 243 GW, which makes it possible to satisfy ongoing demand for power including the required reserve, although covering growing demand volume in the future will require the addition of another ten GW in supplemental capacity.
If, in accordance with the affirmed General Plan, a comparative analysis of the change in the structure of UES of Russia generating capacities in 2019 and 2035 is conducted, there is no significant difference, despite the active construction of RER facilities (Figure 2.1): a dominant share of TPP (67.2%->64.5%), which, by 2035 will continue to represent the backbone of the Russian power industry, along with significant shares of NPP (12.2% ->13.5%) and HPP (20.1% -> 19.9%).
It should be noted that the structure of generation in the Russian Federation resembles the general structure of generation in CIS countries (Figure 2.2), despite the fact that certain countries may be dominated not by thermal power plans but by HPP (Tajikistan, Kirghizia and Armenia), while in others (Turkmenistan, Kazakhstan, Uzbekistan, Belarus, Moldova), 90 percent or more of total installed generating capacity is represented by thermal power plants (Figure 2.3).
First investment cycle for the renewal of capacities (CDA‑1): results
Over the past ten years, more than 40 GW of new generating capacities (30 GW of which represent thermal power plants) have been commissioned within the scope of the sweeping CDA‑1 program, with total investments in the power industry amounting to roughly RUB3 trln.
The commissioning of new capacities has undoubtedly resulted in positive effects, both for the sector as well as for the broader national economy. Over the past few years, specific fuel-equivalent consumption (SFEC) has dropped by 7% thanks to the commissioning of combined-cycle gas-turbine (CCGT) units. Moreover, if we were to track the dynamic of growing prices for gas and electric power in the first price zone (Figure 3), then, over the past decade starting in 2008 (commissioning of the first CDA‑1 facilities), we would notice that the rate of price growth for gas is almost double the rate of price growth for electric power.
It should be noted that all of the new capacities were built within the scope of investment contracts. This mechanism was used for the purposes of attracting private investments into the sector on market-based terms that are mutually beneficial for both companies and banks. That said, the agreements under the CDA‑1 program were discrete: for thermal power plants, they ran for a period of ten years, and for nuclear power plants – for a period of fifteen. According to the terms of the contracts, investors undertook to build plants in specific locations with specific characteristics, and incurred fines and other negative repercussions in the event of a delay in commissioning date or the commissioning of plants with non-conforming parameters – including those with lower than agreed-upon capacity volume. That said, consumers were guaranteed a rate of return on their investment.
The need for the renewal of capacities
On the basis of current long-range planning documents, it is also clear that more important changes and investment decisions lie in store for the Russian energy system. Thanks to the General Plan, we can track the mounting process of capacity deterioration: by 2025, more than half of all thermal capacities will exhaust their economic life, by 2035, a critical number of thermal power plants will be operating beyond the limits of their economic life – 129 GW. This trend prompted the decision on the need for the launch of a new cycle of capacity renewal.
According to the graphic of the dynamic of generating-capacity commissioning/decommissioning (Figure 4), in the period 2008–2018, Russia’s decommissioning of generating equipment was accompanied by new commissioning within the scope of the CDA‑1 program, whereas, at the cusp of 2019, due to the program’s end, decommissioning has started to significantly outstrip commissioning, meaning that, by 2021, the total volume of generating-capacity decommissioning will exceed 25 GW.
Grasping the seriousness of the aforementioned problem, already in 2017, at the instruction of the President of the Russian Federation , Russia began developing programs envisioning the ambitious renewal of generating capacities. Among other things, this list contained a requirement stipulating the development of a modernization program that would also contain growth in electric-power rates at a level no higher than the rate of inflation (p.1a). As a result, 2019 marked the starting year of an important program for the modernization of RF thermal generation: not only was a normative framework adopted to regulate the rules of modernization, but the competitive selection of modernization projects was also held for the period 2022–2025, inclusive.
As a result, in 16 Russian constituent entities, 70 modernization facilities were selected with a total capacity volume of roughly 15 GW. Implementation of just this part of the program will attract approximately RUB158 bln in investments. Noteworthy is the high level of competition at the selections: the volume of bids was two-and-a-half times higher than the volume slated for modernization. As a result, the one-part price formed after the competitive selection amounted to RUB1.8/kWh, which is less than half of the WMEP one-part price.
The program works in such a way that 85% of total capacity volume is determined on a competitive basis, with decision-making on the remaining 15% of capacity left to the RF Governmental Commission. This allows strategically important projects, which are expensive and cannot compete, to also be implemented. Within the scope of the modernization program, plans call for the renewal of a total of 40 GW in capacity by 2031. As with the CDA‑1, consumers will conclude long-term contracts with a supply term of 16 years, during which generators will also recoup their investments at the established rate of return.
It should be noted that the modernization selection utilizes all of the positive experience of other selections. Eligible to participate in the competition is much-needed equipment (operated at no less than 40% a year) whose economic life has been exceeded. A price cap has been established on expenditures for various kinds of work, making it possible to avoid excessive burden on the consumer; that said, it should be noted that at past competitions, high competition has made it possible to cut the costs in bids to just a third of their maximum levels. It is a single competition for all types of thermal-generation equipment that’s in high demand in terms of localization, which should provide stimulus for the industry’s development in the country.
RER and the Paris Agreement: Correlation with the national targets of developed countries
Continuing the theme of competitive selection for new-capacity construction projects, it is important to note the program for developing the construction of generating facilities operating on renewable energy resources, which was also implemented within the scope of long-range planning. As of today, the competitive mechanism has been used to select roughly 5 GW in RER capacities (sun, wind, mini HPP), which are also subject to localization requirements and whose contract price depends on the output of the respective RER generating facility.
The RER topic is related to the Paris Climate Agreement, which was adopted on 12.12.2015 at the end of the 21st Framework Convention on Climate Change, held in in Paris, and which is slated to enter into force in 2021. It is presumed that the document will come to replace the Kyoto Protocol adopted in 1997 (devoted to the stabilization of greenhouse-gas emissions). The document was signed by 175 countries (including all of the CIS countries), and they are developing or have already formulated national targets in view of the Paris Agreement, which will be reflected, inter alia, in their respective energy strategies.
Based on the positive experience of using long-range planning in the Russian power industry, it would appear that the creation of harmonized strategic documents for the development of CIS power industries would allow all members of the Commonwealth to create optimal structures for their generating capacities and transmission facilities, prevent projected power and capacity shortfalls by the most efficient means, and forecast fuel demand and the environmental impacts of ongoing power-industry development.