Power engineering: Bashkiria’s Special-purpose four years to get energy pillars electric vehicle off the ground
16 22 32 Magazine about Russia’s Power Industry ENERGY WITHOUT BORDERS № 3 (34) September – October 2015
E-commerce: “E” for Electricity Taking profitability to a new level, making friends with customers and increasing employee loyalty – this is what power supply companies plan to achieve by offering additional paid services. Although still in their infancy, these services have already had an impact on company reports IN RUSSIAN AND ENGLISH peretok.ru ENERGY IN RUSSIA AND BEYOND peretok.ru
WE ARE ON THE WEB! Dear readers,
lthough the electric power industry has not escaped the effects of today’s tense and unpredictable economic situation, many players have still managed to find sources for stable, long-term growth. Despite market shocks and investors’ cautiousness, companies continue to put large facilities in operation, embarking on new ambitious projects. For instance, speaking at Eastern Economic Forum held in early September of 2015 in Vladivostok, Inter RAO’s Chairman of the Management Board Boris KOVALCHUK said the company had resumed its work on a project to build a power connection between Russia and Japan. With an investment of six to seven billion US dollars, the project is expected to be completed in 2026 and includes the construction of 2,100 MW of coal generation and 800 MW of gas-fired generation; a total of 20 billion kWh of electricity will be supplied from Sakhalin to Hokkaido annually. It’s quite possible that the construction will require effort from the entire energy industry, with Gazprom, Rosneft, ROSSETI and RusHydro being brought in at different stages of the project. Power supply companies are looking for new growth opportunities. Some of the most successful Aof them have proved that both quality and revenues can be simultaneously improved even during a crisis. This can be achieved, for example, by expanding the range of services and paying more attention to customers’ needs. New services are the focus of the cover story of this issue of Energy Without Borders. We decided for the first time ever to touch on the topic of procurement in large companies. In his interview with Energy Without Borders, Chief Executive of Inter RAO – Procurement Management Center Dmitry FILATOV speaks about the benefits of centralized procurement and the types of equipment that are already produced in Russia as a substitute for imports. As always, you will find interesting industry news from Russia and abroad, our Expert Club section, a forecast provided by financial analysts and a calendar of major industry events for October and November. I wish you a rewarding reading experience and look forward to your feedback. Please write to our editorial e-mail address: [email protected]
Sincerely yours, Editor-in-Chief Anton NAZAROV CONTENTS
September 1 and is aimed primarily at supporting the newly built gas turbine production facilities in Russia. It is also expected to encourage local manu- facturers of power generation equipment to expand 4 NEWS production..
ENERGY SECTOR INTERVIEW 8 WORLDWIDE 18 “Now we can manage import substitution and pricing COVER STORY effectively” 10 Inter RAO Group was one of the first holding compa- E-commerce: nies in Russia to centralize its procurement function «E» for Electricity Taking profitability to a new level, making friends with customers and increasing employee loyalty – this is what power supply companies plan to achieve by offering additional paid services. Although still in their infancy, these services have already had an impact on company reports.
THINK TANK CLUB 14 The Volume Does Matter A natural gas exchange was launched in Russia in Oc- tober last year. The government took this step aiming to liberalize gas prices and reduce the costs incurred by Russian power plants. Experts who responded to Energy Without Borders’ requests believe that on-ex- change trading will produce the expected results, but it will require time, a regulatory framework and higher volume of gas offered on the exchange.
ENGINEERING 16 Four Years to Get off the Ground The Board of the Eurasian Economic Commission (EEC) has decided to cancel the customs duty on im- porting component parts for gas turbines of over 50 MW for four years. The measure became effective on in a move that had a significant economic impact both for the Group and the industry as a whole (due to the Group’s substantial market share in a variety of sectors). In his interview with Energy Without Borders, Chief Executive of Inter RAO – Procurement Management Center Dmitry FILATOV discusses the benefits of centralization and tells our readers what the company does to execute the Russian president’s orders concerning lower procurement costs and import substitution, as well as speaks about ways to deal with sole suppliers and dumping.
REGION 22 Oil, honey and Electricity Bashkiria is one of Russia’s leading industrial re- gions. It has a well-developed energy system that serves as the cornerstone for the republic’s growth and satisfies the region’s demand for electricity and heat.
2 Founder and publisher: JSC Inter RAO Issue № 3 (34) September - october 2015 The magazine is registered with the Federal Service for Supervision in the Sphere of Telecom, Information Technologies and Mass Communications (Roskomnadzor). State registration certificate PI No. FS77–54414 dated June 10, 2013. Editorial address: 27 Bolshaya Pirogovskaya Street, Building 2, Moscow 119435, Russian Federation tel. +7 (495) 664-88-40, fax +7 (495) 664-88-41, IFOGRAPHICS NB [email protected]. 24 Armenian Energy 32 Special-Purpose System Electric Vehicle Editor-in-Chief: Anton A. NAZAROV Yandex.Taxi, one of Russia’s Executive Secretary: Alexander KLENIN FOREIGN AFFAIRS most popular taxi booking apps, 26 Three Pillars and the said in early July that it had Editorial Board of JSC Inter RAO: Grids purchased two Tesla electric Alexander BORIS, Member of the Management A country of only three million cars, Tesla Model S and Model S Board – Chair of the Editorial Board; inhabitants, the mountainous Performance, to find out wheth- Anton NAZAROV, Director of Public Relations, Armenia has more barriers er Moscow taxi companies were Head of the Information Policy Department – than opportunities to offer to ready to switch to the advanced Deputy Chair of the Editorial Board; its electric power industry. A green technology. If the test is Pavel OKLEY, Member of the Management rugged landscape, historical successful, taxi services offering Board – Head of the Operations Unit; connection to the Soviet energy electric cars might be given spe- Sergey PUCHKA, Head of the Human Resources and Organizational Development Unit; system, low-income consumers cial privileges in the future. Yury SHAROV, Member of the Management and tariff control – all these fac- Board – Head of the Engineering Unit. tors make it difficult to attract EVENT CALENDAR new business. However, foreign 34 Major energy investors and banks are active- industry ly involved in developing the conferences, forums Armenian energy industry, with and exhibitions in projects launched in almost all October–November 10 Nizhnyaya Syromyatnicheskaya Street, industry segments. 2015. Building 9, Moscow 105120, tel. +7 (495) 640-08-38, GLOBAL PRACTICES PHOTO EDITOR’S CHOICE +7 (495) 640-08-39, www.medialine-pressa.ru, 28 Top-level Regulation 36 Magic of Light е-mail: [email protected]. In Western countries (and in- For eighteen days each year, General Manager: Larisa RUDAKOVA creasingly in developing nations Sydney transforms into a huge Project Manager: Tatyana POSTNIKOVA as well), advanced power engi- canvas for artists to paint on. Executive Editor: Irina DEMINA Chief Designer: Inna TITOVA neering projects have always Yet to create a picture, they need Designers: Mariya TYRYLGINA, Iliya FANDEEV been part of large-scale govern- no brushes or paints, but rather Color Corrector: Andrey KLOCHKOV ment programs. Russia is not in colorful light and music. Proofreaders: Larisa NIKOLINA, Alina BABICH, a hurry to follow this path. Svetlana PYDYK Photo: Dmitrii CHISTOPRUDOV, Press Service of 30 FINANCE Inter RAO Group companies, SHUTTERSTOCK, Cheap and Little RIA Novosti, Lori photo bank Slow season combined with the For advertising inquiries, please call: economic downturn has led to +7 (495) 640-08-38/39 ext. 150; a decline in electricity prices. Mobile: +7 (962) 924-38-21 In this environment, delivering Advertising Sales Manager Alla PEREVEZENTSEVA stable financial performance is a [email protected], challenging task for most play- [email protected] ers. Nevertheless, some energy Proofs approved 16.10.2015 companies play their trump Printed at TvoLimedia print shop. card to attract both resellers and investors.
ENERGY WITHOUT BORDERS | № 3 (34) SEPTEMBER – OCTOBER 2015 3 NEWS
Up to А million US dollars was earned by Russia from electric power exports percent increase was achieved in the first six months of 2015, the in power generation in Russia 395,8 Federal Customs Service said. 0,8 over seven months. Incentives for renewables
Dmitry MEDVEDEV, Russia’s Prime Minister, Also, the decree sets the upper limits for has signed a decree on stimulating capital and operating expenditure incurred renewable generation. “The decree extends by qualified renewable generation facilities the program which supports wind power working in the retail electricity market. generation in the wholesale electricity The document aims at maintaining due and capacity market,” an explanatory competition in the wind power market and memorandum to the decree says. investing in the manufacturing of equipment. Two-stage Outtake The 2015 Competitive Capacity outtake (CCO) will consist of two stages, said Russian Minister of Energy Alexander NOVAK. “The base case scenario is now to hold the selection process in two stages: in September for 2016 and in December for 2017. We want to switch to a long- term CCS,” the minister said. He added that currently, the total capacity of generation facilities that will not be selected for 2016 is estimated at about 21.5 GW. Under the existing regulations, a CCS for the upcoming year is held once a year in September. That means that the selection process for 2016 will take place this fall. Many energy companies were not happy with the results of the CCS for 2015 because of a large amount of capacity that failed to qualify.
Rate revolution Russia’s Federal Antimonopoly Service rates each quarter, but by smaller said that next year it may consider amounts. An increase of 10–15 percent introducing a quarterly rate adjustment at a time once a year is quite noticeable mechanism for natural monopolies for consumers. If we divide it into four while keeping the annual price growth stages, the burden will be spread more at the same levels, said Vitaly KOROLEV, evenly,” the official said. who oversees the agency’s department FAS plans to start actively working for control over the power generation on the issue after the merger with the industry and district heating. Federal Tariff Service is completed and “We have a revolutionary idea. We want the newly created agency becomes fully to start adjusting the natural monopolies’ operational.
4 billion rubles was invested billion kWh will be generated by MOESK in Moscow’s and by Russian nuclear power Moscow Region’s power grids 189,2 plants in 2015. 19 in the first half of 2015. Seven billion dollar power Pilot connection smart grid since then. “We decided to consider building 2,100 MW of coal generation and 800 MW of gas-fired generation to supply about 20 billion kWh of electricity from Sakhalin to Hokkaido a year,” Boris KOVALCHUK said. The project will be delivered in two stages. The first stage (2016–2020) will deal with power generation and its supply to Hokkaido and include the construction of a coal-fired power plant with an installed capacity of The Solntsevskaya-2 Coalfield in Sakhalin is the future 1,050 MW on Sakhalin Island, on the edge of site of a new 1,050 MW coal-fired power plant the Solntsevskaya-2 Coalfield near Uglegorsk; as well as a DC or AC power line to La Pérouse Speaking at Eastern Economic Forum, Strait. The second stage will take five more which was held on September 3–5, 2015 years, from 2021 to 2026. The coal power on Vladivostok’s Russky Island, Inter RAO’s plant’s capacity will be increased by an Chairman of the Management Board Boris additional 1,050 MW. Depending on the future KOVALCHUK said the company had resumed conditions in the gas market, the project may Ufa has launched a pilot smart grid its work on a project to build a power also be expanded to include the construction project, the first of its kind in Russia. connection between Russia and Japan. of a new 800 MW gas-fired power plant in Although today the project only The demand for electricity from Russia’s the southern part of Sakhalin, near an LNG covers an area between Bakalinskaya, neighboring countries in Asia is rapidly plant in Prigorodnoye. An alternative site for Gubaidullin and Zlobin Streets, as increasing. Low levels of standby capacity, the future plant is Nogliki, a town near the well as Salavat Yulayev Avenue, the growing electricity prices and small reserves Sakhalin-3 Natural Gas Field. It’s quite possible city’s entire grid system will become of natural resources prevent Japan from that Gazprom and Rosneft will participate in “smart” in the next four years. The meeting its own electricity needs. the construction. smart grid project is the result of Negotiations began in late 2012, and as Inter RAO’s Boris KOVALCHUK said an agreement signed between soon as in 2013 Inter RAO Group started investment in the power link between Russia Bashkirian Power Grid Company and preparing a preliminary feasibility study. and Japan may reach six to seven billion US Germany’s Siemens in September However, the project has been reconfigured dollars. 2013; the Israel Electric Corporation (IEC) is brought in as a technical advisor. Electrical grids in the area will be coordinated and controlled from a central control room – a kind of a nerve center – built specifically for the project. The new facility has made it possible to consolidate eight smaller control rooms in a single place. Its data analysis software is able to locate a failure within seconds, using an alternative scheme to supply power and suggesting a step-by-step algorithm for troubleshooting. In the future, Sakhalin is expected to supply power to Hokkaido, Japan
ENERGY WITHOUT BORDERS | № 3 (34) SEPTEMBER – OCTOBER 2015 5 NEWS
fold increase in net profit, to 3.8 million rubles was invested by Russia in billion rubles, on a RAS basis an international project to design and was reported by Inter RAO in build an experimental thermonuclear А1,8 the first half of 2015. 889,5 reactor (ITER) in 2014. Capacity brought from the Urals to Bashkiria
Ceremony for resuming construction of Zatonskaya CHPP The plant will have a cumulative installed capacity of 460 MW and a heating capacity of 460–490 Gcal/h Inter RAO Group is resuming the construction of for us as energy market players if the billions of said Zatonskaya CHPP is a good example of Zatonskaya CHPP in Bashkiria. The plant will have rubles invested in the construction of Zatonskaya an import substitution program in action. The a cumulative installed capacity of 460 MW and a CHPP had been buried in the ground.” plant’s energy conversion efficiency is about heating capacity of 460–490 Gcal/h. The construction project will be managed 50–52 percent, which makes it one of the most Construction work started back in 2008, but by Inter RAO – Engineering. A consortium of efficient in the region. two years later the project was suspended due to two companies, Kaskad-Energo and Power “Zatonskaya CHPP will become one of the lack of funding. After joining the project in 2012, Development Corporation “SOYUZ” will act cheapest power plants ever built by Inter RAO Inter RAO Group put in a great deal of effort to as the general contractor. The plant’s power Group, as well as one of the most cost-efficient resume the construction working together with generation units are expected to be put in plants constructed in Russia since CDAs were local authorities. operation in December 2016. Most of its introduced,” KOVALCHUK said. “That’s why we “We have transferred CDA (capacity delivery equipment is Russian-made: the gas turbines believe this project to be extremely efficient. agreement – Ed.) here from Verkhnetagilskaya and generators are from Power Machines; the It will deliver a return on investment, create TPP; it’s a rare thing in the Russian energy waste heat recovery boilers have been produced new jobs and improve Bashkirian Power Grid industry,” Inter RAO Chairman of the Management by EMAlliance, a Taganrog-based company, Company’s prospects in the region.” According Board Boris KOVALCHUK said at the ceremony for and the steam turbines have been supplied to the capacity delivery agreement, Zatonskaya’s resuming construction. “It would have been a pity by Kaluga Turbine Works. Boris KOVALCHUK payback period will be 10 to 15 years.
Atoms for the world Russia is now building as many nuclear to the Soviet levels, when two or reactors abroad as the USSR used to do, sometimes even three [nuclear] ROSATOM CEO Sergey KIRIENKO said. reactors were built each year,” KIRIENKO “We have increased the number said. of contracts to build nuclear power ROSATOM is now building 18 nuclear plants and other nuclear facilities reactors abroad. The state corporation’s outside Russia tenfold [since 2000]. order book for overseas projects Construction has basically returned exceeded 100 billion US dollars in 2014.
6 About GW of renewable percent of power generation generation is expected companies’ target for turbine overhauls to be built in Russia and heavy maintenance was achieved 6 before 2020 89,0 in the first half of 2015. Discovering America Inter RAO – Export has supplied three added to the two existing similar Russian-made waste heat recovery turbines, and three waste heat recovery boilers to Termogas Machala TPP in boilers and a gas turbine, allowing Ecuador as part of a turnkey power the plant to make a transition to the plant expansion project. combined cycle technology. Termogas The boilers produced for the Machala’s installed capacity will Ecuadorian power plant by Podolsk increase to 308 MW from the current Mechanical Factory , comply with 130 MW; it will be the first combined ASME standards, which are required cycle power plant in Ecuador. in most North and South American The project was nominated for countries. Vnesheconombank’s The Development The expansion project includes a Award in the Best Export Project new gas turbine unit, which will be category in 2015. Nuclear plants: two more years to go Market Council’s Supervisory Board has being built in the country. The fourth unit approved a decision to postpone the dates of Beloyarskaya NPP with a fast-neutron of commissioning for five nuclear reactors reactor (BN-800) will start supplying Taking renewable under construction in Russia. power in 2017, and units 1 and 2 of energy to the Due to the challenging economic Novovoronezhskaya NPP-2 will be put in situation, ROSATOM and the Ministry of operation in January 2017 instead of June international level Energy have considered pushing back 2016. Also, Leningradskaya NPP’s units 1 the dates of commissioning for some of and 2 will be opened on January 1, 2018 Russia has joined the International Renewable Energy the nuclear reactors that are currently and February 1, 2020, respectively. Agency (IRENA), gaining access to an extensive collection of renewable energy practices (including their introduction and use) and latest research findings; also, the country is now able to participate in the development of international standards and influence the way the global renewable industry will operate in the future. IRENA was established in 2009 to foster international collaboration in areas such as renewable energy policies, technologies and economics. It helps increase the use of renewable energy sources, including geothermal, solar, wind and tidal energy, and biofuel, as well as supports the expansion of hydropower in its member countries. The agency was joined by 75 states when it was established; the number has almost doubled since then, reaching 143.
ENERGY WITHOUT BORDERS | № 3 (34) SEPTEMBER – OCTOBER 2015 7 ENERGY SECTOR WORLDWIDE
CUBA BELARUS
Viva investor! Decree on RESrenewables Cuba has invited foreign investors to take President of Belarus Alexander part in the construction of seven out of LUKASHENKO has signed a decree “On thirteen wind farms planned to be built in the use of renewable energy sources,” the country in the near future. Ministry of which is aimed to create a favorable Energy and Mines official Rosell GUERRA climate for investment in construction of said the government is already discussing renewable energy facilities and introduce a number of proposals submitted by a higher tariff on electricity produced overseas companies interested in investing from renewable sources for the next money and providing technology for ten years. The government has now the the projects. Currently, Cuba produces right to establish and allocate quotas for renewable energy from sugar cane construction of power plants based on biomass and solar power and plans to the type of energy (solar, wind, water and generate 24 percent of electricity from biomass) and select the most advanced renewable energy sources by 2030. and cost-efficient technologies.
HAWAII CHILE
Grounded flight High above the sea Solar Impulse 2, a solar-powered plane built by Swiss engineers, broke its Chile is to build the first geothermal round-the-world journey in Hawaii power plant in South America. It will also because of battery damage. The plane be the world’s first geothermal power set off for a round-the-world flight from plant located 4,500 m above sea level. Abu-Dhabi on March 9, where it was also A 48 MW power plant with two 24 MW expected to finish its journey in August. generation units, Cerro Pabellon will be Unfortunately enough, its batteries able to produce about 340 GWh a year, overheated during the trans-Pacific leg which will cover the needs of around 165 from Japan to Hawaii. The repairs will thousand Chilean households. About presumably take about six months to 320 million US dollars is required for the complete. The team plans to resume the project. The launch of the plant is slated suspended flight in April 2016. for the first half of 2017.
8 GREECE KAZAKHSTAN
Island of sun Astana lights Tilos, a Greek island located in the Kazakhstan’s capital Astana will switch its street lighting to LED technology in Mediterranean Sea, will be entirely powered by renewable energy within the next two years. The decision was the next few years. With a population made following a series of pilot projects of slightly over 500, the island will have which helped achieve 70-percent energy an innovative hybrid renewable energy savings compared to incandescent lamps. system for energy generation and storage, which will combine solar and wind farms. Today Tilos uses electricity supplied from the neighboring island Kos through a sea-bed cable.
Pa m vel .co L P ck hot ersto o and Video / Shutt
EGYPT
CHINA Give us 20% Egypt’s government has committed And another record to focus its attention on renewable generation in the next three years. As China started construction of a 314-meter part of this program, the Egyptian energy dam, which is to become the tallest authority NREA is looking to invite a structure of its kind in the world. The tender to build solar and wind power Ministry of Environmental Protection said plants with a total capacity of 2 GW. the Shuangjiankou dam on the Yangtze According to the plans of the Egyptian River will be completed by 2022. The government, 20 percent of electricity dam worth 36 billion yuans (5.8 billion US needed to power the country should be dollars) will be taller than the now world’s generated from solar and wind energy tallest dam, the 305-meter Jinping-I Dam by 2020. also located in China.
ENERGY WITHOUT BORDERS | № 3 (34) SEPTEMBER – OCTOBER 2015 9 COVER STORY E-commerce: “E” for Electricity
Taking profitability to a new level, making friends with customers and increasing employee loyalty – this is what power supply companies plan to achieve by offering additional paid services. Although still in their infancy, these services have already had an impact on company reports.
ONE HUNDRED AND ONE SERVICES higher than the one received from sell- In Europe, the share of extra services ing electricity,” said Gennady STRELTSOV, in power supply companies’ revenues Deputy CEO for Development and sometimes reaches 20 percent. Cus- Marketing at Moscow Power Supply tomers enjoy a wide range of services Company. “By expanding additional ser- in addition to installation of electricity vices power supply companies are able meters, including both industry-spe- to create greater value for customers cific services – special rates or energy and increase competitiveness, as well as consulting – and related services, most improve customer relations and make notably financial ones (lending, insur- a transition from a utility operator to a ance, etc.). diversified service provider.” With not more than 1–3 percent of Last year’s financial performance their revenues coming from additional of Moscow Power Supply Company services, Russian companies are badly confirms that the APS business is prof- lagging behind. Their system of sales itable. Revenues from additional paid is more modest, too: while European services are now equal to 7 percent of companies create large sales divisions or attract specialized agencies, their Rus- sian counterparts usually have nothing else but a price list on their website; the most advanced ones boast a local sales Last year, the company office or an online store selling electrical replaced about 1,400 street equipment. lights in the region’s Petrovsk Nevertheless, Russian companies’ ad- District, which was named the ditional paid services (APS) are already showing high profitability. “Marginal best street lighting project by income generated by APS is generally local authorities
10 them and start charging customers di- rectly. When the company was preparing new contracts, it turned out that the metering equipment did not comply with regulations. As a result more than a half of electricity meters had to be either replaced or checked again in some towns. Strong equipment sales were recorded by KurskAtomEnergoSbyt. Its customer service centers have sold more than 5,000 electric meters and boxes for them since the beginning of 2015. But the company does not plan to limit its product range to electricity meters: it has recently been expanded with circuit breakers, residual-current devices and boxes for installing electrical equipment indoors. KurskAtomEnergoSbyt’s director Sergei TOKAREV said his company analyzes demand and maps customer preferences to meet their needs as fully the company’s earnings generated by as possible by offering new equipment core business. “Additional paid services and related services. offered to electricity consumers are not The preferences of Moscow Power only becoming increasingly widespread, Supply Company’s customers are some- but also providing additional sources of what different: the most popular service income,” said Vlad BUGORKOV, Press Sec- is to switch to a payment plan with retary at RESK, RusHydro’s power supply different rates depending on the time of company in Ryazan. day (about 53 percent of all requests for Although the APS business is at its APS). The second in the list is installation dawn in Russia, experience has already and maintenance of electricity meters. shown that there’s a great variety of With businesses the situation is different: needs the services may respond to. For most of them are interested in turnkey instance, Novosibirskenergosbyt, which connection services, regional power sup- is regularly mentioned because of its ply companies say. This type of services wide product range, provides more makes up about a quarter of all requests than 100 types of services, including for APS. assistance with paperwork, obtaining of A slightly less popular service is specifications necessary for connecting installation of information and meas- to utilities from third-party organizations, uring systems for commercial power and installation and commissioning of metering, which consist of meters, data electrical equipment. collection and transmission devices and computers with specialized software, ELECTRICITY METERING FOR and enable property owners to optimize HOUSEHOLDS AND BUSINESSES power consumption and avoid penalties Traditional services, however, are still for exceeding contractual capacity. The the most popular ones. The most systems provide accurate information widespread service among RESK on the amount of electricity consumed, customers is installation or replacement which can be instantly copied and of electricity meters: it accounted for 65 inserted into reports and submitted to percent of the total revenues from the supervisory bodies. Also, they can bring company’s additional paid services in considerable benefits to large industrial 2015. companies, said ESK Garant, a power RESK said that some property man- supply company operating in Ivanovo agement companies ran up huge debts, Region. Large electricity consumers can forcing it to terminate contracts with apply for wholesale energy market play-
ENERGY WITHOUT BORDERS | № 3 (34) SEPTEMBER – OCTOBER 2015 11 COVER STORY er status and buy electricity at wholesale ising business for power supply compa- prices. nies even despite certain difficulties. For example, Saratov Power Supply Compa- HELP OTHERS TO SAVE AND MAKE ny raised the price of its energy service MONEY contracts as it had to take out loans to When expanding their service range, execute them and added the interest power supply companies tread a paid on the loans to the price. “How- seemingly controversial path: the ever, the company is always seeking to one of promoting energy saving and provide its Saratov Region customers energy efficiency. At first sight, lower with new energy saving opportunities,” power consumption is bad for them the electricity supplier said. Last year, as it results in loss of revenues and it replaced about 1,400 street lights in markups. At the same time, energy the region’s Petrovsk District, which was saving makes it possible to reduce named the best street lighting project electricity consumption during peak by local authorities. hours and prevents state-funded WE ARE A BILLING organizations from overspending AGENT AND OPERATOR COMPANY their budgets, which has a positive Along with moderate demand for energy VLADIMIR REZNICHENKO, impact on payment discipline, market services, Saratov Power Supply Compa- DEPUTY CEO, ST. PETERSBURG players say. Experts estimate that ny is witnessing growth in consulting POWER SUPPLY COMPANY: accounts receivable cost power supply services. The electricity supplier in- companies up to 15 percent of their creased its revenues from this seemingly “If you ask locals where their revenues. And most importantly, uncharacteristic business by 91 percent electricity comes from, they would energy services and energy audit, in 2014 by issuing a variety of certificates say, ‘From St. Petersburg Power which aim at improving energy and extracts from documents in addition Supply Company.’” Few will name efficiency, are promising and profitable to the information it has to provide free Lenenergo, a once integrated businesses in themselves, and of charge. Some regional power supply energy company established back additional revenues generated by them companies – Lipetsk Power Supply in the 1930’s. exceed the lost markups. Company, for example – has come very “This is because we have been on Energy efficiency and energy saving close to Western practices: it now sells the market for 20 years, billing St. are elements of strategy for EnergosbyT insurance to clients, including to owners Petersburg residents for electricity and Plus. Less than a year ago, T Plus (for- of hazardous facilities. other utilities, and collecting other merly KES-Holding) completed restruc- However, market players say that apart payments: from maintenance and gas turing of its power supply assets, uniting from expanding their service range, bills to payments for security services them under one brand. The recently cre- they also need to take a comprehensive and swimming pool memberships for ated company is designed to become approach to services and their distri- children. not only an electricity supplier but also bution if they want to adopt European “In this sense, we are a billing a provider of comprehensive energy practices. Seeking to boost their sales, company ourselves. We have created saving services and a single point of some companies have already opened an extensive network of branches accountability for customers. Today special shops for selling equipment and covering all city districts: there’s one within walking distance in almost each EnergosbyT Plus offers services ranging services. However, some experts believe of them. St. Petersburg Power Supply from design, supply and installation of that this is not enough: power supply Company has 85 payment centers in equipment such as light fixtures and companies face pressure from players the city, while Sberbank has about 300 domestic heating control systems to working in other businesses, Moscow branches. However, we collect almost complete refitting of boiler rooms and Power Supply Company’s Gennady the same amount of utility payments as standalone cogeneration facilities. STRELTSOV said. Sberbank does, which means that we A few years ago KES-Holding’s power “Convergence of industries gives rise are three times more efficient. One of supply companies, just like many other to a large number of new competitors,” our key strengths is perhaps that we do electricity suppliers, started carrying out he said. “While power supply companies not charge any fees for most payments; energy service contracts. This type of are still the first place to buy electricity, besides, our customers are free to contracts has been actively promoted new players – including retailers and choose whether to pay at a counter or in Russian regions since 2010–2011 and telecom providers – are emerging which at a self-service kiosk; we do not force is especially popular among municipal offer competitive services that used to them to use kiosks or pay online if they authorities as it enables them to pay for be provided by electricity suppliers only, are not ready for this (although these new infrastructure gradually and achieve such as energy audit and consulting, options are also available.)” savings by switching to energy saving integrated control and monitoring solu- technologies. It’s an attractive and prom- tions, and power generation equipment.”
12 Unwilling to cede market share loyalty. “Expansion of APS helps improve to new competitors, power supply employee skills,” Gennady STRELTSOV companies are expanding their energy, said. “Our experience has shown that utility and related services. An electricity effective motivation for selling and supplier is “an entry point for customers providing APS may increase employ- looking to resolve their energy prob- ee income, improve their loyalty and lems,” STRELTSOV said, which is prompt- reduce attrition among skilled person- ing Moscow Power Supply Company nel, which is critical for the industry as a to expand its “agent services” ranging whole these days.” from setting up of water meters and air conditioners to installation of elec- By Yulia MAKAROVA trical fittings in households. Also, the company offers its clients assistance in selecting contractors for the services it does not provide. Moscow Power Supply Company has radically reformed its billing system after analyzing customer needs. “Global experience shows that the first step on the development pathway for all power supply companies is to switch from is- suing electricity bills to putting all basic utilities on the same bill,” the electricity supplier’s Deputy CEO for Development and Marketing said. The company has completed a large-scale pilot project jointly with the Government of Moscow Region, establishing a billing company for all types of utility bills in Moscow Region, MosOblEIRTs. The APS business is a success not only in Moscow Region, but across Inter RAO Group as a whole, according to the company’s financial reports. Revenues from the paid services provided by its electricity supply operations exceeded 2.7 billion rubles in 2014. The expansion of additional services had another interesting impact apart from commercial success. A customer survey carried out by Moscow Power Supply Company (which is represent- ative of the whole industry) points to improved satisfaction with the quality of services. Additional services have also had a positive impact on employee
Moscow Power Supply Company plans to expand its “agent services,” which range from setting up of water meters and air conditioners to installation of electrical fittings
ENERGY WITHOUT BORDERS | № 3 (34) SEPTEMBER – OCTOBER 2015 13 THINK TANK CLUB 14 | The Volume Does Matter
ANTON KARPOV, VICE PRESIDENT, VICTOR KOLESNIK, ST. PETERSBURG ALEXEY DIRECTOR, INTERNATIONAL KHMELNITSKIY, INSTITUTE OF MERCANTILE DIRECTOR, ECONOMICS OF EXCHANGE SKOLKOVO ENERGY ENERGY AND (SPIMEX): CENTER: UTILITIES, HIGHER SCHOOL OF ECONOMICS: “Experience from natural gas trading on SPIMEX has shown that a decline in “To achieve a balance between supply and prices for consumers – at least below demand on the exchange in the current “An exchange is an effective tool for switch- the level set by the Federal Tariff Service environment, there must be strong price ing from a market where gas is distributed (FTS) – is an attainable goal. Depending competition driven by noticeable amounts in a controlled manner to transparent and on delivery terms and destination, of gas sales and a sufficient number of sellers fair pricing mechanisms based on sellers’ prices may be 200 to 300 rubles lower and buyers. Slightly over 2 billion cubic and buyers’ interests. The market economy than those set by FTS. Since the key meters of natural gas was sold on SPIMEX changed the essence of business relation- consumers buying gas on the exchange, from the opening of the marketplace in ships in Russia long ago, but the gas industry whether directly or through brokers, October 2014 to June 2015. With large- has remained unchanged, and this dispro- include quite a number of energy scale power generation in Russia (excluding portion strikes the eye. There is no doubt companies, price discounts on gas for small boiler houses and the housing sector) that changes will mainly benefit electricity power plants set an important precedent consuming 165 to 167 billion cubic meters and heat producers, whose future devel- in the market. Recent changes in the per year, this volume can hardly be called opment heavily depends on the stability of trading volume are also contributing noticeable. However, certain steps are being supplies and predictability of gas prices in to prices falling below the levels set taken to change the situation; plans include the long run. by the regulator. For example, June 23 the start of day-ahead trading, a decree Full-fledged exchange-based trading will saw 528.4 million cubic meters of gas obliging all gas producers to sell a certain help reduce the market gas price below the sold through SPIMEX, the highest level share of their output on the exchange, etc. levels set by FTS. In this respect, it is neces- since the launch of the marketplace in Most likely, the next few years will see energy sary to align the economic development October 2014. companies buying small additional amounts goals, the government’s current strategy and An important step towards increasing of gas at an insignificant discount to the the interests of the government monopoly, the liquidity of the gas trading venue price set by the regulator. which requires regulated demonopoliza- would be a transition to daily trading A relationship between the prices for gas tion of the energy sector. Trading rules and (today, gas is traded once a month). and electricity is evident but not direct. procedures still need some work on them, According to the Federal Antimonopoly The wholesale electricity market has long so the current system remains a pilot project, Service, the switch to daily trading been functioning as a market with prices just like in previous years. Moreover, the can be completed by the end of the influenced by how supply and demand are amount of gas sold on the exchange does third quarter of this year. It would balanced in the process of organized trading. not exceed 30 billion cubic meters, which give a substantial boost to the trade This balance depends on much more factors is well below 10 percent of the domestic volume: our target is 35 billion cubic than just gas prices. demand and therefore does not have a meters per year – this level is set by It stands to reason that the gas exchange significant impact on prices in the country. the relevant government decree. If we business should be developed, and it will On-exchange gas trading may give rise to a achieve this target, SPIMEX will be able – whether we like it or not. However, the more transparent gas market in Russia but to successfully compete with supplies energy sector, and electricity consumers in will not produce a noticeable effect on the under long-term contracts.” particular, should not expect fast results.” cost of electricity and heat generation.” A natural gas exchange was launched in Russia in October last year. The government took this step aiming to liberalize gas prices and reduce the costs incurred by Russian power plants. Experts who responded to Energy Without Borders’ requests believe that on-exchange trading will produce the expected results, but it will require time, a regulatory framework and higher volume of gas offered on the exchange.
DMITRY BARANOV, LEADING ANDREY EXPERT, FINAM POLISHCHUK MANAGEMENT: DENIS BORISOV, OIL AND GAS DIRECTOR, ANALYST, RAIFFEISENBANK: MOSCOW OIL & “In 2006–2008, gas was sold on Gazprom’s GAS CENTER, ERNST e-marketplace. Although just a pilot & YOUNG: project, it helped accumulate the necessary “Exchange-based gas trading is surely experience, which was put into practice last important for the future development of year. “An exchange is an important tool the gas market. However, it will hardly have Exchange-based gas trading was launched which creates additional opportunities any impact on gas prices in the short run: on SPIMEX in October 2014. The general for both buyers and sellers. However, they will be determined by FTS anyway. opinion formed after the start of trading the development and launch of the Furthermore, Russian gas prices are not is that it is unlikely to radically change the entire organized trading system requires likely to fall, because they are already one Russian gas market. Firstly, the marketplace thorough elaboration of all issues related of the lowest in the world (especially if the offers small amounts of gas. Secondly, only to its incorporation into the existing devaluation of the ruble is factored in). producers can trade on the exchange, which regulatory, infrastructural, financial and The free gas market is in its infancy. When makes it impossible to resell gas. Thirdly, it economic environment. Otherwise, the the market gets enough players and the is still just a pilot system, and SPIMEX is still price indicators based on exchange amounts of gas offered become significant, to fine-tune the entire trade mechanism, transactions will hardly reflect the market prices will be driven by market forces and identify bottlenecks in the Russian gas and will conflict with the basic principles of may differ from the ones that have been pipeline system and assess its attractiveness effective on-exchange trading, which builds fixed. Today, only Gazprom and several for independent gas producers. It is clear that on mutual trust and conviction that the independent producers contribute to this the country needs on-exchange gas trading exchange guarantees fair and transparent process. However, the trade volume may and that it is able to pick up pace, but this trade. increase dramatically in the future, boosted will take time. We should not expect that Apart from the need to establish pricing by other players, e.g., NOVATEK, Rosneft and exchange-traded gas prices will be much principles in the domestic market, there are other oil companies that are planning to lower and it will allow energy companies some other related problems that require increase their gas production. to reduce electricity prices. Besides, not all careful consideration to ensure successful The volume of exchange-traded gas combined heat and power plants in Russia operation of the gas exchange. Specifically, depends on both producers and buyers, are gas-fired – some of them use other there is a need to develop a well-balanced and we have neither today. Producers prefer types of fuel. Finally, and most importantly, legal and tax system, prepare standard long-term contracts with a duration of at fuel is not the only cost incurred by energy contracts, fine-tune the risk assessment least 20 years. If LUKOIL or some small oil companies, and even if they manage to buy and management systems, etc. It is equally company wants to trade on the exchange, gas on the exchange at a lower price – which important to synchronize the activities of it need to gain access to pipelines, but the will not necessarily happen – other costs may all bidders with the logistics infrastructure, access is given only by Gazprom – this is increase, and they will not be able to bring as well as develop and provide proper one of the problems that prevent small down the selling price of kilowatt-hours. To hedging tools to bidders, who need to be oil producers from increasing their gas summarize, electricity prices may be reduced sure that the traded gas can be delivered. production in Russia. Sometimes it is easier thanks to on-exchange gas trading; however, This is why all the leading exchanges have to sell the produced gas to Gazprom rather this scenario can be implemented in the strong links with physical and virtual gas than offer it on the exchange. It is clear that medium-term horizon only and not by all hubs.” electricity prices depend on gas prices.” Russian power plants.”
ENERGY WITHOUT BORDERS | № 3 (34) SEPTEMBER – OCTOBER 2015 15 ENGINEERING
16| Four Years to Get off the Ground
The Board of the Eurasian Economic Commission (EEC) has decided to cancel the customs duty on importing component parts for gas turbines of over 50 MW for four years. The measure became effective on September 1 and is aimed primarily at supporting the newly built gas turbine production facilities in Russia. It is also expected to encourage local manufacturers of power generation equipment to expand production.
source from EEC told member states of the Eurasian Econom- turbine parts that are subject to exemp- Energy Without Bor- ic Union (EEU) and expanding produc- tion. However, the situation is changing; ders that the tempo- tion of power generation equipment. last year saw the opening of two plants rary exemption aims Besides, the government believes manufacturing medium and heavy-du- to create a favorable that this measure will make the power ty gas turbines: a joint venture between environment for engineering industry more attractive Inter RAO, United Engine Corporation setting up produc- for investors. (UEC) and General Electric called Rus- tion of heavy-duty Today, EEU member states do not sian Gas Turbines, which manufactures A gas turbines in the produce a sufficient number of the 80 MW 6FA turbines, and a joint venture between Siemens and Power Machines nent parts made in Russia. The point is hot gas path. Moreover, it is also the called Siemens Gas Turbine Technolo- that when a gas turbine was assembled most expensive one. I believe that gies, which produces turbines with an from an imported set of components, our government should take steps to output of up to 307 MW. The new tax this set was exempt from import duties. have this part manufactured in Russia,” exemption covers the component parts But as soon as the company started Mikhail Lifshitz said. “By reducing the needed to make these turbines. making some of the components or import duties to zero, we deprived all “We have participated in the discus- sourcing them from Russian-based the market players of the key incentive sions of this decision and on the whole plants, a 6.7 percent import duty was to do so. At the same time, the number we support it. The core line of gas automatically imposed on the other of heavy-duty gas turbines with an turbines manufactured by UEC for the parts that were not produced locally. output of more than 50 MW is not likely energy sector includes products with Furthermore, gas turbines that were to increase in the near future (today, an output ranging between 2.5 and completely manufactured abroad were about 150 such turbines are used in 25 MW. The company is also planning also exempt from import duties. Russia; around 30 percent of them were to develop 32–42 MW and 110 MW “This put companies that really produced by Siemens; and 25 percent, engines. The output exceeding 50 MW invested in import substitution and by General Electric). The reason behind is a niche where UEC does not currently local production of gas turbines at a this is clear: a large amount of excess operate,” said Sergei Mikhailov, UEC’s disadvantage compared to those which generation capacity. Deputy General Director and Head of imported ready-made equipment or ROTEC’s CEO said that several Russian the Energy and Industrial Programs complete sets of components. The de- players, including Inter RAO Group and Division. Our joint venture with General cision made by the EEC Board resolves ROTEC, are making attempts to set up Electric and Inter RAO produces 80 this conflict and allows us to start pro- local production of hot gas path com- MW gas turbines, so the tax exemption ducing and using more Russian-made ponents. He believes that zero import will apply to the components for the parts,” explained Yury Sharov, Member duties on component parts make it Rybinsk plant. We believe that it will of Inter RAO’s Management Board, Head unprofitable to do so. greatly facilitate the development of lo- of Engineering Unit, CEO of Inter RAO – Yury Sharov is convinced that cal production, providing real economic Engineering. switching to local production of benefits to us as stockholders.” The first steps towards this goal high-tech equipment is a complicated, As a matter of fact, the previous cus- have already been taken. Russian Gas multistage process. Setting up local toms duty system basically discouraged Turbines signed a contract with ELSIB, a production of all components used companies from switching to compo- Russian electric engineering company, in gas turbines that are assembled to supply 90 MW generators for 6FA tur- under license agreements with foreign bines. By using locally-made generators companies is in no way a short-term in gas turbines, the companies will be objective. The same applies to the able to achieve maximum compliance development and roll-out of medium Several Russian players, with Russian technical standards. duty gas turbines (the next-generation including Inter RAO Besides, it will help significantly reduce GTD-110M), which takes several years. Group and ROTEC, are costs associated with installation, The next four years of zero import making attempts to set up commissioning, personnel training and duties will provide manufacturers of subsequent maintenance. power generation equipment with a local production of hot great opportunity to start production gas path components ONE STEP BACK, TWO STEPS of the parts and components they do FORWARD not yet produce. Strange as it may seem, not all market UEC is now developing an advanced players support the exemption deci- 100 MW gas turbine jointly with sion. For example, ROTEC’s CEO Mikhail RUSNANO and Inter RAO. A production Lifshitz believes that it contradicts the prototype of the GTD-110M is to be basic principles of import substitution, completed by the end of 2017, and as it discourages Russian manufacturers series production is scheduled for from setting up their own, completely 2018–2019. This is exactly when the local production instead of importing exemption will stop. semi knocked-down kits. Market players are waiting for the “Our western colleagues seek to next step in the EEC customs policy: stay in the Russian market without introduction of import duties on the transferring technologies. Today, all of turbines and components similar to the local joint ventures which manu- those that are already produced in facture heavy-duty turbines focus on Russia. assembling. In terms of competences, the key component of a turbine is the By Andrei SHCHUKIN
ENERGY WITHOUT BORDERS | № 3 (34) SEPTEMBER – OCTOBER 2015 17 INTERVIEW “Now we can manage import substitution and pricing effectively”
Inter RAO Group was one of the first holding companies in Russia to centralize its procurement function in a move that had a significant economic impact both for the Group and the industry as a whole (due to the Group’s substantial market share in a variety of sectors). In his interview with Energy Without Borders, Chief Executive of Inter RAO – Procurement Management Center Dmitry FILATOV discusses the benefits of centralization and tells our readers what the company does to execute the Russian president’s orders concerning lower procurement costs and import substitution, as well as speaks about ways to deal with sole suppliers and dumping.
nter RAO has centralized its procurement func- or new regulatory requirements – I would say that by tion, and this has been repeatedly reported to 10 to 15 percent on the average. have had significant economic impact allowing the company to meet the annual 10 percent Is there room for reduction or has the company cost reduction target set by the Russian presi- minimized costs as much as possible? dent and the government. Is there still room for It’s hard to say whether there are any more cost reduc- cost reduction today, three years after the start tion opportunities. We live in Russia, “the ruble zone;” of the procurement centralization project? we use Russian-made materials where possible, but a Having a clear understanding of the volume of whole range of equipment is still bought in another purchases helps us work with our contractors more currency. Unfortunately, the current trends in the for- effectively. Centralization has enabled us to get eign exchange market cannot but affect the situation, additional discounts on prices for materials and forcing both suppliers and contractors to significantly services. In the first six months of 2015 alone the increase prices. This is why I believe that our task is to decrease was about 7 percent. keep prices at the same level. If we manage to do this, This has played an important role in our meeting it will be a huge win. Our сenter has brought most of the 10 percent cost reduction target for three years in procurement competencies together, so now we can a row. In all fairness I must say that it was an ambitious manage import substitution and pricing more effec- Iand very challenging task. But we can already assess its tively. Import substitution is possible when we can results and say that the Group has managed to fulfill it. get absolutely competitive and reliable equipment, Our costs to purchase goods, works and services (per goods, works or services in Russia, importing the rest unit of output) fell by 11.09 percent in 2012, 10.31 per- from other countries. We should be realistic about our cent in 2013 and 10.82 percent in 2014. Nevertheless, abilities: it’s wrong to say that we can replace all the meeting the Group’s operational and investment needs equipment and services straight away. Unfortunately, is a continuous process in which each procurement de- cision is based on both general principles and specific features of each item being purchased. IT’S VERY IMPORTANT TO TAKE A How much did large companies in the market over- pay for goods and services on the average in the RATIONAL APPROACH AND REPLACE recent past? Since there are always many factors and levels to con- EQUIPMENT ONLY WHEN IT CAN BE sider – inefficient purchasing for example, which may be combined with price increases or changes in quality, REPLACED WITHOUT LOSS IN QUALITY
18 ENERGY WITHOUT BORDERS | № 3 (34) SEPTEMBER – OCTOBER 2015 19 INTERVIEW
there are still no locally made alternatives to some WHEN A BUSINESS COMES TO US, WE types of products. DO NOT CARE WHETHER IT’S SMALL OR Can you give some examples of energy equipment that cannot be replaced with Russian-made alter- LARGE; THE MAIN THING IS FOR IT TO natives? Heavy-duty gas turbines – it’s a well-known fact. When looking for alternatives, we now consider China or BE EFFECTIVE AND ABLE TO COPE WITH Korea, but it’s not always that we can find high-quality heavy-duty gas turbines even there. It’s very important THE TASK to take a rational approach and replace equipment only when it can be replaced without loss in quality. It’s so will not be able to completely stop sourcing from sole important in what we do: quality means reliability, low- suppliers in the nearest future. There are a few reasons er risks and uninterrupted operation. We cannot afford for that. We are always against this type of sourcing, to neglect it. but when we look at things objectively and see that it cannot be avoided, we go ahead with the purchase. Let’s speak about unique goods and services. It’s no Besides, we must understand that some services are secret that sourcing from sole suppliers makes up provided by monopolies, so you just cannot stop using the lion’s share of all purchases. The government them, especially in some regions. In such a case, our has called for companies to stop using this method task is to work with the sole supplier and use all possi- because of its inherent potential for corruption. ble means to make it bring down the price. We get help How fast can your company achieve this and what in this from our colleagues: people who oversee the difficulties does it face on the way? technical functions and heads of Inter RAO’s subsidiar- We have always been advocates of competitive proce- ies. Lately we have been buying from sole suppliers also dures. Slogans aside, common sense tells us that we because of the explosive price growth. Purchasing from sole suppliers is faster than using competitive proce- HAVING A CLEAR UNDERSTANDING OF dures: we can buy goods and services before prices are increased. THE VOLUME OF PURCHASES HELPS US Another important procurement issue is dumping. Companies often face a situation where the bidder WORK WITH OUR CONTRACTORS MORE offering the lowest price is questionable in terms of quality, ability to do long-term work and guaran- EFFECTIVELY. CENTRALIZATION HAS tees. What methods does Inter RAO – Procurement Management Center use to deal with such bidders, ENABLED US TO GET ADDITIONAL who ultimately cannot deliver quality work and services? DISCOUNTS ON PRICES FOR MATERIALS We face this problem quite often, and we use a number of ways to filter out openly abusive bidders. We have the so-called blacklist which is drawn up at the national AND SERVICES level. We can put the contractors that fail to meet their commitments on it. There are some good companies, too, but it’s not always clear whether they will be able What percentage do SMEs make up of Inter RAO’s to cope with the task. So we have long been choosing suppliers today? winners on the basis of a number of criteria rather than We have been keeping statistics on this since the the price only. We have developed a scoring system beginning of 2014. Small and medium-sized businesses where each bidder is assessed by our security team, accounted for about 65 percent of successful bidders lawyers, economists and technical experts in terms of for our procurement opportunities in 2014. As for 2015, its ability to perform a given task. Other ways include it’s too early to tell. A government decree titled “Partic- asking bidders to provide bank guarantees to ensure ipation of Small and Medium-Sized Enterprises in the their performance of the contract, or undertaking Procurement of Goods, Works and Services by Certain stage-gate reviews of the timing and quality of contrac- Types of Legal Entities” came into force on July 1, 2015, tual performance, which is needed to respond quickly changing our approaches to keeping statistics. So we’ll and take preventive measures to make sure that the get the first figures for 2015 in early 2016 only. However, deadlines are met and to minimize Inter RAO Group’s according to the data we already have, Inter RAO Group risks. companies will be able to attract the minimum required percentage of SME suppliers and contractors set by the The government has been quite consistent in intro- new regulations. ducing amendments to regulations encouraging small and medium-sized businesses to actively par- Procurement activities usually cause a great stir ticipate in the procurement process of large state- when companies discover that large amounts of owned companies. Inter RAO has already made money have been spent on expensive cars, yachts, appropriate changes to its regulatory documents. luxury foods, etc. Do you manage to control the Have these steps had any impact on the business appetite of Inter RAO Group managers at all levels itself and participation of SMEs (small and medi- when they want to make their life comfortable at um-sized enterprises) in the procurement process? the company’s expense? The impact is certainly evident. Why is it good for us? It is not really our job to curb our management’s It makes competition more intense. When a business desires: we are responsible for purchasing the things comes to us, we do not care whether it’s small or large; we are asked to purchase. However, since neither me the main thing is for it to be effective and able to cope nor my colleagues are indifferent to what’s going on with the task. By working for us, small and medi- and take a proactive stance, we always talk to our um-sized enterprises increase competition and bring colleagues when it seems to us that they do something down the price of services. Besides, I’m personally in wrong or make a mistake. Besides, our center has a favor of helping small businesses to thrive as they are department of economic security which monitors our the backbone of the economy; it’s good for the country work and our customers. Inter RAO Group has a corrup- and the right thing to do. However, I believe that small tion hotline; calls to the hotline are processed by Secu- businesses need support from the government as well. rity and Internal Audit. However, they have adopted a They should get some extra opportunities to be more reasonable approach to these matters and give us and competitive; this would eliminate the need for the gov- customers time to deal with the situation. The system ernment to issue orders calling for companies to give is rather effective, so Inter RAO Group has no signs of preference to small businesses. They will be gaining abuse you have been talking about – the caviar, yachts a firmer foothold naturally. I believe that this is how it and airplanes. I sincerely believe that people come to should be. Inter RAO to work, not to sail a yacht.
ENERGY WITHOUT BORDERS | № 3 (34) SEPTEMBER – OCTOBER 2015 21 REGION 22 | Oil, Honey and Electricity
Bashkiria is one of Russia’s leading industrial regions. It has a well-developed energy system that serves as the cornerstone for the republic’s growth and satisfies the region’s demand for electricity and heat.
armanovskaya TPP, following the Chernobyl disaster. two hydro power However, ROSATOM did not rule out plants and eleven the possibility of completing the plant NEFTEKAMSK combined heat and after 2020. power plants, including Bashkiria’s enterprises had been PAVLOVKA Zauralskaya CHPP, one manufacturing wind turbines up of Russia’s largest gas- until the Soviet Union collapsed. In fueled reciprocating the 2000’s the republic saw a new power plants, are the wave of interest in renewable energy Kpillars of Bashkiria’s energy system. sources. A 2.2 MW pilot wind farm UFA Besides, the region has several new was built near Tyupkildy village. Also, generation 4 MW gas turbine power Bashkiria has plans to build four solar plants. The republic was about to power plants with a capacity of five have its own nuclear power plant, to 25 MW each; the construction of but its construction was suspended the first of them started this April. STERLITAMAK
BASHKIRIA
Area: 142 947 km² Population: 4 071 987 Core enterprises: Bashneft, Ufa Engine Industrial Association, Bashkir soda company, Gazprom neftekhim Salavat, POLIEF, SalavatNefteMash, and Ufaorgsintez.
Key suppliers of electricity and capacity 4295 MW – the cumulative installed capacity of KARMANOVSKAYA TPP Bashkiria’s power plants Installed capacity: 1,831.1 MW, heating capacity – 204 Gcal/h 13 141 Gcal/h – Owner: Bashkir Generation Company the installed heating capacity of Year of commissioning: 1968 Bashkiria’s power plants Type of fuel: natural gas (and heating oil as back-up fuel) Specifics: Karmanovskaya TPP GENERATION is located on the Buy River in Bashkir Generation Company Neftekamsk and includes six (BGC) generation units. Its first power Virtually all generation facilities in the republic generation unit was launched are operated by Bashkir Generation Company. in 1968, to be followed by One of the largest regional energy companies, another one each year. Today, it has been part of Inter RAO Group since 2012. Karmanovskaya TPP is the BGC operates over 20 power plants in Bashkiria largest thermal power plant in with a cumulative electric power capacity of Bashkiria. 4,120 MW and heating capacity of 8,642 Gcal/h. POWER SUPPLY: With 34 thousand corporate customers and about 1.2 million household consumers, Bashkiria Power Supply Company is the main guaranteed supply company in the region.
PRIUFIMSKAYA CHPP Installed capacity: 210 MW, heating capacity – 447 Gcal/h UFIMSKAYA CHPP-2 Owner: Bashkir Generation Company Installed capacity: 508 MW, heating capacity – 1,547 Gcal/h Year of commissioning: 1975 Owner: Bashkir Generation Company Type of fuel: natural gas (and heating oil as back-up fuel) Year of commissioning: 1940 Specifics: The power plant supplies heat and hot water to homes Type of fuel: natural gas (and heating oil as back-up fuel) and industrial enterprises in Blagoveshchensk. POLIEF, the only Specifics: One of the largest combined heat and power plants company in Russia to produce terephthalic acid, is a major in the republic’s power system, Ufimskaya CHPP-2 provides heat consumer of the plant’s superheated and extraction steam, and to more than half of Ufa’s homes and to a number of nearby heat supplied with hot water. industrial enterprises. A 50 MW combined cycle power plant was commissioned at the CHPP in 2011.
UFIMSKAYA CHPP-3 Installed capacity: 95 MW, heating capacity – 992.8 Gcal/h Owner: Bashkir Generation Company Year of commissioning: 1951 Type of fuel: natural gas (and heating oil and associated gas as back-up fuel) Specifics: One of the plant’s turbines exceeded its lifespan and was replaced with a new one during renovation works in 2014. Further renovations are slated for 2015. Ufaorgsintez and NOVOIL are the key consumers of the steam generated by the power plant.
STERLITAMAKSKAYA CHPP UFIMSKAYA CHPP-4 Installed capacity: 345 MW, heating capacity – 1,621 Gcal/h Installed capacity: 270 MW, heating capacity – 792 Gcal/h Owner: Bashkir Generation Company Owner: Bashkir Generation Company Year of commissioning: 1957 Year of commissioning: 1956 Type of fuel: natural gas (and heating oil as back-up fuel) Type of fuel: natural gas Specifics: A strategically important element of the republic’s (and heating oil and associated gas as back-up fuel) power system, the power plant provides energy resources Specifics: In 2010, part of the plant’s equipment was primarily to large enterprises in the republic’s southern decommissioned for economic reasons. As a result, its installed industrial hub such as Bashkir soda company, Sintez-Kauchuk, electric power capacity dropped from 400 to 330 MW and Kaustik, and AVANGARD. heating capacity, from 1,608 to 892 Gcal/h. Ufaneftekhim is the main consumer of the steam generated by the power plant PAVLOVSKAYA HPP Installed capacity: 166.4 MW Owner: Bashkir Generation Company GRIDS: Year of commissioning: 1959 Bashkirian Specifics: Pavlovskaya HPP is a run-of-river hydro Power Grid Company power plant with a dam. Thanks to thermoset insulation Bashkirian Power Grid Company dominates the republic’s of the generator stator winding, the working capacity of each power transmission market and owns 0.4–500 kV backbone turbine was increased from 41.6 to 50.4 MW. In 2013, the plant grids and power distribution networks with a total length of completed implementation of a real and reactive over 88 thousand kilometers. The company was established in power control system. 2012 through reorganization of Bashkirenergo. Mikhail REKHTIN
ENERGY WITHOUT BORDERS | № 3 (34) SEPTEMBER – OCTOBER 2015 23 INFOGRAPHICS 24 |Armenian Energy System GEORGIA
2,6 MW Wind farm
TURKEY Sevan-Hrazdan Cascade Power plants – Nuclear 556 – Heat and power MW – Hydro 800 – Wind MW
Grid interconnections Hrazdan CHPP – Operating – Non-operating 550 MW 408 – Under construction MW Yerevan CHPP Armenian NPP
Transmission and distribution networks 220 kV 1,323 km 14 substations 110 kV 3,169 km 119 substations 35 kV 2,675 km 278 substations 9,740 km of overhead lines 6 (10) kV 8,598 substations IRAN 4,925 km of overhead lines 13,570 km of overhead lines 0.4 kV 2,160 km of overhead lines Armenian Energy System
AZERBAIJAN
Armenia’s total electricity generation CHPP in 2014 3.362 bn kWh
HPP 2.02 7.75 bn kWh bn kWh
NPP 2,46 bn kWh
404 MW Vorotan Hydro IRAN Cascade
AZERBAIJAN
Source: Ministry of Energy and Natural Resources of the Republic of Armenia ENERGY WITHOUT BORDERS | № 3 (34) SEPTEMBER – OCTOBER 2015 25 FOREIGN AFFAIRS 26 | Three Pillars and the Grids A country of only three million inhabitants, the mountainous Armenia has more barriers than opportunities to offer to its electric power industry. A rugged landscape, historical connection to the Soviet energy system, low-income consumers and tariff control – all these factors make it difficult to attract new business. However, foreign investors and banks are actively involved in developing the Armenian energy industry, with projects launched in almost all industry segments.
LARGE HYDRO TO BE BACKED BY from 13 in 1997 to more than 150 today; but NUCLEAR POWER BORN IN THE USSR SMALL HYDRO at the time when a dedicated program was The second pillar of the Armenian energy In mid-August, ContourGlobal Hydro Cas- developed, their number was expected to sector, nuclear power also stems from the cade, a subsidiary of US-based ContourGlob- reach 371 with a total capacity of 392 MW. Soviet era. It generates about one third of al, announced that it had completed the The government admits that the country the total output, but there is a risk that Arme- acquisition of the Vorotan Hydro Cascade. is falling short of the target for hydro power nia might face a sharp increase in tariffs and, This has become a landmark deal not only generation. It was expected that the output quite likely, a sizeable energy deficit unless for the Armenian energy industry. With a of small HPPs would be 830 million kWh by additional capacity is created. This problem value of about 180 million US dollars, it is the now; but as of 2014, the figure reached only will be tackled by a Russian company. biggest deal ever closed between Armenia 685 million kWh. However, small hydro- Early this summer, the Russian national nu- and the US. The American company is ex- power is not the only focus of aspirations. clear corporation ROSATOM announced its pected to invest more than 50 million euros Jointly with Iran, the government plans to willingness to continue participating in the in refurbishment and modernization of the build a 100 MW Meghri Dam with an annual construction of a new unit at Armenian NPP. power plants over the next six years and will output of 800 million kWh in the south of The local government originally decided to in return sell electricity under a long-term Armenia. Besides, Armenian authorities have expand the plant’s generation capacity in agreement with guaranteed tariffs. intentions to invite an international tender 2009, which prompted the creation of a joint The Vorotan Hydro Cascade is one of to build two medium capacity hydro power venture, Metsamorenergoatom, by Atom- the two largest Armenian systems of hydro plants in the north of the country. stroyexport and the Armenian Ministry of En- power plants accounting for 15 percent of the country’s installed power capacity, which Water release at Shamb HPP’s dam (Vorotan Hydro Cascade) makes about a half of the total amount of electricity generated by domestic hydro power plants. The second largest system of hydro power plants in the country, the Sevan-Hrazdan Cascade has limitations on the use of water released from Lake Sevan and consists primarily of obsolete power plants. While the hydro potential of large and medium rivers has been exploited since the Soviet times, the construction of hydro power plants on small rivers started much later. After the integrated energy system of the South Caucasus collapsed in the 1990s and the nuclear power plant was shut down follow- ing the 1988 earthquake, the focus had to be shifted to hydro power. Individual tariffs were introduced for electricity generated by small hydro power plants with account for construction costs and financing schemes. As a result, the number of small HPPs grew ergy and Natural Resources. The key goal of the company is to build a power generation unit with a capacity of 1,060 MW and a life span of 60 years. The power plant has already contracted ROSATOM to supply equipment for the reactor. This issue is also regulated by an intergovernmental agreement, in which the Russian party undertakes to build at least one VVER-1000 reactor, supply nuclear fuel, Power transmission lines in a mountainous area and provide decommissioning services once the design life is reached. The construction to attract investors to this sector as well. To will help fully load the 400 kV power trans- is expected to start in 2018–2019 and cost make the task easier for them, the ministry mission line connecting the national grids of approximately 5 billion US dollars. has developed a wind map showing the Armenia and Georgia and make it possible While the parties are discussing project most promising areas. Most importantly, to export electricity. In this way, officials details, a subsidiary of ROSATOM is working the government has approved an adequate seek to guarantee return on investment and on extending the life span of Armenian NPP’s tariff and undertaken to purchase all the repayment of loans that were taken out to existing power generation units. Built in 1977 electricity generated by the wind farms in build the power line. and designed for 30 years of operation, the the next 20 years. The country’s existing grid infrastructure power plant turned out to be more durable However, despite the improved afforda- has been developed jointly with Russian than its designers could imagine. Therefore, bility of renewable energy equipment, partners: in 2006, Inter RAO acquired a 100 an opportunity arose to review its life span Armenian experts doubt that it will be more percent stake in Power Grids of Armenia, after an overhaul that will require suspension cost-effective for consumers. which holds an exclusive license for electric of the plant’s operation for six months. As Chairman of the Public Services Regula- power transmission and distribution in the The NPP has already been shut down tory Commission Robert Nazaryan explained country. once: the 1988 earthquake did not hurt its in his speech in the parliament, the current Other countries also plan to make their power generation units, but they had to be tariffs don’t help make this sector attractive contribution to the construction of power suspended for a few years for safety reasons. for investors. “As for the solar power sector, transmission lines and substations in the After its de-mothballing, the plant became it is rapidly developing: three years ago, nearest future. A credit agreement has one of the world’s most environmental- the price was 150 drams per kWh, whereas already been signed with KfW as part of the ly-friendly nuclear power facilities in terms of today it is 55–60 drams; however, it is still too project to build the 400 kV power transmis- air emissions. By the way, Russian companies, expensive for us,” he said. sion line from Armenia to Georgia, which is including Inter RAO, were also involved in The Armenian Consumer Association now called the Caucasus Power Line. the management of the plant. referred to the focus on renewable energy “The initiative will help ensure concur- At present, the work to extend the life as “harmful rainbow-chasing” and said that rent operation and integration of the two span is funded by a Russian concessional the country needs to rely on the three most countries’ energy systems and stimulate their loan worth 270 million US dollars and a trustworthy sectors: nuclear, hydro and economic development. Moreover, we are non-repayable grant of 30 million US dollars. thermal power. The latter is highly efficient already in talks over the possibility of further nowadays. integration with neighboring countries – THERMAL BETTER THAN SOLAR The thermal generation sector is repre- Russia and Iran,” the Ministry of Energy and Just like other countries, Armenia sees sented by two large CHPPs – Hrazdan and Natural Resources said when commenting renewables as one of its energy priorities. It Yerevan – and both of them have recently on the new project. is already running a program to build solar expanded their capacity. The new 300 MW The first phase includes the construction farms with a capacity ranging between condenser of Hrazdan CHPP was designed of a power transmission line connecting 30 and 50 MW. The total potential of this back in the Soviet era, but it took a long two main operating lines in Armenia, next source is now estimated at 6,000–7,000 time to build it. The design was upgraded comes a section between Hrazdan and the MW. Armenia will start with installing six to increase capacity to almost 450 MW and near-border Ayrum. The section supply- weather stations to assess the available solar reduce fuel consumption. The new 250 MW ing electricity generated by Armenian resources. The research will be conducted unit at Yerevan CHPP is even more cost-ef- NPP’s new power generation unit will be next year, with bids from potential investors fective. The government is determined launched only in the final phase of the invited afterwards. The Ministry of Energy to expand the capacity of this plant even project. The estimated budget of the first and Natural Resources said the first 30 MW further: a roadmap developed as part of the phase alone is 107 million euros. Experts facility is expected to be commissioned in Energy Security Concept includes the launch say that power transmission tariffs must be 2017 at the latest. of another 450 MW unit. high enough to cover the loan repayment The prospects for the wind power sector needs, which is a usual thing for power grid are less certain. Wind power can be exploit- CONNECTING EVERYONE infrastructure development and reliability ed primarily in highlands, and it is quite a The Ministry of Energy and Natural Resourc- improvement projects. challenge to deliver equipment to such es said one of the arguments for installing areas. However, the government is planning a new power unit at Yerevan CHPP is that it By Yulia Makarova
ENERGY WITHOUT BORDERS | № 3 (34) SEPTEMBER – OCTOBER 2015 27 GLOBAL PRACTICES 28 |Top-level Regulation
In Western countries (and increasingly in developing nations as well), advanced power engineering projects have always been part of large-scale government programs. Russia is not in a hurry to follow this path.
CAUGHT IN A TRAP OF ERRONEOUS state-regulated; the energy industry is activities is so large that the companies’ BELIEFS tightly regulated, too, including electric- own resources to fund the infrastructure There’s a long-standing erroneous belief ity rates and requirements for long-term needed for research are limited, the in Russia that the market can correct programs and specific projects. For some government comes into play to provide imbalances in the economy and energy reason market advocates in Russia forget financial and organizational support industry, and provide a context for the about such energy programs as Japan’s – this is what happens in developed development of sought-after products. Cool Earth 50, Europe’s AD700, the US’s market economies. Moreover, the state This belief is completely false for the en- Vision 21, or the international project often initiates R&D programs. ergy technology, just like for many other FutureGen (studies carried out under For example, the heavily funded Euro- industrial markets. For example, electrici- these programs are often intertwined pean AD700 technology initiative began ty prices for businesses are twice as high and complement each other). Russia also in the early 1990’s as part of EU programs in Russia than in the US. Even gray-haired needs to make use of these practices. with the idea of developing a range of technocrats who grew up in the Soviet advanced materials for coal-fired power era sometimes say, “We need to correct THE STATE RULES generation units. The second phase of the market, and the market will correct Large R&D departments of power en- the program enabled a transition from price imbalances.” It’s an erroneous belief, gineering companies are quite able to supercritical coal combustion technolo- experts warn. We have been brainwashed develop technological innovations which gy with a net efficiency of 35 percent to with the word “market” in relation to help achieve improvements, but when it the ultra-supercritical (USC) technology infrastructure issues. Few people in comes to high-tech, strategically impor- where steam is heated to about 600 °C Russia know that in the US, for example, tant projects designed for the medium- and the efficiency is 45 percent. 60 percent of large-scale industries is and long-term, where the scale of R&D The current, third phase of the multidisciplinary research in fields such as thermal physics, materials science, metallurgy, etc. is called COMTES700 (the EMAX Power Plant initiative); it has brought together dozens of companies, institutes and universities. Its aim is to design 700°C advanced USC power plants and achieve a 52 percent net efficiency of coal-fired power generation units. Yet another area of research under the COMTES700 project is the develop- ment of highly-efficient integrated gasi- fication combined cycle (IGCC) technol- ogy where synthesis gas produced from coal is combusted in combined cycle power plants.
INNOVATION MANAGEMENT In the fall of 2008, the European Union adopted the so-called Strategic Energy Technology Plan (SET-plan) as part of its strategy of long-term structural meas- ures aimed at tackling the economic crisis. The plan stimulates an increase in R&D funding by promoting new energy technologies. The SET-plan includes sev- en industry-specific European Industrial Initiatives covering such fields as renew- ables (renewable energy sources; RES), carbon dioxide capture and storage for increased efficiency of conventional energy generation, smart grids, smart cities and controlled thermonuclear fusion. The initiatives have roadmaps with ambitious targets expected to be achieved by 2020. Works and research are now being planned for a period ending in 2035. In the US, a similar program aimed at promoting coal-fired and renewable Private investors are usually coal power plant started by the US generation, including the creation of ul- government back in 2003. The project tra-supercritical steam turbine units (the unwilling to fund long-term is carried out by the specifically creat- Ultimate Power Plant Concept, or UPPC), projects ed FutureGen Alliance, which includes is part of the Vision 21 national strategic major energy and power engineering initiative and a three-phase technology companies and organizations from roadmap to 2025 launched by the US DOE oversees two state energy re- countries which use coal generation: Department of Energy (DOE) in the early search institutes: Electric Power Research US companies American Electric Power, 2000’s. If we look at the structure of the Institute (EPRI), which deals with gener- CONSOL Energy Inc., Kennecott Energy roadmap, we will see that it’s very similar ation, delivery and use of electricity, and (now owned by Rio Tinto Energy Amer- to the innovation management prac- National Energy Technology Laboratory ica), Peabody Energy, Foundation Coal tices adopted in the Soviet era, experts (NETL). The latter develops technologies Holdings Inc. (acquired by Alpha Natural say. DOE designs all of the country’s in collaboration with large R&D depart- Resources); Australia’s BHP Billiton Energy energy programs. Its Advanced Projects ments of companies which in their turn Coal Inc., China Huaneng Group, and Research Agency-Energy (APRA-E) is very work with hundreds of engineering and South Korean and Indian companies. much like the USSR’s State Committee manufacturing companies. The state Two years ago, an experimental IGCC for Science and Technology: it promotes does not own the intellectual property plant was opened in Tianjin, China (IGCC the development of energy equipment and does not try to sell the IP obtained is a combined cycle technology that and technology and aims to achieve in the course of co-funded research (as it uses synthesis gas produced through breakthroughs which will help improve happens in Russia). coal gasification). It’s the first power the welfare of the state and the environ- For instance, in the 00’s, DOE funded plant of its kind in China and the sixth in ment. the development of advanced gas tur- the world. Private investors are usually unwilling bines in a project carried out by General When discussing energy issues in to fund long-term projects because of Electric, Solar Turbines and Westing- Russia, many people overlook the fact their unpredictable payback period and house and almost reaching 600 million that in developed countries (and lately the high risk that the research will not US dollars. The investment has already in China, India and Brazil as well), the yield results. This is when APRA-E comes paid back, with mass production of gas government often incurs the lion’s share into play, providing public funding to turbines and their sales started and the (70–80 percent) of costs needed to R&D and the creation of prototypes. companies’ and government’s revenues design and build prototypes of power Today, Vision 21 supports technology exceeding billions of US dollars. DOE plant equipment similar to the one de- that helps reduce energy dependence is now allocating about 800 million US scribed above. It should be noted that on fossil fuels by making large-scale gen- dollars for the UPPC project to build a rather than striving to set new technol- eration more efficient and increasing the prototype of an A-USC coal-fired power ogy records, the countries pursue purely share of renewable energy. After being generation unit. economic interests. For instance, the US set up by universities or private com- expects its programs to make important panies, an R&D project initiated by DOE PURELY ECONOMIC INTEREST impact by reducing electricity genera- is carried out by specialized university Along with the programs discussed tion costs and increasing competitive- departments or research centers – the above, the global community is now ness of American power generation Massachusetts Institute of Technology, witnessing the rise of international companies and the nation’s economy as for example – which conduct research state-funded projects involving energy a whole. (in Russia, it is done by academic insti- companies. One of them is FutureGen, tutes). a project to build an experimental clean By Irik IMAMUTDINOV
ENERGY WITHOUT BORDERS | № 3 (34) SEPTEMBER – OCTOBER 2015 29 FINANCE 30 | Cheap and Little
Slow season combined with the economic downturn has led to a decline in electricity prices. In this environment, delivering stable financial performance is a challenging task for most players. Nevertheless, some energy companies play their trump card to attract both resellers and investors.
2015, they emphasized that the amount of heat supplied by the company increased, while its power generation dropped 2 percent. The experts believe this can be partially attributed to the increasing flow of power to the Moscow free power transfer zone. “This means that the decline in consumption results in more intense competition with other electricity suppliers,” Promsvyazbank analysts said. At the same time, they pointed to a long-term decline in prices in European Russia, the Urals and Siberia. Competitive prices in zone 1 had been falling in the four weeks to the beginning of August. VTB 24: may generate speculative demand. Experts acknowledge that the decline FOLLOW-ON OFFERING TO BENEFIT Kleshchev named Interregional Distri- is partially caused by seasonal factors: SUBSIDIARIES bution Grid Company of Volga (IDGC of in summer, electricity consumption in ROSSETI’s follow-on offering, which Volga) among the companies capable Russia is always lower than the annual the holding company discussed at a of attracting special attention: its share average. However, this year saw seasonal specially convened extraordinary general capital is expected to increase, which trends aggravated by economic woes. It meeting, can support the stock price of will provide the company with additional is also important that prices continued some of its subsidiaries, VTB 24 analyst funds required for preparation of its grids to fall even after tariffs rose at the begin- Stanislav Kleshchev said. In early August, for the World Cup 2018. “The nominal ning of the second half of 2015. “About the company said it would issue new value of IDGC of Volga shares is four or 30 percent of the power being generat- stock worth 64.4 billion rubles. The raised five times higher than their market value, ed is sold in the free market. This is why funds will be used to stabilize Lenenergo and the additional shares that will be the sliding prices will affect revenues financially and improve the grid infra- issued at their nominal value are likely to of energy companies to some degree,” structure in the run-up to the 2018 FIFA increase the company’s stock price,” the Promsvyazbank analysts said. World Cup. “The most interesting part analyst said. of this news is not about the aggregate VELES CAPITAL: volume of the new shares, which may PROMSVYAZBANK: DIVING PROFITS exceed expectations; it is about the way REDUCED REVENUES DUE TO LOWER Low prices inevitably affect genera- they will be paid up. The government is CONSUMPTION tors’ financial performance regardless planning to partially pay them up with Declining consumption is placing great of their specialization, indicate RAS shares of interregional distribution grid pressure on the energy market, analysts reports published by several companies. companies,” Kleshchev said. He said that from Promsvyazbank said. When com- For example, OGK-2’s EBITDA and net depending on their value, some of the menting on MOSENERGO’s operating profit dropped 27 and 30.8 percent, shares of distribution grid companies performance in the first six months of respectively in the first six months of RYE, MAN & GOR SECURITIES: BCS EXPRESS: AN ATTRACTIVE DECLINE PINNING HOPES ON DIVIDENDS The top companies that have usually E.ON Russia also reported weaker been regarded as the most efficient financial performance in the first half ones failed to show high performance of 2015. A 21 percent slide in net profit in the first half of 2015. “As we expected, on the RAS basis came short of BCS Cheap and Little half-year results of Enel Russia did not Express’ forecast, said the investment come as a positive surprise,” said Sergei company’s analysts, who had expect- Pigarev, an analyst with Rye, Man & Gor ed a 7 percent increase. They said 2015, Veles Capital analyst Alexander Securities. The amount of electricity the slide was driven by a reduction Kostyukov said, attributing the retreat to supplied by the company increased by in power generation and a decline an increase in costs driven by fuel price 1.2 percent; that of heat decreased by in payments for capacity because hikes and high inflation rate. He said the 13.2 percent compared to last year. “The of scheduled repairs at Surgutskaya company’s operating performance in the financial performance was similar to TPP-2. However, there’s something to first quarter had already revealed this the operating results,” the expert noted: hope for. BCS Express expects stronger problem. Troitskaya TPP and Serovskaya revenues fell 4.2 percent, while EBITDA performance in the second half of TPP are suffering from an increase in coal plummeted by 35.9 percent. The com- the year. The analysts believe posi- prices: their fuel is produced in Kazakh- pany reported almost 1 billion rubles in tive changes will come thanks to the stan, and the weakening of the Russian losses after making a profit of 3.4 billion launch of a new unit at Beryozovskaya ruble against the tenge led to a hike in rubles a year before. “It was mainly TPP. Besides, they are convinced that procurement costs. “This had negative caused by a decline in prices for capacity gas prices, which were indexed on July – but not unexpected – consequences,” along with falling electricity prices in the 1, will give a boost to electricity prices Kostyukov said. day-ahead market and growing costs,” in European Russia. At the same time, TGC-1, which gets Pigarev explained. But the key point is that the 2015 most of its electricity from hydropower, Enel Russia also suffered from the dividends are likely to be high, the managed to slightly improve its perfor- devaluation of the ruble against Ka- investment company said. “We still mance, Kostyukov said, citing high water zakhstan’s tenge. The company’s net expect the regular dividends for 2015 levels and an increase in export volumes expenses grew by a total of 114 percent to exceed 0.25 rubles per share, which as the cause. However, the improvement because of the currency fluctuations and means the dividend yield will be over was only partial: revenues and EBITDA changes in loan terms. However, analysts 9 percent,” BCS analysts said, emphasiz- grew 0.1 and 1.8 percent, respectively, are convinced that it will not necessarily ing that regular dividends will amount while net profit fell by 4.9 percent. ruin exchange quotes for the generator’s to 100 percent of the company’s RAS- shares. “Despite the weak performance, based net profit, according to their GAZPROMBANK: we do not expect a dramatic decline in estimates. CASH FLOW GENERATOR the company’s share price. We believe In describing the near-term outlook for that the current share price levels are the Russian market, Gazprombank ana- attractive,” the analyst said. By Yulia MAKAROVA lysts forecasted moderate investor activ- ity. Multiple factors hamper investment, including uncertainties concerning the Central Bank’s monetary policy, oil prices and the situation with Iran’s nuclear pro- gram and Ukraine. The experts believe all this may “lower investor interest in the Russian market, leaving only some of the companies in focus; those that pay high dividends, for example.” Nevertheless, Gazprombank analysts said that some companies, including electricity suppliers, remain attractive for investors for other reasons besides their dividend policy. “We believe Inter RAO will manage to generate positive free cash flow this year once again, which makes its stock the best investment op- portunity in the electric power industry,” Gazprombank analysts said.
ENERGY WITHOUT BORDERS | № 3 (34) SEPTEMBER – OCTOBER 2015 31 NB 32 | Special-Purpose Electric Vehicle Yandex.Taxi, one of Russia’s most popular taxi booking apps, said in early July that it had ular public roads. With a maximum range purchased two Tesla electric cars, Tesla Model S and Model S Performance, to find out of about 100 kilometers, its battery takes whether Moscow taxi companies were ready to switch to the advanced green technology. three to four hours to charge. If the test is successful, taxi services offering electric cars might be given special The trucks will not be available for pur- privileges in the future. chase yet: they will be used to ship car parts from the company’s manufacturing plant in Munich to the near-by logistics center. The German carmaker claims the new product will save 11.8 metric tons of carbon dioxide every year.
Russia’s largest truck manufacturer KAMAZ also plans to make electric ve- hicles. In late May, the company started road testing an electric truck with a battery range of 50 kilometers. The tests will continue until the end of 2015, and mass production is expected to start in five to seven years.
Pilot green taxi Electric vehicles are used to carry tourists in Tsaritsyno Park nlike in Russian cities where vehicles were gradually replaced with luxurious Tesla or tiny Mit- electric ones in 2013–2014 to preserve subishi i-MiEV cars are still the unique architectural and natural viewed as something exotic, landmarks. Today, almost all residents electric cars are widely used and visitors of the island use small in Europe and the US for Mitsubishi i MiEV cars and Ford Transit various purposes: for exam- electric vans. Valaam has nine charging ple, as ambulance or police stations (eight with AC chargers and one Uvehicles. Russia is still far behind despite with fast chargers), which helps easily a significant increase in the number service its large EV fleet. of electric vehicles used by municipal By the way, the island is planning to services in recent years. replace all its trucks with electric vehicles as well. MUSEUM WORKER Small electric vehicles have long been BATTERY-POWERED TRUCK popular among museum complexes and Electric trucks are much less common wildlife reserves as they are nearly silent than electric cars. Nowadays, there are and absolutely environment-friendly. For only light and medium-duty electric example, Moscow’s Tsaritsyno Park and trucks, as well as hybrid ones. However, Gorky Park, Valaam Monastery and the the world’s major automotive companies Krasnaya Polyana Olympic ski resort have are already giving a serious thought to been using EVs for many years. producing heavy-duty electric trucks. Green transport is particularly heavily Quite recently, BMW launched a 40-ton used on Valaam Island, where regular electric truck which can be used on reg- Special-Purpose Electric Vehicle With low noise levels and high mo- bility, electric vehicles are also popular with security services. Most often they are used in city parks or natural re- serves. One can see police driving EVs in Moscow’s Sokolniki Park or ski resorts in Sochi. By the way, Russia is planning to set up production of innovative electric vehicles based on the Bravo eGo con- cept, which was presented last year. Thanks to an unusual folding design, it is capable of contracting by one meter, which is critical for fitting in tight parking spaces. In the unfolded state, the electric car’s length is 2.6 meters, but when turned on, it rises and shrinks to 1.6 me- ters. As a result, it needs only 1.5 square meters of parking space. The Bravo eGo can travel up to 100 kilometers on a single charge. It can be charged in two hours from a standard 220 V socket or in 20 minutes from a special modular station.
Battery-powered KAMAZ is now being road tested By Sofia MALININA
Experts believe that the future of electric trucks lies in urban areas. Today, night-time truck delivery is prohibited in many cities around the world due to high noise levels. Electric vehicles can solve this problem once and for all.
RESCUE SQUAD Electric vehicles are successfully used by emergency services. For example, despite its dimensions, the tiny Renault Twizy Cargo can function as a ful- ly-equipped ambulance vehicle. When necessary, a Twizy Cargo can bypass traf- fic jams by driving on sidewalks and park in places where even the most compact car would not fit. At just 2.4 meters in length and only 1.2 meters wide, the electric car has a 180-liter trunk, which is enough for stor- ing medications and equipment. The car is powered by a 12.7 kW electric motor and has a battery range of 100 km. Renault Twizy Cargo
ENERGY WITHOUT BORDERS | № 3 (34) SEPTEMBER – OCTOBER 2015 33 EVENT CALENDAR October–November
SOCHI-2015: The XIV International Investment Forum October 01–04, Sochi
In October 2015, the host city of the 2014 Winter Olympics will be the venue for the International Investment Forum Sochi-2015 for the 14th time. The event will be held in Olympic Park’s Main Media Center located in the coastal cluster of the Imeretinsky Valley. The forum has established itself as one of the biggest and most significant events in Russia’s economic life. Sochi-2015 will be devoted to import substitu- tion and production development, including manufacturing of power generation equipment in Russia.
The XV St. Petersburg International Energy Forum October 06–09, Saint Petersburg The St. Petersburg International Energy Forum was established in 1999 on the initiative of the Russian government and Gazprom. Today the forum is one of the country’s biggest industry events covering all aspects of the energy industry. This year it will show- case companies working in the power engineering, oil refining and petrochemical industries, as well as in the nuclear power sector and small-scale generation. The forum’s agenda of 2015 will focus on boosting the energy sector’s investor appeal in the current economic situation. The XV Russian Energy Forum October 27–30, Ufa
One of the largest business forums in Russia devoted to small and large- scale generation, its issues and solutions will take place in the capital of Rusgrids-Electro. Russian grids. Bashkiria for the 15th time. Effective energy will be in focus this year. The New opportunities: International event is held with support from the Russian Ministry of Energy and the Electric Power Industry Forum Ministry of Industry and Innovation Policy of Bashkiria. October 20–23, Moscow
Rusgrids-Electro 2015 aims to demonstrate the industry’s potential for a breakthrough in efficiency improvement in the current economic environment. The forum’s agenda is focused on looking for new growth opportunities for the power industry in its key areas: innovative development, energy efficiency, reliability, and domestic production of equipment. Special emphasis will be given to issues such as support for small and medium-sized businesses; develop- ment of electric vehicle charging infrastructure; the use of smart technologies in homes and modern city’s infrastruc- ture; and personnel and youth policies. The event’s agenda will include over 50 discussion and interaction sessions, which will be attended by about 2,000 Russian and foreign experts.
34 ЭНЕРГИЯ БЕЗ ГРАНИЦ | № 3 (34) октябрь 2015 PHOTO EDITOR’S CHOICE
36 | Magic of Light or eighteen days each color; or a large fish with its tail cutting the city pavements with grand-scale year, Sydney transforms through a wave of neon light that flashes light projections dancing on the walls. into a huge canvas for unexpectedly on the ceiling of a highway The magic colorful transformation of the artists to paint on. Yet to tunnel. iconic Sydney Opera House is perhaps create a picture, they need Vivid Sydney, a festival of light, music the most mind-boggling experience of no brushes or paints, but and ideas, gathers magicians of light – the festival. rather… colorful light and designers, artists and urbanists – from Vivid Sydney has been held annually music. The city comes around Australia and the world to since 2009, attracting tourists and their Falive with fantastic flowers bursting into transform the city’s urban spaces through dollars from across the “green continent” blossom on building façades; or abstract their creative vision. Light art sculptures and the world. In 2015, the festival ran patterns swirling in a kaleidoscope of and futuristic installations spring up on from May 22 to June 8.
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