6 (25) December 2013– January 2014

Modernization: How to double The struggle proof of the service life for the Turkish efficiency of a turbine power market 16 18 26 Magazine about Russia’s Power Industry Energy Without Borders No. 6 (25) December 2013– January 2014

Faster, stronger, and more efficient This is a good way to describe the pre-Olympic year for Russia’s power sector. Many events of 2013 will affect the future of the industry.

Dear readers,

rawing a line under the departing 2013, I would like to notice that the year was challenging and eventful for energy companies. So, the real challenge was the development of energy infrastructure for the XXII Winter Olympic Games that start in February in Sochi. The country’s energy companies coped with the task excellently, including Inter RAO Group, which commissioned Dzhubginskaya thermal power plant (TPP) and a number of other power facilities. This year also proved to be one of the peak years for the company in terms of commissioning new facilities under capacity delivery agreements. Overall, Inter RAO has commissioned 2.2 GW of capacity under CDAs, of which 500 MW have been put into operation from the beginning of 2013. According to expert forecasts, changes in the market rules, significant amendments to the law, high-profile dismissions and assignments, that shook the industry during the year, will greatly influence further development of the Russian energy sector. The focus of this Dissue is the review of the industry’s year results summarized by Sergey PIKIN, Director of the Energy Development Fund, who gave an exclusive interview to Energy Without Borders. Our experts shared their forecasts on the future of the energy industry in the Expert Club section. A considerable part of this issue is dedicated to modernization and innovation. Support- ing the implementation and adoption of innovative developments today is a guarantee of reliable and efficient operation of energy facilities tomorrow. For example, the Assembly Coating Center opened on the premises of the Kostromskaya TPP has adopted new technologies related to specific coating materials and coating methods that will enable, for example, to more than double the service life of turbine blades. This is one of the solutions to the rather pressing problem of heat and power equipment wear and tear. As always, on the pages of the Energy Without Borders magazine you will find local and global energy news, a financial analytical overview, and a schedule of the most important industry events for the coming two months.

I wish you informative reading and we are looking forward to your feedback that you can send to the editor’s e-mail address: [email protected]. Let me also take this opportunity to congratulate all of you on the coming holiday, Pow- er Engineers’ Day, and wish you a Happy New Year!

Truly yours, Editor-in-Chief Anton NAZAROV CONTENTS

INNOVATION 18 Blade Running A unique innovative facility, Inter RAO – Assembly Coating Center, was launched at the Kostromskaya thermal power plant. Implementation of new 4 NEWS technologies using such operations as laser surface coating, high velocity flame spraying and ENERGY SECTOR plasma thermal spraying will enable to increase 8 the lifetime of power equipment manifold, in WORLDWIDE particular, double the service life of turbine blades. COVER STORY 10 INTERVIEW 20 «The Most Efficient 2013 Results Shall Survive» 2013 has marked many milestones of the last decade for the Russian energy sector. Experts already forecast that many changes in the market game rules and positions of the key companies and players, as well as personnel replacements will have a significant impact on further development of the sector. Read about the most important events, figures, quotes, and persons in our final summary of the passing year.

POWER GENERATION 16 Add the Capacity The expert community of the electric power industry has been discussing the subsequent fate of the projects related to new construction of generation facilities after the completion of the capacity delivery agreement (CDA) program. Undoubtedly, construction needs to take place. However, upgrading the existing equipment may also become an efficient and economically sound solution.

Despite the fact that 2013 has become one of the most eventful years over the last decade, Sergey PIKIN, Director of the Energy Development Fund, believes that the energy sector is still in need of systematic changes. In his interview with Energy Without Borders, Mr. PIKIN, a leading industry expert, summarizes the results of 2013 and the reform’s tenth anniversary, and talks about what should be done today to implement the outlined plans in the future.

ENERGY EFFICIENCY 24 Avenue of Innovation Street lamps on Svetlanovsky Avenue in Saint Petersburg started shining with even warm light on November 11. For the first time ever, a modernized energy efficient LED lighting system developed and produced at Svetlana- Optoelectronics JSC was installed along a city motorway in Russia.

2 Founder and publisher: Inter RAO Issue No. 6 (25) December 2013 – January 2014 FINANCE The magazine is registered with the Federal 30 Under the Sign of Communications, IT and Mass Media Supervision Changes Service, state registration certificate PI No. FS77- 54414 dated June 10, 2013. The year 2013, rich in industry Founder and publisher: JSC Inter RAO. events, is drawing to a close; Editorial address: 27/2 Bolshaya Pirogovskaya Street, however, the decisions made Moscow, will still be affecting, for a long 119435, Russian Federation, time, the overall situation and tel. +7 (495) 664 8840, fax +7 (495) 664 8841, indicators of specific electric [email protected]. power sector companies. For advertising inquiries, please call: +7 (495) 664 NB 8840 (2124). 32 Tamers of Coal and Steam Editor-in-Chief: Anton NAZAROV Executive Secretary: Varvara KARTINTSEVA Several years ago, Russia FOREIGN AFFAIRS embarked on the course of Editorial Board of JSC Inter RAO: 26 Turkish Gambit modernization. New energy Vyacheslav ARTAMONOV, Member of the The stable consumption growth sector technologies are slat- Management Board; rate makes the Turkish power ed to play a key role in this Alexander BORIS, Member of the Management market one of the most promi process. All-Russia Thermal Board – Chair of the Editorial Board; sing ones, with key global play- Engineering Institute (JSC VTI) Irina MAKARENKO, Investor Relations Director – ers actively competing over it. is one of the organizations Head of Investor Relations Department of the Russian companies have also capable of creating them, as it Strategy and Investment Unit; joined in this competition. has been shaping the industry Anton NAZAROV, Director of Public Relations, Head for a number of decades. EXPERT CLUB of the Information Policy Department – Deputy 28 The Energy Sector of Event Calendar Chair of the Editorial Board; Pavel OKLEY, Member of the Management Board – Tomorrow 34 Major industry conferences, Head of the Operations Unit; In the last issue of the passing forums and exhibitions in Sergey PUCHKA, Head of the Human Resources and year, we asked our experts December 2013 and January Organizational Development Unit; to play a somewhat unusual 2014. Yury SHAROV, Member of the Management Board – role by becoming futurologists Head of the Engineering Unit. and attempting to divine what PHOTO EDITOR’S CHOICE events are in store for the 36 Tricks of Light Russian electric power sector Within the scope of the Circle in 2014 and farther into the of Light Third Moscow Inter- 10/9 Nizhnyaya Syromyatnicheskaya Street, future, as well as share their national Festival, the façade Moscow 105120, tel. +7 (495) 640 0838, views of what institutional of the Bolshoi Theater was +7 (495) 640 0839, www.medialine-pressa.ru, transformation the industry transformed into a venue for е-mail: [email protected]. needs today. installations. General Manager: Larisa RUDAKOVA Project Manager: Tatyana POSTNIKOVA Commissioning Editor: Elvira KHAIRULLOVA Art Director: Vladislav MAKSIMENKO Chief Designer: Inna TITOVA Designers: Elena POPOVA, Ilya FANDEEV, Alexey SUKONKIN Layout: Svetlana KOZHOKHINA, Tatyana SASINA Art Editors: Anastasia KRIVOSHEINA, Yevgeny LIKHATSKY | Color Corrector: Andrey KLOCHKOV | Proofreaders: Natalya KONNOVA, Larisa NIKOLINA, Galina BONDARENKO, Alina BABICH, Yulia BABICH Photo: Press Service of Inter RAO Group companies, Shutterstock, RIA Novosti, Lori photo bank, photographer Andrey VETROV, Press Service of Kubanenergo Proofs approved on December 11, 2013 Printed at Viva Star print shop.

ENERGY WITHOUT BORDERS | № 6 (25) December 2013 – January 2014 3 NEWS

GW of capacity is planned to be commissioned by generation companies in Russia under 2014 is the date when a new capacity delivery agreements before 2018, version of the energy strategy according to the information provided by of the Russian Federation until 20,16 Minister of Energy Alexander NOVAK. March12030 is due to be unveiled.

The Winter Is Coming Appointments The energy sector companies are prepared for ed to 86% of the calendar schedule. Grid On November 11, at an ex- the autumn-winter period. At the All-Russian companies are progressing ahead of schedule: traordinary general meeting meeting, «On the Progress of Preparing Con- repairs of power lines of 110 kV or higher volt- of shareholders of Federal stituent Entities of the Electric Power Sector of age have been completed at the 101% level Grid Company (FGC), Andrey the Russian Federation to the Autumn–Win- as compared to the calendar schedule, while MUROV was approved as ter period of 2013–2014», it was noted that, vegetation clearing from the routes of such the Chairman of the Board. based on the performance during the first lines – at the 93% level. As of the end of Octo- Since June 2012, he had been First Deputy nine months of 2013, the volume of major ber, commissions from the Ministry of Energy Chairman of the Board at FGC. overhauls and medium repairs of generation inspected 45 electric power industry facilities; equipment performed by companies amount- 43 of them were issued readiness certificates. Valentin MEZHEVICH, former First Deputy Chairman of the Committee on Economic Policy of the Council of the Federation of the Russian Federation was appointed Deputy Director General of Russian Grids.

Vitaly YAKOVLEV became the new head of the Moscow United Energy Company (MOEK). This decision was made during an extraordinary meeting of the company’s shareholders.

Former Deputy Plenipo- tentiary Representative of the President of the Russian Federation in the North Caucasian Federal District (NCFD) Maxim BYSTROV was In the Black appointed Acting Head of NP «Market Coun- cil». Prior to 2010, he worked at the Ministry of Thanks to a well-timed entry into the market, as well as the use of special financial market Economic Development, Ministry of Regional instruments, Inter RAO Group was able to sell foreign currency at exchange rates consider- Development, En+ Management, and the ably more favorable as compared to standard market foreign currency conversion rates. For government. example, in September, in a number of transactions, Inter RAO sold euros at the exchange rate above RUB 46 per EUR, and the U.S. dollars at the rate of more than RUB 34 per USD. In Russia’s Deputy Minister October–November, several more equally successful transactions were completed. of Energy Vyacheslav These transactions were aimed at reducing the company’s risks (hedging) by means of KRAVCHENKO was ap- fixing guaranteed selling rates for foreign currency. Within the scope of the transactions pointed the government’s to hedge foreign currency risks, the Group, in September alone, earned a profit in excess authorized representative at of RUB 38 million, while during the first nine months of this year the cumulative profit on NP «Market Council», while these transactions has already amounted to over RUB 280 million. Thus, despite a consid- Pavel SNIKKARS, who had been working at erable weakening of the ruble’s exchange rate in the summer of this year, which brought the Partnership since 2010, took a new job losses to many market participants, it was possible to confidently preserve financial perfor- at the Ministry of Energy as the Director of mance on Inter RAO’s transactions in the black. the Electric Power Department.

4 billion is the amount of the total % is the percentage by which, based on 2013 losses incurred by the energy performance, the Ministry of Energy is planning sector companies as a result of the to increase the funding of state-owned energy flooding in the Far East, according sector companies. The total funding will amount RUB1,2 to the Ministry of Energy. 10,2 to up to RUB 751.1 billion.

The End of the «Last Mile» The Fine In November, Russian President Electric Power Sector» related to threaten not only the profits of Doubled Vladimir PUTIN signed the eliminating the «last mile». This certain industrial enterprises, amendments to the Law «On the mechanism was introduced back but the country’s economy as a Russia has stiffened penalties for in 2007. It was done, according to whole, the authorities made a illegal grid connection. President Sergey SHMATKO (who was the discretionary decision to aban- of Russia Vladimir PUTIN has Minister of Energy back then), «to don this mechanism. signed the respective law. In avoid sharp changes in tariffs in However, in 15 Russian particular, the law sets forth the the energy sectors of the regions regions, the «last mile» will be amount of the fine for unauthor- and increasing the burden on the extended until 2017, including ized grid connection and use of end consumers». According to the Volgograd, Vologda, Lipetsk, electric and thermal energy, as the «last mile» contracts, Federal Rostov, Tambov, Tomsk, Tyumen, well as oil and gas. Individuals will rid Company (FGC) leased to in- Belgorod, Nizhny Novgorod, have to pay RUB 3 to 4 thou- terregional grid companies small Kursk, and Chelyabinsk Regions, sand (earlier it was RUB 1.5 to 2 sections of the trunk grids or oth- the Republics of Mari El, Karelia, thousand), officials – up to RUB er electric power supply facilities and Khakassia, as well as the 8 thousand (currently they pay (substations, distribution points, Khanty-Mansi and Yamal-Nenets up to RUB 4 thousand), while the and so on). As a result, for corpo- Autonomous Regions. The agree- biggest fine is envisaged for legal rations, direct contracts with FGC ments will remain in force until entities – up to RUB 80 thousand became unavailable. However, 2029 within the territory of the instead of RUB 40 thousand. once it became obvious that Amur Region, Jewish Autono- The law will come into force on high electricity expenditures of mous Region, Republic of Buryat- December 6. industrial consumers started to ia, and Zabaykalsky Territory.

EBRD Gives a Green Light

Inter RAO Group obtains a long-term loan from the European Bank for Reconstruction and Development (EBRD) to finance construction of Verkhnetagilskaya TPP. The purpose of the loan is to finance the construction, equipment supplies and the commissioning of the 420 MW combined cycle power plant (CCPP) at Verkhnetagilskaya TPP. In particular, the financed project is intended to replace obsolete coal-based units for a new combined cycle power plant, as well as introduce a HSE management system and implement a range of other initiatives aimed at improving the coal-based to gas-based power generation. be implemented by Inter RAO is fully in line environmental situation (including carbon One of the key criteria for approving the with these requirements. The loan amount reduction). loan is the requirement for the investment will be RUB 12 billion, with a maturity of EBRD has announced that the transac- project to comply with current technical and seven years. In the framework of this deal, a tion is being implemented in line with the international environmental standards and syndicate of commercial banks is supposed bank’s strategy that supports transition from increase energy efficiency. The project to to be involved.

ENERGY WITHOUT BORDERS | № 6 (25) December 2013 – January 2014 5 NEWS

MW is the increase in electric power generation at the Permskaya TPP since the beginning of the year, billion was invested by Moscow in the energy resulting from a reduction in the timeframes RUB 54 saving program in 2013. 36 of the maintenance campaign.

Caught Patches of Sunlight On a hillside near Rjukan, Norway, three inhabitants, with most of them working at mirrors with an area of 17 sq. m have been the local hydropower plant. installed. By using a computer-based control The project, with a sticker price of NOK system, they maintain an ellipse of sunlight 5 million, was 80% funded by sponsors. at the town’s main square. The thing is that, The unique system of daylight lighting during half of a year, the town is in the will benefit not only the townspeople, but shadow of the mountains. The shortage of also the town as a whole. Rjukan’s authori- sunlight negatively impacts the physical and ties expect that the innovation will attract emotional state of the town’s 3.5 thousand tourists.

A Special-Purpose Ministry In early November, a new agency, the Ministry of Construction, Housing, and Utilities, headed by Mikhail MEN, former Governor of the Ivanovo Region, appeared within the structure of the Russian Government. Among his priority tasks, the newly minted Minister named, in particular, not allowing increases in utility tariffs. Industry experts are confident that the creation of a separate agency charged with addressing the issues of the utilities sector is an important event for the energy market. «It seems that the problem is so serious that to address it, creating an agency or a service is not sufficient, and the responsible individual needs an elevated status,» believes Dmitry Discounts on Schedule ALEKSANDROV, Head of Analyt- ical Research Department at the The government has limited the right of citizens has no obligation to begin consumption and UNIVER Investment Group. Ideally, and small consumers (up to 15 kW) to discounted pay the tariff immediately after connection. The according to the expert, the work connection to electric power grids. Now, connect- problem was further aggravated by the fact that, of the Ministry within the scope of, ing for RUB 550 will be possible only once every in some regions, grid companies saw the number for example, power supply issues, three years. of connections at the discounted rate reach 90%. could strengthen the efforts to curb Grid companies have long been complaining In addition, according to grid companies, the most non-payments in the field and, si- about this mechanism, as the amounts collected enterprising citizens have built businesses around multaneously, reduce the number of from those entitled to the discounted price cover that mechanism. For example, an owner of a land cases of abuses during connection / less than 1% of the connection costs. The rest is plot subdivided into several parcels would submit technical connection and mainte- compensated to the grids by the government a single application and would qualify for connec- nance of stable power supply. within the energy transmission tariff, which is tion at the discounted rate, while subsequently paid by all consumers. However, the consumer selling the right to connect to the grid himself.

6 tons of fish was released by the Ryazanskaya million sq. m is the area of Japan’s TPP within the scope of program to stock fish 1,27largest solar power plant. 9,5 in the Novomichurinskoye Reservoir.

A Battery-Operated Terminal Testing of solar panel-based parking meters has started in the capital. It is planned that, by Decem- ber 5, 80 payment terminals will be launched, with their number increasing to 350 by December 25. The parking meters have vandal-resistant housing and can withstand temperature changes from –25°C to +50°C. In addition, the payment terminals will be equipped with backup accumulator batter- ies, which will be charged both from solar panels and from external power sources. In the absence of a solar panel, the devices must maintain func- tionality for at least five days provided they print Awards Found Inter RAO no more than 100 receipts per day. Solar panel-based parking meters will be The 2012 Inter RAO’s annual report was the within the scope of the 12th International accepting only non-cash payment methods – winner of the 15th Annual Report Com- Investment Forum Sochi-2013, the compa- parking or bank cards. petition held by the Moscow Exchange ny was awarded second place in the «Best in the «Best Annual Report of the Electric Annual Report in the Infrastructure (Heat, Power Sector of the Economy» nomination. Gas, Water, and Electric Power Supply) Annual reports of RAO Energy System of Industry» nomination. East, RusHydro, and other companies of It should be noted that Inter RAO the energy sector were declared winners in takes an extremely serious approach to other nominations. preparing its annual report, considering it In addition, the judging panel of the to be one of the most important tools for 16th Annual Federal Competition of interacting with the company’s sharehold- Annual Reports recognized Inter RAO’s ers and other stakeholders. This is why the annual report as the best in the following company’s annual report represents a de- nominations: «Best Annual Report in the tailed history of the company’s operations Central Federal District», «Best Annual and contains in-depth analyses, conclu- Report in the Electric Power Industry», and sions based on the achieved performance, «Best Comprehensive Presentation of the and key provisions of the company’s Company». In addition, in late September, strategy for the near term.

The Best Yet Again! The 4th Futsal Cup of the Fuel and Energy Complex / Energy and Nuclear Sector was held in Moscow. This year, 32 teams representing companies of the energy and nuclear sectors from various Russian cities participated in the sporting competition held in a knockout format. All teams were divided into eight groups. The Inter RAO team took the first place in Group A and advanced to the gold medal playoff game. In the final game, Inter RAO players practically clawed the victory from the team of the Beloyarsk NPP, with a score of 2 to 1, becoming the winners of the Fuel and Energy Complex Cup for the third time. The Beloyarsk team won the silver, while the MOEK team got the bronze.

ENERGY WITHOUT BORDERS | № 6 (25) December 2013 – January 2014 7 Energy Sector Worldwide

Brazil Ukraine

Build Impossible to Prohibit Now in Compliance Brazil’s Federal Court ruled to continue the with the Law construction of the world’s third-largest Members of the Verkhovna Rada has hydropower plant Belo Monte in the Am- adopted Law No. 0916 “On the Basis azon River basin, in the state of Pará. Thus, of Electricity Market Functioning in the Federal Court vacated the order of a Ukraine”. Currently, the energy market lower court dated October 28 that banned of a single consumer exists within the the HPP construction by Norte Energia for country, whereas the new law envisages failure to meet its environmental protec- implementation of a model based on tion obligations. direct contracts, a market for day-ahead contracts, and a balancing market. Under the new law, a full-fledged electric power market shall be implemented in Ukraine by July 1, 2017, after the necessary subor- dinate legislation is adopted.

USA

Environmentally Friendly Electric Heater ClearSign Combustion announced that it Nigeria succeeded in creating the Electrodynamic Combustion Control™ technology, which allows for reducing the amount of pollut- China Will Build ants emitted by electric power plants into The country’s government signed an the atmosphere. For example, thanks to agreement with Chinese state-owned the scientists’ design, an electric field can companies to build a hydro power plant. now be used to control the fuel burning Nigeria has long been experiencing a process at a power plant. According to shortage of electricity. The total capacity estimates of ClearSign Combustion proof power plants in the country amounts to fessionals, this will allow for reducing emis- 4,500 MW; once the new HPP is com- sions of particulate matter at industrial missioned, it will increase by 700 MW. and utility enterprises by over 90%, while It is planned to complete the project also improving efficiency of industrial gas- within four years. The total contract price fired boilers by 20–30%. amounts to USD 1.3 billion.

8 UK Georgia Japan

Nothing Saint Building a HPP with One’s Becoming Profitable Because of the St. Jude storm, operation of Own Hands Tokyo Electric Power Co. (TEPCO), the Dungeness NPP in Kent, to the southwest Commissioning ceremony for the Shilda company that operates the Fukushima of London, was suspended. The decision HPP took place at the Chelti River, in the NPP, earned a profit of USD 6 billion in the to shut down two of the plant’s nuclear Qvareli District. The plant’s construction be- first half of this year. As TEPCO noted, the reactors was made by EDF Energy, the gan in 2012. Its minimum installed capacity profit growth took place in the context of NPP’s operator, after the rampant weather is 5 MW, while annual power generation will a policy to reduce production costs and damaged power transmission lines. Nor- amount to 30 million kWh. The cost of the increase electricity prices. It should be mal starting of the two NPP generation project is USD 5.5 million. During the HPP noted that, during the same period a year units required a week. construction, mostly local residents worked earlier, the company recorded a loss of on the project; they will also be working at USD 3 billion. the power plant, which is owned by Energia Ltd., a Georgian company.

Iran

Moldova Materials Will Be Declassified India Grow Fish, Big and Small! Tehran and the International Atomic Ener- For many years, Moldova TPP has been gy Agency (IAEA) came to an agreement in Could Not Find a Common regularly restocking fish in the Kuchurgan- the field of nuclear power. Iran took upon Telugu sky lagoon, the plant’s coolant reservoir. In itself the obligation to provide, within India’s energy sector employees staged a late October, about 500 fingerlings were three months, the information regarding protest action against dividing the Andhra released into the reservoir. As the energy all new research reactors, as well as the Pradesh state in two. This administrative sector professionals note, in addition to information related to the 16 regions reform will separate the population that improving the environment, in this way, intended for NPP construction. The IAEA, speaks a common language, Telugu. As a the task of clearing the reservoir of excess in turn, promised not to ignore Iran’s con- result of the strike, electric power supply waterweed, which could damage the cerns regarding facility security problems was temporarily shut down, which lead to water intake equipment, is also being and guarantee protection of confidential irregular operation of railways, while airline accomplished. information. flights were either canceled or delayed.

ENERGY WITHOUT BORDERS | № 6 (25) December 2013 – January 2014 9 Cover Story 2013 RESULTS

Pages 12–13 SOCHI power facilities

Pages 14–15 Inter RAO’s investment projects

2013 has marked many milestones of the last decade for the Russian energy sector. Experts already forecast that many changes in the market game rules and positions of the key companies and players, as well as personnel replacements will have a significant impact on further development of the sector. Read about the most important events, figures, quotes, and persons in our final summary of the passing year.

10–15 years Reduction of the wear level: to 50% across distribution networks . ISO to 45% across transmission networks 50001 MRSK

ENERGOSTREAM March. Inter RAO Group became the first major April. Strategy for the Development European power generating company to be certi- of the Russian Power Grid System fied to the ISO 500001 energy management until 2030 was approved. Within the next standard. The received certificate is an official 10–15 years, Russia will be implementing proof of the energy management system’s effi- RUB RUB 1.4; 3.2 technologies that are already used in power 11 ciency and its compliance with the international billion billion grid systems of developed countries. The standard requirements in such areas as electricity wear level is to be reduced to 50% across the management, generation and sales, as well as distribution networks and to 45% across the heat generation, distribution and sales. transmission networks.

January. Six power supply companies lost February. Another subsidiary of Ener- their status as guaranteed supply companies. goStream, Tula Power Supply Company, These include: Omsk Power Supply Company, Iva- was deprived of its status as a guaranteed novo Power Supply Company, Penza Power Supply supply company for its debt to the market Company, Kursk Region Power Supply Company, amounting to RUB 1.4 billion. Another entity Bryansk Power Supply Company and Orel Power stripped of this status was Kola Power Supply Supply Company, all of them subsidiaries of the Company (part of KRES-Alliance group of compa- energy holding EnergoStream. These power supply nies, debt of RUB 3.2 billion). Their functions were companies owe, in total, about RUB 11 billion. also transferred to subsidiaries of MRSK Holding. 10 August. Russia’s Far East The sale of Moscow Inte- The first wind-diesel Experimental was hit by the worst floods grated Power Company power system started introduction of social in 120 years. The flood peak was acknowledged as the operation in Kamchatka. consumption rates occurred at the end of August largest privatization trans- The facility was commis- was launched in seven and lasted until the beginning action of 2013. Gazprom sioned by RAO Energy regions (kW per capita of September. Energy Holding purchased System of East, a subsidiary per month): According to the Ministry of Moscow Integrated Power of RusHydro. Two state-of- Energy, the damage inflicted Company (MIPC) at an the-art wind power plants Orel Region 150 on the energy sector facilities auction at the reserve price. with a capacity of 550 kW. by the disaster amounted to Samara Region 150 RUB Rostov Region 96 RUB 98.62 billion Nizhny Novgorod Region 50 90 million Vladimir Region 50 NIKOLSKOYE. Bering Island, Krasnoyarsk Territory 76 Commander Islands, Pacific Ocean Zabaykalsky Territory 65

July. Russia’s President Vladimir PUTIN STOP Federal approved the federal law on introduction of Law amendments to the legislation regarding No. 244-FZ the procedure for privatization of power grid facilities, thermal energy sources, and heating networks. The key requirements for privatization The Russian government decided to freeze September. Mikhail KURBATOV, Deputy Minister of Energy of these facilities will be the liabilities for their the tariffs of natural monopolies in 2014. responsible for the energy sector, was voluntarily dismissed. construction, renovation or upgrade, as well as Administrative control of tariffs also affected the This position was filled by Vyacheslav KRAVCHENKO, Chairman operation. companies of the country’s power grid system. of the Board at Non-Commercial Partnership Market Council and JSC Trading System Administrator, who worked at the Ministry of Energy from 2004 to 2008.

Reorganization of JSC Russian Grids on Network consolidation: the basis of MRSK Holding and Federal Nyaganskaya TPP was commissioned in the NYAGANSKAYA TPP 70% of distribution Grid Company was completed. The new Khanty-Mansi Autonomous District. It will 1.254 GW networks company consolidated about 70% of become one of the largest thermal power plants 90% of transmission distribution and 90% of transmission in the Far North. When another two power gen- networks networks of the Russian Federation. erating units are put into operation, the plant’s design capacity will be 1.254 GW. The project is being implemented by Fortum, a Russian-Finn- ish energy group. October. Russia set the world record in terms of simplification of the procedure June. Igor SECHIN, Chairman of the Man- for connecting to power transmission grids. agement Board at Rosneft, was elected Chair- 10 7 280 195 188 117 man of the Board of Directors of Inter RAO. Number Maximum Rank in Previously, Mr. SECHIN chaired the company’s of stages connection the annual Board of Directors from 2008 to 2011. required for timeframe, Doing connection to days Business power grids report Russia’s President Vladimir PUTIN approved the law on elimination of the «last mile» in the energy sector. According to the Ministry of Energy, the shortfall in income of distribution companies operating in 20 regions, where the RUB November. Andrey MUROV, First Deputy 42 billion Chairman of the Board at Federal Grid Company, former mechanism will was appointed to the position of the company’s still be in effect for some Chairman of the Board. Oleg BUDARGIN, time (with no regard to CEO of Russian Grids, who had held this position, compensating measures), May. Vladimir FORTOV, a 67-year-old became the Chairman of the Board of Directors amounts to physicist and Director of the Joint Institute for of the company. This marked the end of replace- High Temperatures of the Russian Academy of ments of the key top managers at state power LAST MILE Sciences, was elected Director of the Russian grid companies, which lasted more than a year. Academy of Sciences. A month earlier, he was awarded the Global Energy Prize for his research into thermal-physical properties, high-power impulse energy equipment and high-efficiency energy converters.

ENERGY WITHOUT BORDERS | № 6 (25) December 2013 – January 2014 11 Recognized as the largest An innovative energy facility cable laying method Cover Story in the Olympic Sochi used POWER FOR THE OLYMPICS

Energy infrastructure facilities commissioned in 2013 for the XXII Winter Olympic Games and the XI Winter Paralympic Games to be held in Sochi in 2014.

VERESHCHAGINSKAYA ADLERSKAYA TPP SUBSTATION

Vladimir PUTIN, The combined heat and power plant The 110 kV substation was put into President of Russia, at a meeting to discuss findings with a capacity of 360 MW (two auton- operation on April 11. During the recon- of the Olympic facilities examination in Sochi: omous power units with a capacity of struction, an unorthodox method for laying 180 MW each) was commissioned on cable networks along a 800-meter micro – By 2014, the local power capacity will January 21. The plant is part of OGK-2 (the tunnel (1.5 m in diameter) was applied. more than double. Moreover, generation controlling shareholder – Gazprom Ener- The plant is owned by JSC Kubanenergo facilities will be located nowhere else goholding). Due to operation of the new (subsidiary of JSC Russian Grids). The facility but here. That will change the situation TPP, Sochi’s power supply will significantly is aimed to improve power supply to hous- when, until very recently, virtually all or a improve, which in turn will ensure stable es in Svetlana residential area as well as significant part of electric power would be heat and electricity supply for the sports to Sochi’s landmarks – the Winter Theater, carried via HV lines across the mountains. and tourist infrastructure in the Krasnodar the Arboretum Park, and the buildings Local residents are very well aware of how Territory. of the Russian International Olympic cables break down every year leaving the University. city without power supply. With all these facilities commissioned, Sochi residents will finally forget about constant power failures in winter time.

12 Environmental Designed Cutting-edge impact in a French equipment excluded halet style used

CHERNOMORSKAYA SPORTIVNAYA DZHUBGINSKAYA TPP SUBSTATION SUBSTATION

Trial operation of the 220 kV distribution The 110 kV substation was put into The thermal power plant with substation took place on June 29. operation on August 31. The substation, a capacity of 180 MW (Inter RAO Group’s The most of the equipment of the new disguised as an Alpine chalet, ensures asset) was put into operation on Novem- distribution substation will be installed back-up power supply for Olympic ber 5 and will use natural gas as fuel. The inside the facility. Such technical solution facilities located in the mountain cluster. project’s objective is to ensure reliable excludes the impact of the equipment on During the Games, Sportivnaya will also power supply for not only 2014 Olympics the unique environment of the region. cover part of the load of temporary power facilities, but for the entire Black Sea coast Before 2015, the substation is planned to networks. After the 2014 Olympics, the from Novorossiysk to Tuapse. be extended up to 500 kV voltage class substation will be used to supply electric- and 668 MVA capacity. Chernomorskaya ity to mountain skiing and tourist facilities substation is owned by MES South of the Rosa Khutor Alpine Resort. (Transmission Electric Grids of South, an affiliate of Federal Grid Company).

ENERGY WITHOUT BORDERS | № 6 (25) December 2013 – January 2014 13 Cover Story

INTER RAO – ADDING MORE ENERGY This year, one of the major power companies in the country hit the peak in commissioning of large facilities: new capacity put into operation by Inter RAO in the framework GUSINOOZYORSKAYA of capacity delivery agreements totals 2.2 GW, including TPP On October 28, the plant some 500 MW commissioned since the beginning of 2013. commissioned coal-based generation unit No. 4 with an installed capacity of 210 MW; consequently, the installed capacity of the Boris KOVALCHUK, plant increased to 1,130 MW. Chairman of the The commissioning of the Management Board generation unit will help of JSC Inter RAO: improve the reliability of power supply to consumers OMSKAYA TPP-3 in the Transbaikal Territory, – Our company’s On June 18, the plant com- Republic of Buryatia, and primary focus is timely missioned a combined-cy- Irkutsk Region. completion of projects in the framework of cle gas turbine with an capacity delivery agreements. We do our electricity output of 90 MW 1130 best to commission facilities in accordance and heat output of 50 Gcal per hour. Consequently, the with project deadlines. In 2012, the Group electrical power capacity introduced a cost management system, of the plant increased to which helped us significantly cut down the 460 MW. This is the first amount of capital expenditure on projects. TOMSKAYA TPP-1 time in more than twenty Dzhubginskaya TPP is a good example. We On February 20, a gas-tur- years that new facility was saved about RUB 1 billion versus the original bine power unit (GTU-16) commissioned in this area with an electricity output of with a shortage of power project budget. Moreover, we were probably 14.7 MW and heat output generation capacity. the first in Russia to meet the deadlines set of 20 Gcal per hour was by the government resolution on capacity commissioned at the 460 delivery agreements without extending into peak-shaving boiler house. the grace period. Once the power unit was commissioned, the boiler house received the status 210 of a thermal power plant named Tomskaya TPP-1. 90 RUB 176.6 billion 14,7 RUB 66.3 billion

Inter RAO’s Inter RAO’s Capital expenditure investment mid-term in 2014 program investment program: Own capital 59% Borrowed capital 41%

14 New objects 2013

INSTALLED PERMSKAYA TPP 3200 CAPACITY, MW On March 5, construction of combined-cycle power CAPACITY INSTALLED generation unit No. 4 with IN 2013, MW an installed capacity of 800 MW was launched. Com- TARGET missioning of the power CAPACITY, MW generation unit is scheduled for December 2015. Once the unit is launched, the capacity of the plant will increase to 3,200 MW, which VERKHNETAGILSKAYA will place the facility among TPP the Top 5 largest thermal On March 26, construction of power plants in Russia. combined-cycle power generation unit No. 12 with an installed capacity of 420 MW was YUZHNOURALSKAYA launched. Once the unit is put into operation, the plant will be TPP-2 able to decommission outdated In December, Yuzhnouralska- equipment installed during ya TPP-2 will commission its Phases No. 1 through No. 3. power generation unit No. 1. The project involves con- 1565 struction of two generation units with a total capacity of 800 MW. Commissioning of unit No. 2 is scheduled for DZHUBGINSKAYA TPP December 2014. On November 5, the plant was commissioned 1242 in the framework of the Federal Program of Olympic Venue Construction and Development of Sochi as a Mountain Resort. The total construction costs 800 of the project amount to some RUB 17 billion. The TPP is the key link in the energy transfer between 110 and 220 kV grids, which will help efficiently secure standby capacity for unin- 420 terrupted power supply to 400 all consumers in the region. Construction projects to be completed 180 in the near future Nizhnevartovskaya TPP – Additional revenue to be generated power generation unit No. 3 with an installed by the facilities commissioned in capacity of 400 MW. The installed capacity New capacity commissioned in the framework 2013–2015, RUB billion Almost RUB 6 billion of the plant will increase to 2,000 MW. of capacity delivery agreements Cherepetskaya TPP – 13 5,5 9 Savings on projects covered by coal-based power generation units Nos. 8 Total 2,2 GW capacity delivery agreements and 9 with a combined installed capacity 2014 2015 2016 versus original project budget of 450 MW. The installed capacity of the plant Since the beginning of 2013 ~500 MW (including VAT) will reach 1,735 MW.

ENERGY WITHOUT BORDERS | № 6 (25) December 2013 – January 2014 15 Power Generation Projects involving modernization of the core power equipment at coal-fired units are under consideration at the Kashirskaya TPP

16 | Add the Capacity

The expert community of the electric power industry has been discussing the subsequent fate of the projects related to new construction of generation facilities after the completion of the capacity delivery agreement (CDA) program. Undoubtedly, construction needs to take place. However, upgrading the existing equipment may also become an efficient and economically sound solution.

Building and Upgrading of generating equipment is based on is influenced by the uncertainty of the The need to upgrade the existing the equipment’s high depreciation, low prospects of capacity payments for the generation equipment is based, first efficiency, and high volume of capital new generating capacity, which calls into and foremost, on the fact that Inter investment required for maintaining ob- question their economic feasibility and RAO’s Management Board has approved solete equipment in working order. And, investment appeal. the strategy regarding electric power finally, there is the need to achieve the It is worth noting that the major con- generation, as well as management of target level of the company’s installed tribution in achieving Inter RAO Group’s availability and safety of the Group’s capacity while end-of-life equipment is strategic targets in terms of power gen- wholesale generating assets within the decommissioned. eration performance is made not only by Russian Federation. This strategy envi- At present, the following projects commissioning new generation facilities sions construction of a number of new related to in-depth modernization or under the CDA program and upgrad- generating capacity installations and new construction, while also outside ing the existing installations, but also upgrading of the existing facilities for the the CDA’s scope, are at some stage of through decommissioning of obsolete, period until 2020. implementation or development at Inter inefficient and end-of-life equipment. Second, for Inter RAO Management RAO Management of Electric Power of Electric Power Plants, it is mandatory Plants. Among them are: modernization Outside the Adapted CDA to strictly comply with the technical of unit No. 2 (2016) and unit No. 1 at It is clear that construction needs to policy of Inter RAO, which declares the Iriklinskaya TPP (2019); projects to take place. But what type should this the necessity to transition to modern upgrade coal-fired units and build new capacity be? Calculations indicate that technologies in the heat generation generating capacity installations at the new construction projects do no break sector. In particular, there is an objective Kashirskaya TPP; as well as a major mod- even in the current environment of the to achieve an efficiency factor of at least ernization project targeting units No. 7 wholesale electricity market and capacity 40–45% for coal-based units and 50–55% and No. 8 at the Verkhnetagilskaya TPP. market. It is a paradox, but, at the same for combined cycle power plants (CCPP), The mandatory nature of implementa- time, coal-based capacity projects, in and ensure a significant reduction of tion of these projects is due to the need terms of long-term performance, are pre- specific discharge of pollutants into the to replace end-of-life generating capacity ferred to similar projects based on CCPP atmosphere. being decommissioned. That is, it is technologies. This advantage is derived Third, the need to update Inter RAO necessary to work on them; however, at from the longer lifecycle and smaller op- Electric Power Plants existing portfolio the same time, the fate of these projects erating expenses, which compensate for Table 1. Sensitivity of economic performance indicators to CAPEX amount required to upgrade volume of investment amounts to RUB the equipment for a standard 300 MW coal-based power generation unit 8–9 billion (see Table 1). In the case of new construction CAPEX, RUB million 4000 6000 8000 10 000 11 000 15 000 18 000 given the current level of prices for capacity, and given allowable CAPEX NPV, RUB million 2600 1500 200 –1000 –2200 –4500 –7000 volumes, investment payback is not achieved. Simple payback periods IRR, % 22% 17% 14% 12% 10% 8% 7% for the projects related to construction of coal-based blocks are within the timeframes of its useful lifecycle, while for gas turbine units – even outside this their lower efficiency and higher capital investment that would allow for, taking timeframe. intensity. electricity and capacity markets’ realities Moreover, comparing the degree of At present, the level of electricity pric- into account, ensuring investment sensitivity of investment projects to es in the DAM (day-ahead market) sector appeal of the above-specified projects CAPEX volume and their technical and and capacity prices in the wholesale at the level desirable by a shareholder? economic parameters reveals that the market for electricity and power (WMEP) Second, what is the sensitivity of the cost factor clearly predominate over the allows for only talking about reimburse- indicators of these projects to their key efficiency factor. Given a comparable ment of direct costs of the producer parameters: CAPEX and technical-eco- (measured in percentage terms) change associated with fuel and operating ex- nomic values? And, third, what is the of the parameters being varied, a greater penditures (paying employees, perform- optimal technology we should be guided effect in absolute terms is generated by ing maintenance, and so on). At the by during planning and implementation optimizing CAPEX. That is, the existing same time, there is even no full coverage of new construction projects? market state does not create incentives of the costs of the plants with outdated for introduction of more efficient tech- equipment, which, nonetheless, are Proof of Efficiency nologies and implementation of new taken by the System Operator within the Let’s consider the issues voiced above investment projects on this basis. If we scope of OUC (online unit commitment) using, as an example, various options compare, for example, the values of the and loaded based on a dispatcher’s for construction and modernization of levelized cost of electricity for coal-fired command. coal-based plants with a capacity of 300 and combined-cycle units (it is this very Under such conditions, it is impossible MW; there are 31 of them at the Group’s indicator that is used for comparing to consider, in the medium term, the electric power plants. According to an efficiency of various technologies and existing instruments and mechanisms analysis of sensitivity to the economic cycles in the electric power sector), we of electricity and capacity markets as a performance indicators for projects would see that coal-fired units have an source of return on investment. Putting related to modernizing the 300 MW obvious advantage compared to gas aside the potential introduction of the coal-based plants, assuming the first turbine-based units. Also, from the point so-called adapted CDA, it is possible pricing zone, if the cycle efficiency is im- of view of long-term efficiency (taking to identify a number of key issues. First proved by 5–10% and installed capacity into account the investment incurred), of all, what is the limit value of capital is increased to 330 MW, the maximum the projects related to coal dust technologies are preferable to similar projects based on gas turbine technologies due to longer duration of the life cycle and smaller operating costs, which offsets their lower efficiency and higher capital intensity. In the environment of the absence of a mechanism to recoup investment into new construction under the terms similar to existing CDA, modernization of the existing capacity would be the optimal approach to preserving and improving the company’s position in the market for electricity and capacity.

Ivan SMIRNOV, Head of the Prospective Development Directorate, Inter RAO’s technical policy declares the need to transition Inter RAO Management to modern technologies in the heat generation sector. of Electric Power Plants

ENERGY WITHOUT BORDERS | № 6 (25) December 2013 – January 2014 17 INNOVATION 18 | Blade Running

A unique innovative facility, Inter RAO – Assembly Coating WEAR AND TEAR PROBLEM Center, was launched at the The fleet life of thermal power plants, which account for roughly 80% of the country’s overall Kostromskaya TPP. Implementation power budget, is about 30 years, while most thermal power plants (TPP) were built 30, 40 or 50 of new technologies using such years ago. Therefore, extension of the current fleet life through up-to-date technologies and new technical solutions is an acute issue on the agenda today. The Energy Without Borders Foundation operations as laser surface coating for support of science, technology and innovation, established at the initiative of JSC Inter RAO in and plasma thermal spraying will 2011, financed the year-long research and development of innovative technologies for produc- enable to increase the lifetime tion of special coating materials and methods to apply them to surfaces of equipment parts and of power equipment manifold, devices for the purpose of extending their service life. The results of these R&D efforts were used to in particular, double the service establish the innovative Assembly Coating Center. life of turbine blades.

TECHNOLOGIES

DEVELOPMENT ADVANTAGES ECONOMIC IMPACT 1. Restoration and water • Water droplet erosion protection • Doubled service life of blades droplet erosion protec- • Shape reconstruction of worn blade edges • Saving on repair and maintenance costs due to the tion of steam turbine • Improvement of new blades’ characteristics during extended overhaul life blades their manufacturing • Improvement of the power generation unit’s efficiency factor due to reconstruction of blade surface optimal shapes

2. Reconstruction and • The amorphous phase of coating materials • Useful life of stop valves and driving elements increased reinforcement of stop substantially improves equipment’s performance by a factor of three or more valves and driving characteristics • Reduction of reconstruction costs for stop valves and elements • No preheating or subsequent thermal processing is driving elements by over 30% (by 1.5 times) required 3. Application of sealing • Coating materials are characterized by high • Improvement of the power generation units’ efficiency (abradable) coatings abradability and sufficient durability, they do not factor due to sealing gaps between the rotor and the to stator turbine cause much wear and tear of contacting parts stator components • The hardness of the sealing coating is far less than • Extension of the useful life of the CHPP equipment the hardness of rotor (spinning) parts Durability and • More cost-effective performance of the steam path functional characteristics of sealing materials are • Reduction of repair costs and duration preserved throughout the entire lifespan of the part 4. Application of thermal • Materials of the upper ceramic layer of thermal barrier • Life extension of blades and other elements of the hot- barrier coating to coating retain phase stability at the highest possible gas path in gas turbines by at least three times protect gas turbine temperatures • A rise of the operating temperature and gas pressure blades and other in the turbine resulting in an increase in the power components of the hot- generation output and improvement of the power gas path unit’s efficiency factor (ideally, a rise of the operating temeperature of the incoming gas jet by 100 degrees causes the efficiency factor’s growth by 1.8%) 5. Reconstruction of parts • Surface reconstruction should be measured out, with • At least doubling of the parts’ lifetime (blades, rotors of gas minimal thermal exposure of the basic material and • Reduction of repair costs and duration turbine and steam without prior heating turbine power units) • It is possible to carry out the operation either after using the laser surface dismantling blades or without it coating technology Opinion

Boris KOVALCHUK Chairman of the Management Board, Inter RAO: «This new business is yet another step of Inter RAO Group in Blade Running implementation of the innovation-driven development strategy. Improving production efficiency and extending service life of the existing plants’ equipment through application of up-to-date technologies and technical solutions are the priority objectives for Inter RAO. Thanks to implementation of the developed technologies we can achieve truly impressive effects in terms of maintenance cost saving in the Group overall. The fact that the shop floor in Kostroma will be able to provide services for the power system facilities located within a 500 km distance is an important advantage. The coverage area includes the Cherepetskaya TPP, stations operated by Mosenergo, facilities in Ivanovo, Yaroslavl, and other cities».

LOCATION It was decided to develop the innovative center at the premises of the Kostromskaya TPP’s repair and maintenance facility. The decision was based on several important factors: 1. The plant is one of the company’s largest facilities. 2. It is located in the area of concentration of other power plants controlled by Inter RAO Group, and innovative technologies are planned to be used for reconstruction of power equipment units not only at the Kostromskaya TPP but also at other generation facilities operated by the Group. 3. It was here that, for the first time ever in the national energy sector, an industrial metrological facility and a pilot production shop floor were established in the 1990s. Specialists employed at these facilities started working on the issue of thermal power plants’ survivability, under the guidance of scientists.

EQUIPMENT The Assembly Coating Center equipment comprises five robot-assisted systems. The developer delivered, assembled and adjusted the equipment, and provided technical support. The premises with an area of 500 square meters allocated for the new production facility were reconstructed within a short time, using the resources of the Kostromskaya TPP’s repair and maintenance facility The total cost of the project with the assistance of contractors. In particular, boxes for robot-assisted involving construction of the laser surface coating, flame spraying and plasma spraying controlled by RUB Assembly Coating Center operators were assembled. amounted to 275million

Opinion OUTLOOK Sergey SITNIKOV, The technologies applied by the Assembly Coating Governor of the Kostroma Region: Center are highly sought after by maintenance services «The Kostromskaya TPP is a landmark of our of the Group’s plants. Contruction of such facilities in the region, the facility that substantially increases Urals and Siberia is under discussion. Sergey SITNIKOV, the investment potential of the Kostroma Region Governor of the Kostroma Region, expressed a belief and the industrial park which is now developing in the possibility to apply the new technology in other in Volgorechnensk. It is particularly gratifying that it industries where heavy equipment is used. “In terms of is here, in this region, that we are launching a new innovative saving, it is much more reasonable to restore it than buy science-intensive facility where experienced professionals are new equipment,” he said. going to work».

ENERGY WITHOUT BORDERS | № 6 (25) December 2013 – January 2014 19 INTERVIEW «The Most Efficient Shall Survive» Despite the fact that 2013 has become one of the most eventful years over the last decade, Sergey PIKIN, Director of the Energy Development Fund, believes that the energy sector is still in need of systematic changes. In his interview with Energy Without Borders, Mr. PIKIN, a leading industry expert, summarizes the results of 2013 and the reform’s tenth anniversary, and talks about what should be done today to implement the outlined plans in the future.

hat events do you renewable energy sources, which had not been previously think have affected regulated and had not fallen within the general market the industry this rules. First and foremost, I mean tenders for the selection year? of renewables held in September this year. First of all, it is the establishment of OPTIMAL BALANCE the Russian Grids How much does Russia need the alternative energy holding. I would call sector today? this event the key Not very much in the near future, mainly because of the milestone over the prices. Renewables are still significantly more expensive last five years. At first, compared to conventional energy, and we have no short- I opposed the idea of age of it. But it is already necessary to start developing uniting distribution the renewable energy sector. Hybrid power plants and and transmission exclusively wind or solar-based power plants can really grids into one structure, because it may be considered the solve many problems faced in hard-to-access areas, for Wreform’s U-turn. But I should note that it would have been example, in the Russian Far East. But the support mecha- reasonable to cover territorial grid organizations (TGO) nisms approved by the government are not exactly aimed within the framework of this global consolidation. In this at it. For example, if there was a goal to promote the case, the grid system would have been developing in a development of renewables, the support measures would completely different way from the technological point affect, first and foremost, the retail segment of the market. of view. However, the consolidation did not cover TGOs, One of possible measures is to promote consumption of and this was a drawback. It remains to be seen to what alternative energy in hard-to-access areas of the country. extent the establishment of Russian Grids was a correct decision. Second, it is the cleansing of the retail market The European Union is planning to increase the share that has finally started. I mean the launch of a mechanism of renewables to 20% in power balance by 2020. We to deprive companies of their status as guaranteed power are planning to reach the share of 4.5%. What do you suppliers for their debts to the market, as well as the intro- think should be an optimal share of renewables in the duction of a financial guarantee system and tenders for country’s energy system? the choice of guaranteed suppliers, which is considered as Any. The main point is to ensure that all processes, such a reasonable solution of the problem. It is yet too early to as development of the energy system, modification of assess the efficiency of the latter two measures, but their the management technologies, and increase in the share implementation will definitely benefit the industry. Third, it of renewables, are implemented simultaneously. Today, is the adoption of amendments to the Law “On the Electric Europe has faced the problem that renewables cannot be Power Industry” regarding the “last mile”, which partially well embedded in the dispatch system. As a result, cutoffs solve the cross-subsidization problem in the power sector. have become a real threat, because renewables cannot It took the industry two decades to come to it. Starting ensure the operational stability provided for by the con- next year, this mechanism will cease to be effective in the ventional energy sector. It is driven by the peculiarities of majority of regions (editor’s note: in 43 out of 63), and will their operation: the wind may stop blowing, or start blow- be still preserved in 20 federal subjects. Finally, anoth- ing too weakly, it may get cloudy, etc. But we are safe from er long-awaited decision was the new game rules for these problems. The share of 4.5% is not significant. And

INTERVIEW

this is, perhaps, the optimal balance between convention- with administration. Besides, they overdid it playing safe. al and alternative energy sources for us today. Everybody still remembers the negative experience with benefit monetization. Apparently, they were afraid of re- “RATE MINIMUM” SOUNDS SAFER currence. That is why they fell back on the “one size fits all” In September this year, social energy consumption approach. As a result, both retired old ladies and billion- rates were introduced in seven pilot regions of Russia. aires, for whom this rate of 100–150 kWh per capita. is a How many kilowatts do you personally need to be trifle, are treated all alike. I think, that there will not be too happy? many people who will fail to comply with the rate range. In case they amount to 150 kWh per capita per month They will fall within the statistical accuracy. The experience in Moscow, as announced, it will be enough for me. of the first pilot regions must give a complete picture. Unfortunately, a number of sad mistakes were made at the start of the project. The first is the name, “social rates”. It is In the autumn, the Russian government announced necessary to understand peculiarities of Russia and the that it would freeze the tariffs of natural monopolies Russians, who are hostile to any kind of rationing. This is a for the next year. What impact can it have on the vestige of the Soviet system. Any effort to impose certain industry? frameworks is opposed by a negative reaction from the Stagnation in the industry is obvious and this problem public. This determines the discussion tone set at the requires a certain solution, while freezing the tariffs is the launch of the new initiative. In my opinion, the introduced easiest regulatory decision. It is quite easily administrat- mechanism should have been called “the rate minimum”. ed: once you issue a resolution consisting of three lines, it The reaction would have been totally opposite in this case. is done. And no one particularly cares about what is go- The second mistake is related to the fact that the population of the pilot regions was poorly informed on the social rates by the start of the project, and relied, primarily, on the opinion of those people who used this topic for political purposes. Thus, the information background was negative from the beginning, although the initiative was quite good on the whole. And since we are referring to Europe’s experience, we should have followed their suit by allocating targeted subsidies for the most vulnerable categories of citizens and selling power at market prices to all the rest, as energy resources are marketable, but also socially important products. It would have been much more feasible to achieve the announced objectives (reducing cross-subsidization and improving the energy consumption efficiency) if targeted subsidization had been implemented.

So why was not the European experience replicated? Because it is challenging to administrate this process. And it is commonly known that Russia faces great problems

IT TURNED OUT THAT THE THIRD ENERGY MARKET MODEL ENVISIONS PRESERVATION OF THE STATUS QUO

22 elaborated capacity retirement mechanism. The market ENERGY RESOURCES ARE principles presume that the most efficient shall survive. But, eventually, it turned out that we feed inefficient hardware, and prevent the development of efficient MARKETABLE, BUT ALSO power plants.” SOCIALLY IMPORTANT Fyodor OPADCHY, Deputy Chairman at System Operator of the United Power System, said at one of the industry conferences that the energy market PRODUCTS dispatcher was considering an option of retirement through raising the technical requirements to generation companies at the stage of competitive capacity ing on in the energy market. There are different types of takeoff… enterprises: the ones that generate profit, and the ones Initially, it was all planned this way. This is the so-called that barely make a living (for example, many TGOs)… No certification of equipment by System Operator, where one looked into this aspect. This is likely to lead to disrup- it sets the requirements and certificates the equipment. tion of investment incentives for companies investing in Based on the results, it either admits companies to the construction and modernization of generation facilities, competitive capacity takeoff, or rejects them. But it has as well as to shrinkage of grid companies’ investment not been implemented in full. programs. And I do not think that this will be due to an optimization of the cost structure. Most likely, grid Will any of the three energy market models, which is companies will postpone certain measures under the expected to be approved next year, allow for filling investment programs until more prosperous years. The these gaps? And which of these models do you antic- latest plans of the Ministry of Economic Development for ipate to be finally approved? the period following 2016 prove it. It will adversely affect Generally speaking, when the third energy market model the industry, because the grid system of the country is was mentioned, everybody thought it would be a kind badly worn out and requires significant modernization. of a compromise between the first and the second models. But in fact it turned out that this model envisions SIMPLE TRUTHS AND MODELS preservation of the status quo. And I am 100% sure that This year marked the tenth anniversary of adoption nothing but this model will be approved, because it is of Federal Law No. 35 “On the Electric Power Indus- the simplest option in terms of decision making and try”. What do you think are the key results of the political responsibility, as it does not involve any radical reform? changes. The gaps will be filled only when everything Today, the energy sector is one of the few sectors of that is written on paper starts being implemented. As for the Russian industry that radically differ from the Soviet the market mechanisms used in the power sector today, times. This is the main result of the reform. However, the it became possible to implement them thanks exclu- reform’s objectives have not been met to the full extent. sively to CHUBAIS, who was personally going from one Even Anatoly CHUBAIS, ex-head of RAO UES of Russia, government office to another pushing this reform. admitted it. I believe that one of the major omissions is that the changes had a lower impact on the techno- Do you think there are ideologists today in the in- logical part of the sector system. As a result, the model dustry that could match Anatoly CHUBAIS in terms of devised by the reform ideologists has not been complet- understanding of the situation and the status? ed. Another point is that, at first, it was planned to build Unfortunately, no. Meanwhile, any decision must be a competitive power market at both retail and wholesale made by a person who would take the responsibility. levels. For example, the Minister of Economic Development However, the retail segment lacked and still lacks compe- Alexey ULYUKAEV took the responsibility for freezing the tition. As for the wholesale segment, emergence of the tariffs. It is another question whether this decision was power market may be considered as an achievement in good or bad. The same should be done when choosing this area. However, the capacity market has never started the energy market model. Somebody must take the operating as a certain mechanism for making a long- responsibility, make a speech at the government session, term impact on the industry, as it was initially designed. and say, “Yes, I am ready to be in charge of this decision!” The decision must be borne by the head of the relevant Do you mean that the long-term competitive capaci- authority, or the vice prime minister responsible for the ty takeoff (CCT) has not been implemented? industry, or the president once he is toughed the basics Yes. Various options have been discussed. The four-year of the electric power industry, or… CHUBAIS.” (Laughs.) CCT was the most reasonable one. But since the launch of this procedure in 2010, the takeoffs have been held for one year only. Moreover, we still have not got an Maria ISTOMINA

ENERGY WITHOUT BORDERS | № 6 (25) December 2013 – January 2014 23 Energy Efficiency 24 | Avenue of Innovation Street lamps on Svetlanovsky Avenue in Saint Petersburg started shining with even warm light on November 11. For the first time ever, a modernized energy efficient LED lighting system developed and produced at Svetlana-Optoelectronics JSC was installed along a city motorway in Russia.

he official opening of the «We have developed iStreet\XXL-25500 LED lighting system was lighting fixture specially for the city held on Svetlanovsky motorway,» says Alexey MOKHNATKIN, Avenue in the evening CEO of Svetlana-Optoelectronics. of November 11, on the «When designing the lighting fixture, International Energy the engineers took into account the Saving Day. The ceremony motorway’s proximity to industrial participants included facilities and residential buildings, its top managers of Inter length and width, as well as the specific ТRAO, representatives of Saint Petersburg climate of Saint Petersburg: it is often government, Inter RAO Energy Efficiency cloudy here and there are more dark Center, Svetlana-Optoelectronics, and hours in the day than in other cities.» others. Valery MURGULETS, Member of Residents of the neighboring houses the Management Board of Inter RAO at were the first to assess the advantages Inter RAO, and Vladimir LAVLENTSEV, Vice of light emitting diodes over simple Governor of Saint Petersburg, signed incandescent lamps. a deed of transfer of 89 LED lighting «The difference between the old fixtures to the city property assets in and the new light becomes clear at the presence of numerous citizens that first sight,» Olga IVANOVA, a housewife turned to be on the avenue at that time. living in the neighborhood, shared Right after it, 500 luminous air balloons her opinion with the correspondent flew up in the air. This LED «firework» of Energy Without Borders. «It has iStreet\XXL-25500 lighting fixtures, tailored to all became a kind of a symbol for the new become very bright! As if white nights the specifics of the motorway, have been installed innovation-based lighting in the city on came here, to Svetlanovsky Avenue, in on Svetlanovsky Avenue the Neva river. November. When everything is well lit,

On a Side Note

Svetlanovsky Avenue has been selected for a reason – it is this part of the city that has been the center of Russian lighting innovations for almost 100 years. In 1914, the first Russian mass production of incandescent lamps was launched at Aivaz plant in Petrograd. «Svetlana»– this word was stampedon the first lamps and stood for «SVETovaya LAmpa NAkalivaniya»(an incandescent lamp). After the revolution, the plant was also given this name to be later followed by Svetlanovsky Avenue, Svetlanovskaya Square and Svetlana-Optoelectronics JSC, LED production shop the company which holds true to the traditions at Svetlana-Optoelectronics JSC of innovation. Avenue of Innovation

Valery MURGULETS, Board Member, Director of Investments, Finance and Accounting Center at Inter RAO, and Vladimir LAVLENTSEV, Vice Governor of Saint Petersburg

Residents are pleased with the new lighting

I feel safe. My grandson goes to Svetlana «We have witnessed and fully Stadium to train in the evening, and I recognized the economic impact of the will feel more at ease if he goes back LED fixtures manufactured by Svetlana- Svetlanovsky Avenue not in the darkness, but along a well- Optoelectronics while using them at is among the top ten busiest lighted street.» Inter RAO Group’s enterprises,» says motorways of Saint Petersburg LED lighting fixtures prevent the Valery MURGULETS. «Application of so-called stroboscopic effect, in other energy efficient lighting technologies and accommodates the city’s words, they do not flicker and allow has reduced organizations’ electric largest enterprises, business drivers and pedestrians to see moving power consumption by 10–15%, while centers, residential buildings, objects distinctly in the dark hours, as lighting costs have decreased four times. and sports facilities. well as in snowy and rainy weather. This is a vital operational performance Another very important advantage indicator.» Avenue length – 7 km. of the implementation of innovation Modernization of the lighting system The total length of the section lamps is their energy efficiency. on Svetlanovsky Avenue initiated and lighted with LED fixtures According to specialists from Svetlana- financed by Inter RAO Group is so far the Optoelectronics, innovation lighting only project in Russia aimed at lighting a manufactured by Svetlana- fixtures allow the city to save up to 30% public highway by LED fixtures. Optoelectronics JSC – 1,3 km. of power, which will amount to RUB 2 billion in monetary terms. Lidia VERNIK

ENERGY WITHOUT BORDERS | № 6 (25) December 2013 – January 2014 25 Foreign Affairs

urkey is not exactly rich in energy resources but three quarters of the world’s proved oil and gas reserves 26 | are located in immediate Turkish Gambit proximity to the country. 3 Moreover, its territory The stable consumption growth rate (including the Bosporus and makes the Turkish power market one TDardanelles Straits) is situated at the junc- of the most promising ones, with key 1 tion of transit routes from key oil and gas global players actively competing over it. producing countries (the Persian Gulf states, Russian companies have also joined in the Caspian Basin countries and Russia) to this competition. Europe, which is the largest energy resourc- 1 es consumer. Naturally, this factor influences the power sector of Turkey itself. Easy access to global energy resources turned out to be, A wind farm with an in a sense, a trap Turkey is trying to escape. annual generation capacity of 500 Growth Problems million kWh has 2 The point is that development of the recently been put in Turkish economy over the recent decades operation in Balikesir has required a dramatic increase in electric Province. power consumption. Over the past decade it has almost doubled – from 130 billion kWh in 2000 to 240 billion kWh in 2010. This State Atomic Energy Corporation Rosatom is the second highest growth rate in the in May 2010. The total power capacity of the world after China. Furthermore, according plant is 4,800 MW (4 power units of 1,200 to the Turkish government’s forecasts, MW each). The power units are planned to power consumption is going to double be commissioned successively, one unit again within the current decade. Fatih a year. The contractor for the Akkuyu NPP BIROL, Chief Economist at the International construction project is Atomstroyexport JSC, Energy Agency, believes that “Turkey will a subsidiary of Rosatom. The estimated cost shortly have to increase the output capac- of the project is USD 20 billion. ity of its generation facilities by a greater The second power plant will be built on amount than any other European country.” the Black Sea coast in the vicinity of the He forecasts that the power shortage of at city of Sinop. The contract was signed with least 45 GW needs to be covered. Turkey a joint venture consortium of the French spends more and more money on power corporation Areva and Japanese Mitsubishi resources. The country has not disclosed Heavy Industries, Ltd. (MHI). Four generation the official data on oil and gas import since units with a total capacity of 4,800 MW are 2002. However, experts estimate that over a solution to this problem, first, in diversify- planned to be built here as well. The project the recent years Turkey has had to import ing electric power sources, and second, in is worth USD 22 billion. 8–9 million tons of oil annually to satisfy the attracting investment in construction and Alongside with the NPP construction, the needs of the power sector alone (which operation of power generation facilities. Turkish government intends to develop the makes at least USD 7 billion, even allowing renewable energy sector. A wind farm, built for all transit preferences). Funding Nuclear and Wind by the German power company E.ON SE in Turkey consumes a substantial portion As regards diversification, the bets have association with the Turkish Sabancı Holding, of Iranian gas and nearly all gas produced been placed on nuclear power. Recep Tayyip has recently been launched in Balikesir Prov- at the Shah Deniz gas field in Azerbaijan. ERDOĞAN, Prime Minister of Turkey, claimed ince in northwestern Turkey. Worth EUR 153 Moreover, the country has become the sec- a few years ago: “We won’t need even a third million, it generates 500 million kWh yearly. ond largest purchaser of Russian gas after of natural gas imported currently when our Meanwhile, a project involving construction Germany. The overall purchase volume is nuclear power plants are put in operation.” In of a group of solar power plants is underway approximately 40 billion cubic meters of his opinion, NPPs will make it possible to cut in Konya Province in the Central Anatolia gas annually, which amounts to about USD down expenses for natural gas purchasing by Region, with over 50 foreign companies 15 billion. USD 7.2 billion a year. participating in it. However, most specialists Even so, the power generation growth An agreement on construction of a large are rather skeptical about the development in Turkey fails to keep up with the con- nuclear power plant, Akkuyu NPP, on the of the RES sector in Turkey. Despite the sumption growth. The government sees Mediterranean coast was signed with the favorable climate of steppe zones with a high 3 A year ago, Inter RAO Group acquired Turkish Gambit the 478 MW Trakya power plant

2 level of solar and wind activity, the systemat- mara, about 100 km from Istanbul. This Four power generation units, with ic conditions for large-scale development of is a modern gas-fired power plant put in a capacity of 1,200 MW each, this sector are still missing in the country. operation in 1999. are planned to be built under the “For Inter RAO, the acquisition of the Akkuyu NPP project Deal of the Year Trakya power plant is an important step in A scheme to attract investment in con- implementation of the strategic objective struction and operation of Turkish power related to strengthening our presence in plants was developed and suggested as foreign markets,” says Ivan PRONIN, Head of early as in 1989. Under the scheme, private the M&A Department of the Strategy and In- investors would build and operate power vestment Unit. “It is a quality asset with good plants during a period of 15–20 years and performance, that’s why we expect positive then transfer the ownership to the state. effects from exchanging best practices and This plan, however, failed to be fully imple- skills in terms of both the technology and mented due to legislative assurance issues. operation.” Eventually, five hydro power plants with a By the way, Inter RAO Group won the total capacity of 74 MW and one 253 MW Best M&A Deal in Central and Eastern thermal power plant were built under this Europe award from the EMEA Finance scheme over the first ten years. In the late Achievement Awards for the Trakya power 1990s, to set the process in motion, plant plant acquisition. The annual award was owners were offered an alternative option: presented this summer by the EMEA selling power either to end consumers Finance magazine, an international or to the national energy system. The publication headquartered in London and process of gradual electric power market focused on the global economy, interna- liberalization and power generation assets tional trade and developing markets. privatization started. The Turkish energy policy published in Exactly a year ago, in December 2012, the website of the Ministry of Energy and Inter RAO Group acquired a 90% stake Natural Resources specifies that generation in the Trakya power plant in Turkey from assets owned by the Electricity Generation the American company AEI Services LLC. Company (EÜAŞ) with a total capacity of 16 The transaction amount totaled USD 67.5 GW will be privatized over 2014–2016. This million. The Russian company consoli- means that the struggle for new assets and dated 100% of the plant’s shares in May a chance to use them effectively is to be 2013. The 478 MW Trakya TPP is located continued. on the northern coast of the Sea of Mar- Olga BESHLEY

ENERGY WITHOUT BORDERS | № 6 (25) December 2013 – January 2014 27 Expert Club 28 | The Energy Sector of Tomorrow

ANDREI REZNICHENKO, AYRAT SABIRZANOV, EDITOR-IN-CHIEF OF RIA NOVOS- DEPUTY GENERAL TI’S SCIENTIFIC AND ENVIRON- DIRECTOR MENTAL NEWS DEPARTMENT: FOR ECONOMICS AND FINANCE, GENERATION COMPANY: – My position regarding the prospects for VLADIMIR DIKOY, the next year will probably be moderately DEPUTY CHAIRMAN skeptical. Unfortunately, to a greater extent, – Approval of a new energy market model OF THE MANAGEMENT there are things I don’t expect from 2014 is one of the key and expected events of BOARD – CHIEF ENGINEER, rather than await from it. For example, I am the next year. And, in that regard, I am FEDERAL GRID not certain at all that the issues with the heat not sure that we need to be discussing COMPANY: market in the country will be resolved next only the three models being proposed. In year. And, correspondingly, it is completely my view, none of them meets either the impossible to imagine that the coming year requirements incorporated at the start of – 2014 and its central event – Sochi would see the approval of a new model for the the reform, nor the modern principles of Winter Olympics that will take place energy market in our country. You should not market operation. Perhaps my claim would in February. During the past several expect a solution to the cross-subsidization be somewhat provocative, but I believe years, the Federal Grid Company (FGC) problem in the next 12 months either. Overall, that, perhaps, it would have been better implemented an extremely ambitious I have a feeling that this scheme, so frequently if everything remained the same, as it was project, aimed at modernizing the chastised by all, actually suits everyone quite before the reform. I mean the return to power grid facilities of the region, in well. In addition, new problems that need to the concept of one large company, which Sochi. There are, perhaps, no compa- be promptly addressed have cropped up in would incorporate within its structure the rable projects to such construction in the industry, the situation with the power grid entire technological chain. The situation our country at present. It was large- facilities among them. While everything is nor- within the industry is not the best right scale on the one hand, and completed mal with the power grids in the Moscow Re- now, and it will be worsening as years on very tight deadlines, on the other gion, and also in Sochi (due to understandable go by, due to both internal and external hand. Every FGC employee engaged in reasons), across the country as a whole the factors. The latter I believe include Russia’s building the Olympic power facilities grids are in a deplorable state. Equipment wear joining the WTO, and, as a consequence, feels personal responsibility for the is so serious that I am amazed how the equip- stricter requirements to the country’s outcome, for the contribution that ment manages to operate without interrup- energy system. At the same time, I do he or she has made to the common tion. As far as power generation is concerned, not yet see real opportunities for making cause, as ensuring uninterrupted elec- the number of companies commissioning a qualitative breakthrough and improv- tric power supply to the Sochi region new facilities could be counted on the fingers ing the situation within the industry. All during the 2014 Olympics is a task of one hand. Of course, there are positive planned changes are being discussed ad important not only for our company, points as well. The key is for the industry and nauseam, but there is no moving past that. but also for the prestige of Russia in the authorities to think hard regarding what is There are no adopted decisions that are the global arena. This is why 2014, as to be done with the heat sector. It is clear that truly important for the industry. It is my a whole, will be especially notable for it needs to be brought to the market. And this sincere hope that the situation will change our company. is the priority task for the next few years. next year.

28 In the last issue of the passing year, we asked our experts to play a somewhat unusual role by becoming futurologists and attempting to divine what events are in store for the Russian electric power sector in 2014 and farther into the future, as well as share their views of what institutional transformation the industry needs today. KONSTANTIN SIMONOV, DIRECTOR GENERAL OF THE NATIONAL ENERGY SECURITY FUND:

– In fact, the industry is currently in a difficult state, and the 2014 will be, in many ways, a determining year. The key issue that will be on the agenda is pricing. This year, we observed price increases IGOR KOZHUKHOVSKY, GEORGY in certain regions of the country (and, in DEPUTY GENERAL KUTOVOY, the vast majority of cases it was due to DIRECTOR, FEDERAL STATE ADVISOR TO objective factors) and administrative mea- BUDGETARY ENTERPRISE THE PRESIDENT sures implemented by the government «RUSSIAN ENERGY ON ENERGY, to restrain such increases. These include AGENCY» (REA) UNITED OF RUSSIA’S MINISTRY METALLURGICAL introducing social electricity consump- OF ENERGY: COMPANY: tion rates and freezing the tariffs for the services of natural monopolies. Next year, the trend of the state’s participation in – The electric power industry today needs – As electricity consumers, we are regulation of prices will continue. It still an entire set of transformations. First, I concerned with the situation in the remains to be seen in what way it will believe, it is necessary, in the near term, wholesale market; this is why we be happening. On the other hand, the to bring to the concluding stage the pro- will be continuing to make a big industry has a great number of accumu- cess of systematizing the projection and fuss about it in the government. lated questions to the state. One of them program documents in the electric power Among the most important ones is involves failures to pay in the market. After sector. I mean the «Energy Strategy of Rus- the introduction of direct contracts the regulator adopted sanctions against sia», «General Plan for Locating Facilities of with electricity suppliers, because non-paying power supply companies and the Electric Power Sector», «Development the situation that exists today doesn’t introduced the financial guarantee mech- Plan for the Unified Energy System of suit us at all. First and foremost, this anism, this problem became more muted Russia», as well as regional electric power relates to the pricing aspect. In a for a certain period of time. However, now supply plans and programs. This includes, number of cases, we simply neither we see that the problem is becoming inter alia, bringing the vertical to the see nor understand how the price of relevant once again. I am certain that, in municipal level and there also adopting electricity is established at present. the very near future, the industry will ask the relevant program. The second element This lack of transparency represents point-blank: “Does the state, in general, in- on the to-do list is to design development a huge risk for all consumers, but first tend to assist with addressing the problem programs for manufacturing facilities pro- and foremost – for major consumers. of non-payment, or will it continue to turn ducing modern power equipment based The risk is that, in such a situation, we a blind eye to that problem?” Now, the on standard design solutions, which could are not always able to fully manage following is happening: it is not permitted be easily replicated, including localizing our costs. The second issue is that we to cut off power supply to non-payers, as the best foreign equipment and, which is want the so-called «investment tariff» they use various social statuses as shields. also quite important, focusing on domes- to stop being forced on consumers. However, as experience shows, other tically produced equipment; however, This is when the consumer has to pay enforcement actions are ineffective. We only where it is competitive. We need to for the development of grid facilities, expect some actions regarding these and guarantee them state support in the form since the costs have already been other issues from the new Deputy Energy of long-term and cheap money, which incorporated into the tariff. I believe Minister Vyacheslav KRAVCHENKO, who could be provided by development insti- this is not fair. Of course, it is neces- oversees the sector. He is a professional tutes (Bank for Development and Foreign sary to develop the grids; however, who came from the industry and knows Economic Affairs). All of this could provide let it be done at the expense of those about all those problems that have piled an impetus to quality development of the who want to develop additional up here in the last few years as well as industry. capacity. anyone.

ENERGY WITHOUT BORDERS | № 6 (25) December 2013 – January 2014 29 Finance 30 | Under the Sign of Changes The year 2013, rich in industry events, is drawing to a close; however, the decisions made will still be affecting, for a long time, the overall situation and indicators of specific electric power sector companies. Experts caution that this impact will be positive in far from all cases.

Nord Capital: reversed course only few companies of the sector are able VTB24: Among the crucial events in the sector, to eke out a profit,” says Mr. TKACHUK. expecting liberal dividends majority of experts noted the merger of Nord Capital believes that RusHydro is In the context of the Russian Grids-based MRSK Holding and Federal Grid Company potentially capable of becoming one of merger of the year, increased market into the Russian Grids company, complet- the leaders in the generation segment. Hy- attention was focused on financial ed on June 30. “If we take a global view, dropower generation is the most effective performance of distribution companies. the process of consolidation has started in terms of the cost of a kilowatt-hour of In this regard, the return of Interregional in the electric power sector,” notes Roman electricity, but inefficient state manage- Distribution Grid Company (IDGC) of TKACHUK, a senior analyst with Nord ment and a number of problems, such as the South into the black served as a Capital. “Correspondingly, the reverse the accident at the Sayano-Shushenskaya positive signal. During the nine month process, creation of amalgamated holding HPP and the flood in the Far East, hinder of 2013 (according to RAS), the company companies such as Gazprom Energohold- higher performance. earned RUB 777.8 million, versus a net ing, IES-Holding, and Russian Grids, has “In addition, while the issue crucial for loss of RUB 88.4 million a year earlier. begun. This process is likely to continue in the energy sector – the need to mod- The sharp increase in the net income of the near future.” ernize and the lack of funding sources IDGC of the South forces us to pay closer At the same time, according to the – has not been resolved, investors show attention to its shares from the point of analyst, the electric power sector remains minimal interest to the sector’s compa- view of high dividends, notes Stanislav one of the most troubled industries, nies,” summarizes Mr. TKACHUK. In 2013, KLESHCHEV, an analyst with VTB24. including due to the decision to freeze share prices of the sector’s companies fell Based on the 2012 performance, the tariffs for industrial consumers. “Thus, by 30–40% and are trading near four-year IDGCs paid dividends pursuant to a the energy sector companies have been lows, at a substantial discount to the rest government directive in the amount deprived of funding sources. On the other of the market. According to the analysts, of 25% of the net income according hand, companies of the sector are in need no factors that could change the situa- to RAS. As a result, securities of some of modernization. Under such conditions, tion are being observed for now. companies provided quite appealing dividend yield (for example, almost 17% for IDGC of Northern Caucasus). IDGC of the South, thanks to abolishing reserves against estimated liabilities and doubtful debts in the amount in excess of RUB 1.8 billion, recorded a large net income on paper during the nine months of 2013, since RUB 778 million represents almost half of the company’s current capital- ization. “By itself, a large-scale abolition of reserves in the electric power sector is a rare event, and it is unlikely that, after recognizing such a major profit, a sharp correction of this indicator due to changes in allocations to reserves would take place,” states Mr. KLESHCHEV. And if this is true, one could expect quite liberal dividend payments from the company based on the year’s performance. If 25% of the net income according to RAS is paid out as dividends, the dividend yield of IDGC of the South’s shares would amount to about 12%, given current share prices. elements will be the introduction of three Renovation of the Psou substation (Federal Grid quotation lists: A1 and A2 will become Company facility) was completed this year the new first-tier quotation list; the B, V, and I lists will become the second-tier quotation list, while the non-listed securities will become the third-tier list. “Thus, it can be expected that, subsequent to introduction of the new exchange rules, the shares of Russian Grids, a blue chip of the Russian securities market, will again be within the sphere of interests of major institutional investors,” conclude BFA analysts.

Investcafe: private debts became a common problem The au tumn of 2013, in addition to everything else, was marked for the electric power sector by a debt scan- Veles Capital The sharp increase in dal. A technical default on TGC-2 bonds investment company: occurred in late September and brought tariffs will affect everyone the net income of IDGC in long-lasting consequences for the heat “The current year as a signature year for of the South forces us to generating company. For restructuring the entire Russian electric power sector,” pay closer attention to its purposes, a decision was made to reissue states Alexander KOSTYUKOV, an analyst shares from the point of the debt instruments. As a result, annual with Veles Capital investment company. view of high dividends. servicing and redemption of bonds should In addition to the merger of FGC and cost the company RUB 1.85 billion, which Russian Grids, the expert also empha- Yekaterina SHISHKO, an analyst with Invest- sizes the adoption of the development cafe, believes to be a reasonable indicator. strategy for the electric grid industry, BFA Bank: However, problems emerged related to abolition of the “last mile”, and introduc- investors promised to return subsequent placement as well: by early tion of the social consumption rate for Ordinary shares of Russian Grids have November, only slightly more than half of electricity. been, since the end of October, removed the issue was purchased. However, he calls freezing of the tariffs from the quotation list A, first level, and “As far as the situation with debts is con- of natural monopolies in 2014 and removed to quotation list B. This happened cerned, it is a problem not only for TGC-2, straining the tariffs in 2015–2016 to the due to an increase in the share of the state but also for the entire heat generation inflation rate the most important nova- in the holding’s capital to 86.32% after the sector,” believes the expert. “The causes tion. “This regulation will affect not only issue of new shares, which, in turn, led to of major indebtedness in the sector, and, the grid industry, but also be indirectly a formal violation of one of the exchange as a consequence, high debt load are in reflected in the price of electricity via a requirements to the companies on the the setting of heat tariffs below econom- restraint on the gas prices. At the same highest list; according to the requirement, ically justified values, in the absence of time, the largest consequences from this no single shareholder must own over 75% long-term tariff policy, as well as in the introduction will be felt only in 2015,” of the company’s capital, explain BFA’s imperfections of the legislation in the area notes Mr. KOSTYUKOV. analysts. As a result, according to them, of payments and overdue payments in the According to him, during the passing ordinary shares of the holding have expe- heat supply segment.” year, just like before, companies with for- rienced seller pressure, since the change Overall, the situation surrounding eign capital and management, including in “residence” also implies divestment of TGC-2’s debt is clearly not in favor of E.ON Russia and Enel OGK-5, have been the securities by a number of institutional share prices of the heat generating the most efficient. These companies yet investors (for example, private pension company, adds Ms. SHISHKO. “Despite the again have demonstrated high profit- funds), authorized to purchase, for their relatively successful for TGC-2 half-year ability levels, both in terms of EBITDA portfolios, shares from only the highest performance, low operating and financial (38.3% and 22.03%), and in terms of net quotation list. efficiency does not allow for recommend- income (22.03% and 6.14%, respectively). However, Russian Grids expects to ing its shares as an investment target. It is However, having to write off the debts of return to being listed in the A category in interesting to note that TGC-2’s capitaliza- sales companies stripped of the guaran- the foreseeable future. This will become tion amounts to just over RUB 1.5 billion, teed supply company status, threatens possible after the new listing rules, which which is several times less than the debt not only Enel OGK-5, but also all major the exchange plans to introduce in April within the scope of just a single bond generation companies. next year, take effect. Among the new issue,” concludes the analyst.

ENERGY WITHOUT BORDERS | № 6 (25) December 2013 – January 2014 31 NB 32 |Tamers of Coal and Steam

Several years ago, Russia embarked on the course of modernization. New energy sector technologies are slated to play a key role in this process. All-Russia Thermal Engineering Institute (JSC VTI) is one of the organizations capable of creating them, as it has been shaping the industry for a number of decades.

“Grandpa” of the Supercritical Energy ГSteam has been, and still remains the key producer of electricity. This is why the primary and the core task of the Institute established at the beginning of the last century has been improving efficiency of steam-based technologies. This can be accomplished by increasing parameters of steam: its temperature and pressure. In 1949, VTI saw the commissioning of an experimental boiler. The steam it generated possessed characteristics unheard-of at the

Key VTI designs within the scope of the “Environmentally friendly high-efficiency heat generation” Technological Platform Key VTI designs within the scope of the “Environmentally friendly high-efficiency heat generation” Technological Platform • Coal-fired power plants using ultra supercritical steam parameters (28 MPa, 600/620°C), with a unit capacity of 330–800 MW and efficiency of 44–46%, with a subsequent achievement of the following ultra supercritical steam parameters by the technology: (35 MPa, 700/720°C), ensuring efficiency of 51–53%. • New-generation coal-fired TPP that use various fuel combustion technologies. • Powerful CCGT (up to 1000 MW), with efficiency above 60%. One of the research installations at VTI’s experimental boiler room • Generation of electricity and heat using CCGT with integrated gasification of solid fuel, with a unit capacity of 200–400 MW and efficiency of up to 50%. Supercritical steam parameters are such • Technologies for environmentally friendly use of solid characteristics that, when achieved, allow fuel and scrubbing, ensuring minimal emissions of water to transition into steam without any SO2, NOx, ash particles, and other ingredients, including cycle capture, compression and subsequent additional energy. Water transitions into this disposal of CO2. state at a pressure above 22.1 MPa and a temperature of 374°C. Tamers of Coal and Steam

time, including the pressure of 30 MPa and temperature of 600°C, and later – 650°C! Physicists call such steam “supercritical”. “The experimental boiler operated for about 220 thousand hours,” shares Gurgen OLKHOVSKY, President of JSC “VTI”. “During this time, our professionals carried out Kansk-Achinsk Basin is a coal basin located within research of design materials, hydraulics of the Krasnoyarsk Territory and partially – the water-steam circuit, and many other in the Kemerovo and Irkutsk Regions things. It can be said that this installation became the “grandpa” of the supercritical from the Moscow Region. Yet, the prob- times. This is why CCGT units have been energy sector.” lem is that it is a challenge to burn it, as designed as the baseline units – the longer These words are not an exaggeration. the ash has a very wide range of melting, the installations operate, the higher the The knowledge and know-how obtained the boilers could get poisoned; and it economic impact is. However, in real life, during the experiments at the prototype is a challenge to organize the combus- the cost of the electricity being generated installation are still being used at all Russian tion process properly,” explains Gurgen becomes crucial. This is why the main task supercritical generation units with a capac- OLKHOVSKY. for VTI employees is to design CCGT for ity between 250–300 MW and 1200 MW. VTI professionals have done a great deal to variable modes, which is a challenge. achieve effective combustion of these and “The Institute has been carrying out a “Challenging” Fuel other challenging coal types. At present, comprehensive research program aimed Another cross-cutting objective of the many coal-fired power plants in our coun- at solving this problem, and Institute is to incorporate into the balance try are using technologies developed with the first deliverables of this of power generation plants the fuel types VTI’s participation. research are already being that are the most challenging in use, first Currently, the Institute has equally am- used at power plants. and foremost coal. From the point of view bitious objectives. Several years ago, the We have a design of of a lay person, natural gas is considered government acted as the customer for the so-called all-mode to be the main type of fuel in our country. designing a technological platform titled CCGT. This is an instal- However, it actually was introduced as late “Environmentally friendly high-efficiency lation with gas turbine as in the middle of the past century, and heat generation”, with VTI acting as its capacity of 16 MW (total found broad application only in the 1980s. coordinator. capacity of 22–35 MW), This is why the main bet was being made which will have a very high on coal. However, there are many varieties “Lax-Mode” Installation efficiency ratio: 50%, which of this fuel found in nature, and far from all Development of gas turbine units (CCGT) is is higher than CCGT units with of them are capable of being used in the among the key directions for the new plat- a capacity of 300 MW,” shares Anatoly energy sector. The coal obtained by mining form. In such units, the heat of the com- TUMANOVSKY, First Deputy General The at the famous Kansk-Achinsk Coal Basin is bustion products discharged from the gas Director at JSC VTI. “We plan to build the experimental classified as a “challenging” type. turbine is used to produce steam, which prototype at the site of our experimental boiler was “This coal is not bad; its combustion val- then works in a steam turbine, the capacity TPP. By the way, Energy Without Borders built back ue is approximately 3,500 calories per kg, of which is transferred to an electric R&D Foundation has been providing us in 1949 which is considerably higher than generator to produce electricity. considerable assistance with the imple- the combustion value of Such process allows for reducing mentation of this project.” the brown coal specific fuel consumption by 1.5 Andrey SHCHUKIN

NOTE VTI is the country’s first industry-specific scientific research institution, established on July 13, 1921 under the auspices of the Chief Fuel Directorate. Today, VTI is a national center of fundamental and applied knowledge in the heat generation industry and equipment. At present, 640 people are employed by the Institute, with 11 Doctors of Sciences and 71 Candidates of Sciences among them.

ENERGY WITHOUT BORDERS | № 6 (25) December 2013 – January 2014 33 The spread was prepared with the support from JSC Territorial Generation Company No. 11 EVENT CALENDAR

December–January

23rd Power, Energy and Security Forum for Egypt, Middle East and North Africa ELECTRICX 2013 01/12–04/12, Cairo, Egypt The ELECTRICX expo has been held, with the support from Egypt’s Ministry of Electricity and Energy, since 1991. Annually, the event brings together over 200 companies from across the globe. The interest of Energy Efficiency and Energy Audit in manufactures in this forum is due to the rapid growth of demand for Construction: Germany’s Experience, new and modern equipment on the part of Middle Eastern and African international workshop countries in the last several years. Topics of ELECTRICX 2013 include 01/12–06/12, Berlin – Cottbus, Germany traditional and alternative energy sectors, electric power distribution The seminar is being held within the scope of professional and transmission, as well as control and measurement equipment. development programs offered by Progress Scientific Techni- cal Information Center. The event envisages a theoretical part including speeches, presentations by experts, and roundtables 5th International on key topics like principles of energy-effective construction in Forum of the Nuclear Germany, energy performance certificates for building, energy Industry Suppliers balance definition and methods for its calculations, and so on. ATOMEX 2013 The practical part envisages visits to energy-saving facilities – 02/12–04/12, Moscow, Russia including an “Energy-efficient house” in Cottbus and the Berlin The business program of the Forum organized by the State office of Vattenfall Europe, an energy sector company that Atomic Energy Corporation ROSATOM includes plenary sessions, ranks third in Germany in terms of electric power generation of industry officials and experts, as well as section meetings. The and first in terms of heat generation. spectrum of the topics under discussion includes procurement and control system in the nuclear industry, legislative changes, and best foreign practices. The International Specialized Exhibition of 3rd Annual Award Ceremony Innovation Nuclear Industry and Related Sectors’ Enterprises is an integral part Time 2013 of the ATOMEX Forum. 19/12, 2013, Moscow The Innovation Time 2013 is an independent award for achievements in innovations, initiated by the Social Projects and Programs Foundation with the support of the Ministry of Economic De- velopment of the Russian Federation and the Ministry of Communications and Mass Media of the Russian Federation. The Inter RAO Eenrgy Efficiency Center is the title sponsor of the event. The award has been given annually since 2011 and has already received public and business recognition. Its goal is to identify and encourage the best innovation projects and practices aimed to promote and implement innovative developments. The award winners will be announced in 11 main nominations, among which are the Innovator of the Year, Discovery of the Year, Innovation Program of the Year, Best Innovation Implementation Project, Social Innovation of the Year, and others.

34 Retail Electric Power Markets in 2013– 2014, 9th all-Russian conference 06/12, Moscow, Russia This annual event is held by Noncom- mercial partnership of Guaranteeing Suppliers and Power Suppliers (NP GS & PC) for representatives of retail market players, grid companies, government agencies, mass media outlets, public organizations, and electric power consumers. The focus of this conference is on changes in the regulatory framework for retail electric power (capacity) markets, holding tenders for the status, social consumption rate, as well as other relevant topics and issues in the power supply sector.

11th International Exhibition of Electrical and Industrial Electronics Industry Nuclear Power Asia 2014, ELECRAMA-2014 5th international conference on nuclear 08/12–12/12, Bangalore, India power in Asia The ELECRAMA exhibition has been held since 1990 every two years, while 20/12–22/12, Hanoi, Vietnam rotating the venue location between Delhi, Mumbai, and Bangalore. The This year, Nuclear Power Asia changed its venue location: from floor space of this exhibition will be 40 thousand sq. m. Manufacturers of Malaysia’s capital, Kuala Lumpur, it relocated to Vietnam. An- power generation, transmission, and distribution equipment, equipment for other novation is that the World Nuclear Association became electrification of railways, as well as control and measurement devices will a co-organizer, which guaranteed participation of highly present their products. According to the organizers’ projections, ELECRA- respected experts as speakers, including Mr. J.K. Park, Director, MA-2014 will draw attention of over 100 thousand visitors. Division of Nuclear Power, International Atomic Energy Agen- cy (IAEA). According to the latest IAEA report, there are 41 nuclear power generating units currently under construction in the Asian continent. In the next ten years, construction of additional 98 reactors could be initiated. The prospects of these projects will be the key topics of the conference.

World Future Energy Summit (WFES) 2014, 7th international exhibition and conference on innovation in the future energy and environment 20/12–22/12, Abu Dhabi, UAE The World Future Energy Summit incorpo- rates two integrated exhibitions, devoted to the energy sector and environment, respectively, as well as an industry conference on the issues of renewable energy sources. The exhibition’s floor space is 40 thousand sq. m, and it will feature pavil- ions of 18 countries, including Canada, Denmark, Germany, Hong Kong, India, Italia, Japan, Sweden, USA, and others.

ENERGY WITHOUT BORDERS | № 5 (24) October – November 2013 35 Photo Editor’s Choice

36 | Tricks of Light

Within the scope of the Circle of Light Third drous show could be seen by spectators on picture was generated by 18 projectors, and Moscow International Festival, five architec- the façade of the Bolshoi Theater. over 120 special effects were used. Average tural landmarks of Moscow were trans- Patrice BOUQUENIAUX and Pierre-Yves price per minute of content for such shows formed into venues for amazing installations. TOULOT from France, who are considered is EUR 10 thousand. The authors declined to The Luzhniki Olympic Complex, the Manege to be among the founders of video-map- disclose the amount it cost to produce the building, Tsaritsyno Park, and Digital October ping, were the producers of the show of show of lights on the building of the Bolshoi found themselves in the epicenter of light, lights. According to them, it took 30 days to Theater, noting only that “it is an art where color, and music. However, the most won- prepare the three-hour show. A 3D-image one can make a living”. Viacheslav LOPATIN / Shutterstock.com LOPATIN Viacheslav Energy Without Borders on your tablet!

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