Russia’s UES Will Hustle to Invest $78.5 Million to Plug 21 Gigawatts into National Power Gap by 2010

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Researched by Industrial Info Resources (Sugar Land, Texas). The ongoing plan to reform and privatize Russia’s electrical power system is stumbling along and its spasmodic progress is reflected in the recurring threat of power cuts to business and domestic users. The country’s state-controlled, dominant power utility, RAO Unified Energy System of Russia (UES) (Moscow), sits straddled over the situation controlling 72.4% (157,000 megawatts) of installed generating capacity, 96% of high-voltage grids totaling 2.5 million kilometers, 77% of the distribution network totaling 1.74 million kilometers, and employs over 570 million people.

Centralized apportionment of investments was evident when the management board of UES approved a $78.5 billion, five-year program for the construction of new power plants and the modernization and upgrading of existing facilities through 2010. Investment in generation capacity in the period will exceed $37 billion of which $24 billion will go to a range of thermal generating projects and $12.3 billion will be put into hydroelectric power projects. A further $1.8 billion will be put into power projects that are not connected with the main grid supply companies under the UES umbrella. The program aims to bring 20,900 megawatts of new capacity to the grid.

Construction and repairs of new and existing grid facilities will take an investment only slightly less than the $37 billion for generation activities. It will be directed at facilitating the connection of new customers and connecting new power plants to the grid. These priorities are in reaction to a situation, admitted by the government, where demands on the overloaded grid mean that only 10% of business applicants can expect to be successfully connected in the next year.

About 40% ($31.5 billion) of the investment funds required for the plan are expected to be raised by the issuing of additional shares in the main generating companies. System tariffs are expected to provide 35% ($27.5 billion) and 14% ($11 billion) will be borrowed. Current sell-off plans could raise $7.8 billion in the next four years, with the sale of shares in the OGK 5 unit later this year targeting $190 million. It is unlikely that these macro plans will be realized without a sharp increase in tariffs to the user plus a more vigorous pursuit of investment funds from share sales. Negotiations are underway on the terms for an additional share issue of the central UES holding company, but these shares will be placed with the state, which could affect the potential fruits of reform in the enterprise.

The new power plant construction projects and modernization of facilities will have focal points in Moscow ($16.5 billion), St. Petersburg ($11.5 billion), and West Siberia ($9.4 billion). To meet peak load requirements during the 2006-2007 autumn/winter period, about $200 million will be invested in mobile gas turbine stations in the Moscow region, with a total installed cost of $312 million. Funds set aside for 2008 will be used in 2007 to advance other power generation projects.

In January-July of 2006, UES power plants increased power generation by 5.6 % to 402.6 billion kWh (kilowatt hours) from the 381.1 billion kWh for the same period in 2005. Total electricity consumption across the country was up 4.6% to 556.2 billion kWh. In the month of July, UES generation increased 6.6% pushed by residential consumption caused by the heat wave. Thermal power’s contribution was up 8.1% and hydropower, affected by low water levels, was down by 4.4 % for the same period.

Russia’s national power generation capacity is approaching 210,000 megawatts coming from over 440 thermal and hydropower plants and 31 nuclear reactors. With the working lifespan of a nuclear reactor at around 30 years nine of the total are between 26 and 30 years old and six between 21 and 25 years old. Overall, 46% of generating plant is past its expected lifespan and by 2010 this figure will be 55%. The national economy is growing at a rate of 6% and the population’s aspirations and consumption patterns are rising. Overall private consumption grew by 11% in 2005-2006. Real reform and sustained development of the power system is expected to gain focus and pace after the nation’s presidential elections in 2008.

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