“Common market is a great blessing” // Director of the EEC Energy Department Vadim Zakrevsky on the creation of a common EAEU energy market

Director of the Energy Department of the Eurasian Economic Commission (EEC) Vadim Zakrevsky told Kommersant about how electricity will be traded in the common electricity market (OER) of the countries of the Eurasian Economic Union, which includes Russia, Belarus, Kazakhstan, Armenia and Kyrgyzstan.

– At what stage is the creation of a common electricity market (OER)?

– We adhere to the plan according to which the OER should start working by the beginning of 2025. This year, it is necessary to prepare rules for access to services for interstate transmission of electricity (transit), rules for determining and distributing capacity, as well as rules for mutual trade. These documents must be accepted by July 1, 2022.

If by this time the common gas market does not work, then the OER will work with a truncated structure: electricity will be traded between the authorized entities of each country. When a common gas market appears, the OER will work according to the “everything for everyone” model, that is, all wholesalers of the national energy markets should be allowed to cross-border trade within the EAEU. The all-for-all model is expected to be operational on time in 2025.

– In the Russian Federation there is a two-rate model of the energy market – electricity and capacity are traded. The ERM will be built on the same model?

– We assume that the participants will form applications for the OER at a one-part price. A proposal to create a capacity market in each country was considered, but this is extremely difficult and was not supported. The main requirement for the participating countries is to create wholesale energy markets and to separate the production, transmission and sale of electricity. In the Russian Federation, Armenia, Kazakhstan, these steps have been taken. There is a de facto wholesale market in Kyrgyzstan, but the country needs to fix this concept in legislation. Reforms have yet to be carried out in Belarus.

How Belarus can access the transit of electricity through the Russian Federation

OER participants will be able to conclude free bilateral contracts and determine the terms of delivery themselves. Trading in futures contracts for a year, quarter, month, week and the so-called day-ahead market will also be organized. If a country has a capacity market, then the seller either invests the price of capacity in the bid price for the OER, or does not invest if he can afford it.

– What capacity power plants will be able to enter the market?

– Only stations participating in the national wholesale market will be admitted to the OER. The power threshold is determined separately in each country. For example, for the Russian Federation these are stations from 25 MW, and in Kazakhstan – from 1 MW.

– What is the potential volume of trade in the OER?

– If we proceed from the possibilities of power grids, then the potential market may amount to 40 billion kWh per year. The maximum volume of trade across the sections Russia-Kazakhstan, Kazakhstan-Kyrgyzstan, Russia-Belarus was recorded in 2017 and amounted to slightly less than 10 billion kWh.

– Will OER participants be able to claim access to cross-sections for export to Finland and the Baltic countries?

– There is already such an opportunity: for example, the Ekibastuz GRES of Kazakhstan have applied for export to Finland. But now Russia is ready to calculate the cost of electricity transit through its territory only after the delivery is completed, which does not suit the suppliers in Kazakhstan. With the launch of the OER, the situation will change for the supply of electricity within the EAEU. The procedure for calculating the cost of transit to third countries remains in the competence of the transit country.

– How will the cost of interstate transmission (transit) be determined?

– The service of transit through the territory of the country will be paid separately. The tariff for interstate transmission of electricity will be determined a month in advance, each country has its own tariff. It is assumed that in all countries, except for the Russian Federation and Belarus, the interstate transmission will be carried out by the grid company. In the Russian Federation, Inter RAO will do this, as it does now. For each month, the tariff will be calculated according to the approved methodology and its invariability will be guaranteed.

This change is made for the supply of electricity, for example, from Kazakhstan to Belarus or from Belarus to Armenia. Whether it will also be implemented for deliveries outside the EAEU, for example, from Kazakhstan or Belarus to the cross-section of Finland, remains at the discretion of the transit country, in this case Russia.

– On which site will the OER auction be held?

– There will be one “day-ahead” exchange, while derivatives contracts can theoretically be traded on several platforms. Currently, three sites claim to trade electricity on the OER: the St. Petersburg International Commodity Exchange, the Trading System Administrator (ATS, the structure of the Market Council – the regulator of the RF energy markets) and the Kazakhstani Electricity and Power Market Operator (KOREM). Simulation trading sessions have already taken place on each of the sites. Almost all major players in the EAEU, including generating and grid companies: Eurosibenergo, SGK, OGK-2, RusHydro, TGK-1, Market Council, Hrazdan-5 (Gazprom Armenia), Rusal Armenal “,” Araratcement “,” Minskenergo “,” Gomelenergo “,” Belenergo “,” National Electricity Network of Kyrgyzstan “and others. Interest in the project is high.

– In what currency will the trade take place?

– Since all five countries have their own currencies, we will have to be tied to some exchange rate standard, for example, to the currency of the country of the trading floor. A proposal is being considered to create a cryptocurrency, the so-called elcoin – the equivalent of a digital currency that will identify one kilowatt-hour. Discussions are ongoing.

– How will conflict situations on non-payment for the supplied electricity be resolved?

– An agreement on joining the market will be signed with each member of the OER. If the buyer does not pay for the energy or interstate transmission, the contract is terminated. Then all disputes can continue in court.

– Russian generating companies fear a sharp decline in prices in the Russian Federation due to the inflow of cheaper electricity. Don’t you see such risks?

– If we talk about prices, now the highest tariffs among all countries in Belarus, since the country’s thermal power plants operate on imported gas. Industrial tariffs in Belarus are higher by $ 0.1 per 1 kWh. In Russia, prices are lower than in Belarus and Armenia, but slightly higher than in Kazakhstan and Kyrgyzstan.

The common market is a great blessing. The main principle of the OER is non-discriminatory and transparent trade between participants from different EAEU countries. For example, the energy systems of Belarus and Russia are connected by grids, but there is no commercial flow. Countries need each other, but for some reason do not trade. I think this is wrong. Basically, we have five different markets, each country has its own, and each operates according to its own rules. And now we are creating the sixth one, where each participant will have equal rights and opportunities to trade with partners in the “Eurasian five”.

Interviewed by Polina Smertina

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