Kondratiev Sergey V. Principal Director on Economic Studies, Head of the Economic Department
ТЕМЫ: Energy

The Internet publication InfoTEK published an article by Sergey Kondratiev, Deputy Head of the Economic Department of the Institute for Energy and Finance - “We do not leave our own” on the final performance of the Russian electricity sector in 2022 and prospects for 2023.

Forecasts and prospects

In the coming year, we do not expect a sharp decline in demand for electricity. As 2022 has shown, the Russian economy is well adapted to new challenging conditions while maintaining a high level of flexibility. At the same time, in 2023, the scenario of stagnation or a slight (by 0.5–1% y/y) reduction in demand is most likely. Much will depend on how the situation in the oil industry develops, whether there will be a significant reduction in production.

Electricity generation may be slightly below last year's results due to the high base effect of the first half of 2022. The reduction in generation in the coming year may amount to 0.6–1.2% y/y.

Exports will continue to decline. According to the forecast of the system operator, in 2023 it will amount to 12.9 billion kWh. To restore the volume of deliveries abroad, Russia will have to do a lot in terms of developing new export destinations. First of all, this concerns an increase in supplies to China and Mongolia, where there is a demand for electricity - we could multiply exports to these countries. But for this you need to at least expand the network infrastructure.

Risks and bonuses of the coming year

One of the major risks for the industry could be the tightening and simplification of regulation. For example, in terms of decisions already taken on the minimum requirements for power grid organizations, which creates conditions for the monopolization of markets for connection to grids. At the same time, the regulator focuses on quantitative indicators, without assessing the effectiveness and quality of asset management, which can lead to the exit of small but effective participants from the market.

Unresolved issues

The key problem, which has existed for more than a year, is related to the fact that consumers of electricity are forced to pay for the construction of capacities, which they then actually do not use. Schematically, it looks like this: The Ministry of Energy and the system operator determine the necessary projects as part of planning, which are then implemented by generating companies. But planning is based on demand forecasts. It often turns out that during the few years when generating facilities were built, the demand has changed, and the facilities remain unclaimed.

There are also difficulties in the RES sector. In 2022, we dropped out of the global green agenda, but RES market participants demand that the tariff be indexed to the producer price index, and not consumer prices (i.e., by 20.4% instead of 8.4%). In other words, renewable energy generation receives super-comfortable conditions without taking on market risk. But industrial consumers of electricity (metallurgists, chemists, oilmen, etc.) bear such risks as part of their core business. The question of how to balance liabilities and move to a market economy is likely to remain a key one for the industry. And the long-term stability of the Russian power industry will depend on the answer.

Kondratiev Sergey V. Principal Director on Economic Studies, Head of the Economic Department
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