Russian Wholesale Markets for Electricity and Capacity: Regulation Revival?
Yu. A. Orlova
National Research University Higher School of Economics
Keywords: оптовый рынок электроэнергии и мощности, стимулирование инвестиций, договор о предоставлении мощности, распределенная генерация, затратный метод регулирования, wholesale market of electricity and capacity, incentives for investment, capacity supply agreement, distributed generation, cost based price formation
Abstract
Power industry reform is one of a few transformations in Russian economy that was sophisticated by design and went far in its implementation. Electricity and capacity wholesale market (OREM) development started competitive pricing in a sector that had being considered as demanding regulation for a long time. The practice showed effectiveness of the market procedures at OREM. Nevertheless, non-market mechanisms at OREM are pervasive, namely capacity supply agreements that guarantee rate of return to generators and orders for national power engineering industry, subsidizing some regions, etc. Cost based price formation and using power market as an instrument of industrial policy contradict the aims of the reform plan and aggravate the long-term risks for the sector as well: the market loses pricing signals, the motivation for improving efficiency may be distorted, conditions for Averch-Johnson effect are provided, the technological progress is balked.
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