Electricity Market and Prospects of Development

RAO UES reforms in 2008 split all electricity assets of Russia into several groups of companies by type of operations and competition.

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Structure of the Unified Energy System of Russia

Types of activity	Companies
Generation (heat and electricity generation)	JSC Rosenergoatom Concern — electricity (power) generation at nuclear power plants. JSC Rusgydro — electricity (power) generation at hydraulic power plants. Territorial generating companies (TGC). Heat generating companies on the wholesale market (WGC). Generation on the retail market. JSC RAO UES of the East — all power companies of the Far East, including electricity supply and distribution. INTER RAO UES Group is a diversified power holding that runs generation and sales assets in Russia as well as in Europe and CIS, a single electricity exporter and importer.
Supply and distribution (three levels)	Russia’s electricity transmission and distribution market is divided based on its technological and administrative and territorial characteristics between grid companies of the following three levels: 1. JSC FGC UES Level 1: a federal grid company which owns main grids of 220 kV and above comprising the Unified National (All-Russian) Power Grid (UNPG). This company carries out its activities through its branches across the Russian Federation. 2. JSC Russian Grids including 11 interregional distribution grid companies (IDGC), including JSC IDGC of the North-West. These companies own 0.4-110 kV grids and render electricity transmission and grid connection services in the constituent entities of the Russian Federation where they operate. 3. Territorial grid companies Local territorial grid organizations which primarily own grids of 0.4-10 kV. These companies were established mostly using the assets of wholesale reselling companies in the form of municipal enterprises that serviced consumers of one municipal entity and had own grids.
Sales	Sales companies that sell electricity to end consumers that are both industrial companies and the community.
Supervisory control and electricity sales	JSC System Operator of the Unified Energy System is the sole body that ensures centralized supervisory control over the Unified Energy System of Russia. Council for Organizing Efficient System of Trading on Wholesale and Retail Markets Non-profit Partnership (NP Market Council) supports functioning and controls electricity wholesale and retail markets.

As at the end of the reporting year, the total installed capacity of the power plants as part of UES of Russia was 232,451.81 MW. Electricity generation at the power plants of UES of Russia in 2014 was 1,024.9 billion kW•h. Electricity consumption at the power plants of UES of Russia in 2014 was 1,013.9 billion kW•h. Additionally to the temperature as a driver of reduced electricity consumption in UES of Russia during 2014, a decrease in electricity consumption was significantly impacted by a reduction of electricity consumption by a number of industrial enterprises: including that of aluminum works year-on-year.

One of potential areas for electricity sector development in Russia is geothermal electricity generation. Currently over 50 thermal water fields are explored in Russian with a potential exceeding 300 thousand m per day. The total electricity generation potential of steam and water therms (estimated at 1 GW of useful electricity) was fully utilized at over 80 MW of installed capacity. Currently all existing Russian geothermal power plants are located in Kamchatka and the Kuriles.

A separate area for development of the national power sector is construction of distributed generation facilities. The said trends will have a positive effect on the Unified Energy System of Russia to help tackle such challenges as:

preventing the need in construction of excessive generation capacities, also using funds from government budgets;
supporting more flexible adjustment of loads in power grids;
supplying power to isolated power districts;
setting off electricity losses in grids.

If there are many territorial grid companies (TGCs), risks at power grids are reinforced and suboptimal distribution of resources related to operation, maintenance, and development are inevitable and predefined. Difference in regulation of TGCs an IDGCs also destabilizes the tariff system. A resolution of the Government of the Russian Federation was drafted in 2014 determining criteria for classification of a company as TGC. Technical specifications of TGC operations will be set (mandatory technical adequacy standards will be introduced subject to availability of a reserve for emergency response, qualified employees etc). Cost benchmarking with tariff regulation will also allow us to identify non-competitive TGCs, encourage them to leave the market, or be consolidated with more efficient grid companies.

Reliable and uninterrupted power supply to consumers through efficient management of the grids is a key task of distribution grid companies which achievement is one drivers of national security.

Further development of power grids implies measures to upgrade and ensure synchronous development of main and distribution grids, cost cutting and improvement of construction quality of grid facilities. A focus will also be on enhancing responsibilities of grid companies by improving the performance assessment system and implementing international quality standards. Furthermore, one of important development areas for the power grid sector is better availability and transparency of the grid connection procedure and gradual reduction of the timeframe.

Grid companies must ensure a high level of grid security and occupational health and environmental safety; take measures to reduce process losses, ensure high load of new capacities, improve project management quality and investment effectiveness taking into account priorities when selecting investment targets. Common technical and innovation policies also define key areas for power grid sector operation in the long run.