Efficient Energy: Balancing the Economy and the Environment

6 September 2022

Efficient Energy: Balancing the Economy and the Environment

Key conclusions

It will be impossible to develop hydropower in the Far East without state involvement

“It is a very difficult region, and investments do not pay off 100%. The first fact of life is that it is essential for the state to play a role, and for there to be a broader form of public-private partnership. <...> The state needs to cover non-recoverable expenses, with recoverable expenses left for the private sector to finance,” Yuriy Korsun, Deputy Chairman, VEB.RF.

“Government support to help develop hydropower plants is essential, because there are more than enough forms of support for thermal generation, but hydropower needs to be supported somehow,” Mikhail Khardikov, Head of Energy Business, En+ Group; General Director, Eurosibenergo.

“We must not view these hydropower plants purely as power‑generation facilities. These are facilities which require a comprehensive approach. The good thing is that the Ministry of Energy has already largely evaluated these sites. What has yet to be done is work out how to assess benefits in budgetary and societal terms. That’s because if energy consumers are saddled with all the costs, they won’t be able to come out in favour of facilities which are several times more expensive. I very much support efforts to identify approaches to support these complex and environmentally friendly facilities which are not restricted to tariffs and payments made by consumers,” Stephan Solzhenitsyn, Chief Executive Officer, SGK.

PROBLEMS

Taxation in the coal industry has made logistics more expensive for power-generation companies

“We are now faced with a situation in which coal is not even transported to us from Khakassia, but from Kemerovo, although Yakutia has coal in spades. However, the taxation system which was introduced last year has made coal producers in Yakutia focus entirely on exporting. Meanwhile, we are getting coal from Kemerovo. Whose interests is this in? Certainly not those of power-generation companies, and not those of Yakutia,” Aisen Nikolaev, Head of Sakha Republic (Yakutia).

“Currently, logistics in the Far East are not completely logical. The entire coal industry is privately owned, so when our colleagues do not approach us with regard to procurement procedures, we have no other option. Local coal mines have the option of selling their coal to China for 4–5 times more than we can afford. <...> There have been instances when we have brought in coal for the Far East from Kazakhstan via Murmansk,” Viktor Khmarin, Chairman of the Management Board, General Director, RusHydro.

The Far East still has an ageing energy infrastructure

“The Far East’s energy sector is extremely aged. The power plants are old, and the grid is showing extreme signs of age. This is a result of the distances involved, and the fact it is harder to access energy grids in the Far East than anywhere else in the country. The region has a small population density and a small road network. In addition, power lines need to be installed in difficult weather conditions,” Viktor Khmarin, Chairman of the Management Board, General Director, RusHydro.

“Infrastructure in the Far East is very aged, and this is something which is already posing a challenge to us. Power supply facilities are on average more than 50% aged, while heat supply facilities are more than 70% aged. <...> Everything needs to be modernized – we are entering a cycle in which we must modernize things. It’s crucial that this is done sensibly, so that renewables account for a percentage of energy sources,” Gadzhimagomed Guseynov, First Deputy Minister of the Russian Federation for the Development of the Far East and Arctic.

SOLUTIONS

The government’s tariff policy needs to be amended in order to develop the energy sector in the Far East

“In terms of setting tariffs, I think it’s inevitable for the market in the Far East. There is no other way. If this is not done, RusHydro’s balance sheet will not be able to sustain such a huge energy system. This is a model based on calculation. That means mathematics, economics – exact sciences which you can argue with, but not with much success,” Viktor Khmarin, Chairman of the Management Board, General Director, RusHydro.

“Regarding tariffs – we are in a very bad situation due to the discrepancy between coal tariffs and prices. Take South Yakutia, for example. There, the Far Eastern Generating Company has had to pay almost double for coal, and this has not been planned for at all. Ensuring that our power plants have a guaranteed supply of coal is also a very serious issue,” Aisen Nikolaev, Head of Sakha Republic (Yakutia).

“Market pricing will be required to a large degree in this area. We need to strike a balance between increasing prices for the consumer, and protecting demand, which is currently elevated in the Far East among residents of advanced special economic zones and overall in the Far Eastern Federal District,” Vitaly Korolev, Deputy Head, Federal Antimonopoly Service of the Russian Federation.

“If tariff restrictions are imposed from above, and in the meantime we are forced to pay unrestricted prices for around 11 million tonnes of coal per year, then we are not talking about investments, on constructing new hydropower plants. We just don’t have the requisite level of reliability,” Viktor Khmarin, Chairman of the Management Board, General Director, RusHydro.

Steps need to be taken to encourage people to stay in the Far East and Siberia

“In attempting to strike a balance between energy and environmental needs, it’s important that we don’t forget about the people who will work on all this – all those highly qualified professionals who will remain here. We are actively working on developing the regions – something which may appear to be unnecessary. But if a person in, say, Bratsk wants to go on a seaside holiday and it takes two days to get there, and another two days to get back, then highly qualified professionals won’t live there. Only the people remaining will still live there, so it’s vital to develop the entire infrastructure,” Mikhail Khardikov, Head of Energy Business, En+ Group; General Director, Eurosibenergo.

“Of course, we are counting on the Far East becoming self-sufficient so that we don’t lose the people who inhabit this already low-density region at this historic time,” Irek Fayzullin, Minister of Construction, Housing and Utilities of the Russian Federation.

For more information, visit the Roscongress Foundation’s Information and Analytical System at roscongress.org/en.

Efficient Energy: Balancing the Economy and the Environment

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