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Siberia-Ural-Center Power Bridge: Incentive for Development of Scientific, Engineering and Production Potential

Author's column of Stanislav Monchinsky, General Director of Krasnoyarsk Territory Development Corporation, on

The project of a Power Bridge from Siberia to the Central European part of Russia emerged back in the 70's in the USSR. The proponents justified the project by the possibility to supply cheaper electricity. The proposed power line was unique in its characteristics, particularly in terms of its length and equipment of AC 1150 kV substations. However, the Soviet Union fell apart, and the project was never implemented.

The idea was revived in 2012. Siberia-Ural-Center Power Bridge project was presented at the 3rd Siberian Energy Forum in Krasonyarsk. Stanislav Monchinsky, General Director of Krasnoyarsk Territory Development Corporation, told the readers of about the project's features and specifics of its implementation.

The power grids are the most efficient and least costly means of delivering energy to the consumers. If we compare the cost of supplying power via grids to the cost of building a gas transmission system or railway transportation, the former turns out to be cheaper.

The key mission of Siberia-Ural-Center Power Bridge project is to optimize the county's fuel and energy balance, since the majority of energy resources of Russia are located in the eastern part, while most consumption is concentrated in the west. The Power Bridge financial assessment showed that delivering the power produced at the coal-fired thermal and hydro power plants in Siberia over high voltage power lines is more economically feasible than building generation at the consumption locations, in the central part of Russia. I think the figures prove that. Therefore, the Power Bridge may become an efficient substitute for the mechanisms of guaranteeing the return on investments, particularly the Capacity Supply Agreements, at a lower cost compared to investors building gas and coal power plants in the central part of Russia.

Further, considering that the transmission over such distances requires super high voltages, the Power Bridge may become a driver for development of science and engineering and promote implementation of novel energy supply technologies, as well as manufacture of new DC or AC power equipment.

National science has made great advances in direct and alternative current technologies, but, unfortunately, we have been lagging behind the rest of the world in their commercial application and construction. The commencement of the project will give a new impetus to R&D and offer new high-tech contracts to the manufacturers. Many countries including the emerging markets utilize the power bridges, and Russia should learn from this experience while incorporating its own equipment.

The Power Bridge project consists of two areas: the first is the super high voltage power line with a construction cost of 175 billion rubles; the second is the construction of generation facilities in Siberia costing 450 billion rubles – all in prices of 2012. This adds up to the total project cost of 625 billion rubles.

What's the presumed outcome? The calculations made by the project developers – Krasnoyarsk Territory Development Corporation – evidence clearly that the added value of resource conservation and reduction of the investment burden on the consumer is greater than the investments. The experts estimate it at over 1 trillion rubles. Besides, there may be indirect and consequential benefits from conserving the gas that is not consumed in the European Russia and utilizing Siberian steam coal for power generation. This would boost the industrial production, create more jobs and make Siberia a more attractive area to live and work in.

When it comes to investments, I think any project should start with the basis – the mechanism of securing return on investments. Krasnoyarsk Territory Development Corporation considered several financing schemes – public and private sources. If the federal government could opt for a private-public partnership, the private investors would need to have either the guarantees of return on investments or incentives to invest.

The incentives may be of market nature – in many countries the free market price determines whether or not the investors are interested to invest in new construction. However, in a regulated market where the price is not driven solely by competition as in other market models, the investor cannot but count on special investment guarantees, be it long-term contracts, state guarantees or direct participation of state capital in such projects.

A choice should be made: we either opt for competitive market rules or the investment guarantee mechanisms, which, as should be kept in mind, would place additional burden on the consumers. Either way, without updating the assets and radically enhancing the efficiency in the energy industry, further development of the sector beyond 2020 is not viable.

Experts comment.

Sergei Pikin, director of the Energy Development Fund:

In my opinion, the Power Bridge could act as an efficient tool to replace a CSA' system (an option to extend the investment guarantee mechanism, comment by For example, in terms of real construction costs, energy generation in Siberia could be less expensive compared to the CSA mechanism.

Although, it would obviously require a modification to the dispatching system. It would not be an easy task for the System Operator. However, in my view, the company should long have shifted towards enhancing the self-dispatching capabilities of the market participants. It is especially true of the generators, since they are the most vulnerable links in the energy chain, and the System Operator at times offers solutions that are sub-optimal from the point of view of energy market economy and thus hindering its future development. Therefore, regardless of how complicated the Power Bridge project may be, it should be commenced precisely because it could become a platform for updating the dispatching technology, enhancing its efficiency for the market players.

The project is also important for heightening the engineering sophistication of our manufacturing industry, which unfortunately is in many ways derivative to the western technology. Above all, the Power Bridge may become an element of the so-called Trans-Eurasian power corridor, capable of connecting the energy resources of Asia Pacific region and Europe.

Dmitry Bulgakov, analyst of Deutsche Bank:

The Power Bridge is a long-term project. It may affect the prices in the wholesale power market in the European Russia and Siberia due to the fact that cheap Siberian electricity may curtail the price peaks in European Russia. Nevertheless, I maintain that the generation capacity planned to be built under the project will be insufficient for the prices between European Russia and Siberia to converge. There are calculations indicating that for the prices to fully align the flow would have to reach 10% of the installed capacity of the energy systems. However, the Power Bridge envisages a flow of less than 10%, therefore, the effect would be substantial but insufficient to fully couple the two power zones.

A far more important issue, in my mind, is the cost of the construction and the payback of this project. Per the initial estimates, the project would cost hundreds of billions of rubles. It is important to understand what its payback time would be, whether it is viable in today's technical, economical and industrial conditions, and whether it would deliver the required savings, because the investments will most likely be relayed to the end consumers in form of higher tariffs for power transmission, for instance. If it fails to provide the sufficient savings, e.g., in terms of price for consumers in European Russia, then why implement it?

It is no secret that currently many investment projects in grid sector, up to 50%, by experts' estimates, are inefficient due to both bloated cost estimates and excessive under-utilized redundant capacity. The Power Bridge project must be very carefully calculated. Otherwise, it would only bring additional costs to the consumers and the state, but not provide a tangible economic effect.