04.02.2014
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RusHydro supports government’s proposal reversing discriminatory regulation for hydropower plants in Siberia

RusHydro considers partial liberalization of capacity market in the second price zone a step in the right direction towards full elimination of discriminatory regulation for hydro generators in Siberia. The measures, proposed by the government in a draft decree published last week, bring back the old capacity remuneration mechanism that provides for a fairer distribution of revenue among Siberian generators. RusHydro supports the proposal to liberalize tariff regulation for 50% of hydro capacity as of 2014 and deems statements that the proposed mechanism «would create undair advantage for hydro generators in Siberia» as misleading.


In 2011, the government abandoned the market-based capacity remuneration for hydropower and enforced full tariff regulation of hydropower plants’ capacity in Siberia in order to curb end-user tariff growth in Siberia. De facto, this measure, followed by cancellation of price caps for capacity auction prices (Russian abbrevation – KOM), led to redistribution of revenue in favor of thermal generators. As a result, hydropower plants in Siberia have been selling their capacity at tariffs significantly below the prices received by other generators operating in Siberia.


In 2013, all Siberian hydropower plants would have got additional RUB 20 bn of revenue from capacity sales, had they sold capacity at a market price (RUB 156,000 per MW/month). RusHydro’s share of this is estimated at RUB 5.5 bn. But due to tariff regulation, this revenue was distributed between thermal generation and end consumers, resulting in lower power costs for the latter. Overall, in three years RusHydro had lost an estimated RUB 10 bn. Therefore, the recent statements in the press about “extra privileges for hydropower plants” are not grounded.


As an example, Berezovskaya thermal power plant in Siberia owned by E.On Russia has been selling its capacity at the KOM price, which, in different years, was 2.5-5x higher than the regulated tariffs of hydropower plants in Siberia. In 2015, E.On Russia is due to commission a new 800 MW unit of the plant, which will add an estimated RUB 14 bn to its revenue from to investment return mechanism provided by capacity delivery agreements (Russian abbreviation – DPM). It means that only one 800 MW unit will get more revenue from capacity than all hydropower plants of Siberia with combined capacity of over 22 TW selling their capacity at 2013 regulated tariffs, and 3.5x more than additional revenue that hydropower plants of RusHydro and Eurosibenergo could get in 2014 form partial lifting of restrictions for capacity remuneration.


RusHydro estimates its additional 2014 revenue from capacity sales following 50% deregulation of hydropower capacity as of April 2014 at ca. RUB 1 bn, Eurosibenergo’s – at ca. RUB 3 bn. These figures are preliminary and might change as the timeline and scope of tariff liberalization in the second price zone are not finalized, and will become certain after the approval of the regulation by the government.


The company also thinks thermal generators’ plea to cancel liberalization of hydropower capacity remuneration in Siberia and argument about consequent “squeeze out” of the thermal generation from the market are misguided. Increase in payments for hydropower plants’ capacity is already accounted for in 2014 end-user prices and fits the limits set out by regulator for capacity prices in Siberia. Likewise, there is no threat to reliability of electricity and heat supply: no changes will occur in types or quantity of power generation facilities in the region.


RusHydro is intended to further protect its economic interests in the course of continuing consultations over improvements in the sector regulation and liberalization of the wholesale power market. The Company expresses hope that the government and the Ministry of Energy will support the course for full abolishment of regulated tariffs for capacity of hydropower plants in the United Energy System of Siberia.

The information in this press release may contain projections or other forward-looking statements regarding future events or the future financial performance of RusHydro. You can identify forward looking statements by terms such as "expect," "believe," "anticipate," "estimate," "intend," "will," "could," "may" or "might," the negative of such terms or other similar expressions. We wish to caution you that these statements are only predictions and that actual events or results may differ materially from these statements. We do not intend to update these statements to reflect events and circumstances occurring after the date hereof or to reflect the occurrence of unanticipated events. Many factors could cause the actual results to differ materially from those contained in our projections or forward-looking statements, including, among others, general economic conditions, our competitive environment, risks associated with operating in Russia, rapid technological and market change in our industries, as well as many other risks specifically related to RusHydro and its operations.
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