Russia moves a step closer to a free market in electricity

Russia’s electricity sector is moving towards a free trade regime, according to the head of Unified Energy Systems, Anatoly Chubais.

He said, “There is no better tool than the market to make best use of the most efficient generation companies – while less efficient ones will see fewer orders.”

The reforms are aimed at revitalizing the power sector, which has seen little investment since the late 1980’s. Analysts say the facilities are a generation behind those of Western Europe.

The lack of capacity is estimated to have cut Russia’s national output growth by at least 5 percent a year. Now, Europe’s largest electricity firm Unified Energy Systems has launched a record-breaking 78 billion-dollar investment plan.

Although the government will still set prices, it will gradually allow companies to sell more electricity on the free market, thus allowing companies to sign direct contracts with power generators. In addition, both parties will be able to exit regulated contracts.

Eventually, new electricity producers will be completely free to set their own prices. Analysts say this will be attractive for the sector as it will create incentives to build new capacity.

Studies suggest the current lack of capacity does more harm to Russian industry than the higher prices which could result from deregulation.