Russia Resumes Electricity Exports to China

Russia’s electricity suppliers have moved to resume exports from the country’s Far East to China amid declining domestic demand. Russia’s energy executives have announced that the region’s major electricity exporter, the Bureiskaya hydropower plant, will reach its maximum designed capacity later than expected. On March 24 Yuri Gorbenko, the head of RusHydro’s Far Eastern Division, announced that the Bureiskaya plant is due to be completed in 2011. Despite the crisis, in 2008 RusHydro disbursed 5.7 billion rubles ($169 million) to build the plant and now aims to spend 6.5 billion rubles ($193 million) this year, the Bureiskaya plant’s press-service said in a statement (Interfax, Vostok Media, March 24).

The first unit of the Bureiskaya plant, in Talakan, Amur region, was launched in June 2003. The project was due to be completed in 2008 to bring the Bureiskaya hydropower plant to its maximum 2 gigawatt generating capacity. In July 2007, Russia’s Unified Energy Systems (UES) launched the fifth power-generating unit of the Bureiskaya plant. UES, a holding company that owns controlling stakes in 73 regional energy companies and 44 power plants, used to be the largest power company in Russia, generating some 70 percent of the country’s total electricity output. Between 2002 and 2008, UES underwent radical reforms and last year it was split into competitive (generation and supply) and non-competitive (transmission and distribution) businesses.

As part of the reform package, Inter RAO UES retained its status as Russia’s leading electricity importer and exporter, while RusHydro took over the hydropower assets, formerly controlled by UES. The reforms of the Russian energy sector were meant to create a competitive business environment and encourage private investments to develop major power projects. However, amid the ongoing financial crisis, private funding became scarce and the Russian power companies opted to seek government support. Notably, the 60-percent state-owned RusHydro secured 3 billion rubles ($89 million) in government funding to develop the Kankunskaya power plant in Southern Yakutiya. The Kankunskaya plant is due to be completed in 2020 (Kommersant, March 23). RusHydro’s plans were apparently export-oriented as the Bureiskaya and Zeiskaya plants already produce more electricity than the region can consume, at least for the time being.

In early March, Inter RAO UES and RusHydro re-started electricity exports to China at 0.41 rubles ($0.012) per kilowatt-hour (kwh), or nearly 27 times higher than Russia’s domestic regulated tariff for the Zeiskaya power plant of 0.015 rubles per kWh. In March 2009, Inter RAO UES and RusHydro aimed to export 80 million kwh to China (Kommersant, March 5).

Russian suppliers agreed to export electricity to China at a price nearly 7 times below the figure they quoted only two years ago. Nonetheless, renewed exports are still understood to be a good deal for Russian suppliers because the domestic demand was 5-9 percent lower in the Russian Far East in February. Moscow and Beijing have long discussed electricity trade. In the mid-1990s, they discussed a project to build a 2,600-kilometer power transmission line from Irkutsk region in Siberia to China at a cost of $1.5 billion. However, they failed to agree on pricing and abandoned the project in 1999.

Nonetheless, Russia still supplied about 800 million kwh of electricity from its border regions to China in 2006 and planned to supply 1.4 billion kwh in 2007, up from 300 million kwh in 2004. In March 2006, UES and the Chinese State Grid Corporation, pledged to finalize a long-term deal on energy supplies. In November 2006, the companies clinched a deal to raise annual exports of electricity from Russia to China up to 3.6-4.3 billion kwh in 2008-2010, and 18 billion kwh in 2010-2015, and eventually up to 60 billion kwh.

Two years ago, UES planned to seek about $1 billion in loans to complete the construction of the Bureiskaya power plant. These loans were to be secured by long-term export contracts to China. But the plan failed to materialize as China was reluctant to commit to long-term deals. Similarly, on February 1, 2007 Russia’s plans to boost its electricity exports were dealt a major blow after China refused to import Russian electricity. Thus the Bureiskaya and Zeiskaya plants were left without a market to sell their surplus electricity. Chinese negotiators reportedly argued that the Russian price, $0.08/kWh was unreasonable and nearly twice as high as China’s domestic prices.

Without customers for its electricity in Northeastern China, the Bureiskaya and Zeiskaya power plants, as well as the other ambitious energy projects in the region, may have ended up as liabilities rather than assets. Hence resumed electricity exports to China, even at $0.012/kwh, allowed the Russian Far Eastern energy outlets to sell surplus electricity.

Apart from seeking more exports from existing facilities, RusHydro also plans to build the Nizhne-Bureiskaya, Nizhne-Zeiskaya and other hydropower plants to supply electricity to China. But RusHydro’s drive to expand has raised environmental concerns. On March 20, RusHydro appealed to the residents of Evenkiya and urged them not to protest against the plans to build the Evenkiyskaya power plant. RusHydro was encouraged to hold public discussions of the proposed project and warned against what it described as baseless statements (Interfax, www.press-line.ru, March 20).

In the meantime, the economic downturn has been adversely affecting the expansion of Russia’s energy sector. Before the crisis, the Russian government planned to build 6.4 gigawatts of new power facilities in 2009-10. However, on March 24, Igor Kozhukhovsky, head of the governmental Electricity Balance Forecast Agency, conceded that the country was likely to build only about 4.0-4.5 gigawatts per annum. He also predicted a 4.5 percent decrease in Russia’s overall power consumption in 2009 (Interfax, Reuters, March 24). Subsequently, Russian energy companies are expected to have more surplus capacities available to export electricity.