Russian Energy Shortages Require Bans, Tariffs, and Purchasing Electricity From China

Executive Summary:

• Russia is experiencing energy shortages and electricity generation problems exacerbated by its war against Ukraine, sanctions, and cryptocurrency mining.
• Russia’s electricity exports to the People’s Republic of China (PRC) significantly dropped in 2024 due to energy deficits in the Far East, and these regions are now considering importing electricity from the PRC to combat these shortages.
• The increased energy usage due to cryptocurrency mining has led to regional mining bans and new tariffs. Moscow views cryptocurrency as a tool to bypass sanctions, making it reluctant to establish a total ban.

Russia’s energy industry is experiencing difficulties caused by rising sanctions, declining exports, and Ukrainian drone and missile assaults on infrastructure, in turn creating challenges for domestic electricity generation (see EDM, April 18, October 16, November 13, 2024, February 27). Two months after the start of Russia’s full-scale invasion of Ukraine in February 2022, Russian President Vladimir Putin demanded an update of the “Energy Strategy of the Russian Federation until 2035” that was approved in 2020 to address these problems. He also demanded that the “horizon” of planning be updated and extended to 2050 (TASS, April 14, 2022). Energy Minister Sergei Tsivilev stated in February that this update would be delivered by the end of  March (Russian Energy Ministry, June 9, 2020; Nezavisimaya Gazeta, February 16). The document defined the strategic goals of the country’s fuel and energy complex to promote Russia’s socio-economic development and strengthen and preserve Russia’s presence in the global energy sector. The issues the Russian energy sector has been facing have made fulfilling these goals more and more problematic.

The energy shortages resulting from Russia’s full-scale invasion of Ukraine are most deeply affecting Russia’s eastern regions, so much so that it is considering importing electricity from the People’s Republic of China (PRC), a reversal of previous years during which it exported electricity there, most recently in 2023 (E²nergy, February 19). Last year Russia reduced its electricity exports to the PRC by three times its previous export rate. The volume of electricity exports from Russia to the PRC in 2024 amounted to less than one billion kilowatt hours (kWh), down from 3.1 billion kWh in 2023 (TASS, December 18, 2024). This decrease is attributed to a deficit in Russia’s Far East energy system (TASS, December 18, 2024; Interfax, February 6).

Russia’s full-scale invasion of Ukraine caused domestic energy shortages in Russia’s south as well as in the Far East and Siberia. This was exacerbated by the increasingly ravenous demands of cryptocurrency miners for electricity (Хабр, October 20, 2021; see EDM, June 5, 2024). Despite the PRC accounting for 75.53 percent of global cryptocurrency mining in September 2019, during May–October 2021, the PRC government began to restrict and eventually ban cryptocurrency mining. This caused investors located in the PRC to flee to Kazakhstan and eastern Russia, where hydroelectricity was comparably cheap (Хабр, October 20, 2021). As a subsequent regional ban on cryptocurrency mining did not solve the energy shortages and Russia’s energy infrastructure could not quickly increase production to meet the deficits, Russia has begun planning to buy electricity from the PRC.

Problems in Russia’s ability to maintain electricity generation began to appear in mid-2024. These included bans on cryptocurrency mining in some regions, the introduction of prohibitive tariffs for excess energy consumption in other areas, as well as the summer energy crisis in the south of the country, which affected 2.5 million Russians (Nezavisimaya Gazeta, July 21, 2024). Moscow initially attempted to solve the surging demand shortages by regional cryptocurrency mining bans, but they persisted. On October 26, 2024, Putin signed a law allowing the government to ban cryptocurrency mining in certain regions of Russia or in certain territories, as well as regulate the activities of mining infrastructure operators beginning November 1, 2024 (TASS, October 30, 2024). Five days later, during a discussion on digitalization at the RBC Tech forum, Deputy Energy Minister Evgenii Grabchak informed participants that in some regions, including the Far East, southwestern Siberia, and Southern Russia, “miners have used up all available power capacity,” and new consumers would not be able to connect to the grid until at least 2030. Grabchak added, “Right now, the energy sector is in a situation where we’re parasitizing on the legacy of the Soviet Union, and it will take years to develop new capacity,” noting that since 2022, cryptocurrency miners have increased their consumption by 14 percent, exhausting available resources (RBC, October 30, 2024).

Since January, the Far East has been included in the second price zone of Russia’s wholesale energy and capacity market, a shift implying a transition from tariff regulation to market principles for the electric power industry. The new mechanism will not affect ordinary residents of the Far Eastern Federal District, who will continue to be billed according to previous tariffs (East Russia, February 6). Even as rampant cryptocurrency mining contributed to Russia’s Far East electrical generation problems, cryptocurrency remains a fiscal innovation of rising interest to the Russian government as a potential factor in evading the West’s increasingly punitive sanctions regime (RBC, April 20, 2022; see EDM, June 5, September 26, 2024).

The utility of cryptocurrency has compelled the government to seek solutions to energy shortages other than an outright nationwide ban. In Russia, prohibitions on cryptocurrency mining in some regions have been accompanied by the introduction of prohibitive tariffs for excess energy consumption (Kommersant, March 18).

Another sign of the Far East’s persistent and growing energy crisis is the emergence of the System Operator (Systemnii operator, Системный оператор) company’s plans to import electricity from the PRC, even as the Russian Federation earlier exported electricity to the PRC. System Operator Chairman of the Board Fedor Opadchii noted, “In the conditions of a tense regime-balance situation in the Unified Energy System of the East, it is necessary to consider the possibility of accelerated commissioning of renewable energy generation facilities, which are a cheap, efficient and quickly erected source of electricity, as well as importing electricity from China” (E²nergy, February 10). Opadchii added that another effective measure could be deploying 10 quickly constructed gas turbine units with 25 megawatt (MW) capacity each in Primorskii krai. Additionally, the possibility of building solar and wind power plants with a capacity of about 1,700 MW is under consideration (Interfax, February 5).

While the Russian government remains largely in denial about the negative impact of Western sanctions, Siberia’s increasing energy difficulties in forcing the region to seek PRC assistance represents not only a blow to Russian electrical imports as recently as a year ago but another factor representing the PRC’s rise amid Russia’s decline. A century ago, electricity generation was crucial to the establishment of Bolshevik power. On December 22, 1920, at the VIII All-Russian Congress of Soviets, Lenin told his comrades, “Communism is Soviet power plus the electrification of the entire country” (Vkontakte/Odna Rodina, December 26, 2023). Whether Russia’s new energy strategy can address these century-old problems remains to be seen.