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New light for Sakhalin or who will pay for reliability?

Energy progress is not cheap, but placing the burden of reckoning on the consumer alone is a step into the abyss.

The emergence of new power plants in the Far East, which are undoubtedly of great importance for the development of the energy sector and the economy of the macroregion, posed the main question for the public - who should compensate for investment costs, how will new generating capacities affect payments for electricity.

New light for Sakhalin or who will pay for reliability?
For example, in November 2019, an important infrastructure facility was put into operation - Sakhalinskaya GRES-2 on Sakhalin (editor's note - the new power plant was put into operation by Sakhalinenergo after commissioning). The project attracted close attention of the expert community: the situation with the power supply of the remote region was critical, but there were concerns that the launch of a new generation facility would lead to an increase in tariffs. We are examining how the appearance of the station affected the reliability of the power system isolated from the UES, and whether negative forecasts came true.


The Unified Energy System of Russia is a unique phenomenon: a gigantic territory, including some neighboring countries, is controlled from a single center (dispatcher - System Operator of the UES), which ensures the highest reliability of power supply. But the UES also has its own "skeleton in the closet": a number of regions of the Far East, including the Sakhalin Region, do not have a physical connection with the UES and operate autonomously. This means that in the same Sakhalin Oblast one has to rely only on its own generation.

Built back in the Soviet years, the Sakhalin GRES was unable to fully meet the needs of the region by the early 2000s: with an installed capacity of 168 megawatts, it generated only 30 megawatts. The reason, among other things, was the accelerated wear of equipment. The fact is that there are few large industrial consumers on the island (the share is 7,7%), who create round-the-clock demand for electricity, and the station operates mainly for the residential sector, which is characterized by pronounced daily fluctuations in demand. In addition to the most noticeable, evening peak in consumption, there is a morning surge in demand, and few people need electricity at night. The problem is that such an operating mode is extremely unfavorable for coal-fired boilers and steam turbines: they constantly have to be started and stopped, which quickly puts them out of action. As a result, in 2003, energy supply restrictions reached 5-6 hours a day. The issue was so acute that it was considered at a meeting of the anti-crisis headquarters of RAO UES.

Although in the same 2003 the Federal Target Program “Economic and Social Development of the Far East and Transbaikalia” included the construction of a new station along with the modernization of the networks, the final decision was made only in December 2011, and construction began in 2015. By that time, the problem had only worsened: the growth in the region's energy consumption for the period up to 2020 was estimated from 0,5 to 2% per year (in reality, it was 5,5%), while generation at the existing facilities was only decreasing.
RusHydro took over the project. The fact is that in 2011 RAO ES of the East, burdened with a serious debt burden, became a subsidiary of RusHydro. Today, it is RusHydro that supplies power to the Far East (with the exception of Buryatia and the Trans-Baikal Territory) through its companies, including PJSC Sakhalinenergo.


Choosing coal as fuel for the new plant was the only right decision. There is a lot of coal in the region (the station was built on the basis of the Solntsevskoe-2 deposit), the price for it is acceptable, there are no problems with logistics. Alternative energy (wind, geothermal sources, tidal stations) is good, but the situation was clearly not the right one to experiment. The region's energy system had to be rescued; Sakhalin faced the risk of a global blackout that would lead to a humanitarian disaster. But modern environmental standards place strict requirements on designers. As a result, GRES-2 has become a reference example of a modern clean coal-fired plant.

At GRES-2, the latest generation electrostatic precipitators are used, capturing 99,6% of ash particles (at the old GRES –96,6%). The specific total emission of pollutants is only 0,025 grams per ton of fuel. GRES-2 does not discharge wastewater into water bodies: it uses a circulating water supply system. More efficient combustion of fuel (a ton of coal produces one third more energy than the old station) has led to a sharp reduction in waste generation. The designers also took into account the high seismicity of the area and the increased risk of typhoons. At the same time, the generating equipment is Russian-made (steam turbines were manufactured by JSC Ural Turbine Works, generators - NPO ELSIB, boilers - PJSC Power Machines), which once again demonstrated the high level of development of domestic power engineering.

As a result of the launch of GRES-2, the installed capacity of the Sakhalin energy system increased to 623 megawatts against 587 megawatts earlier.


The construction of GRES-2 fell on a difficult period for the economy: at the end of 2014, due to the imposition of sanctions against Russia, the ruble rate dropped sharply, respectively, when implementing projects related to the purchase of imported equipment, costs increased. This fate was not spared either by GRES-2: the estimate for the construction of the first stage of the facility increased by 9,3 billion rubles. In 2012, RusHydro received 50 billion rubles from the federal budget by contributing funds to the authorized capital for the construction of GRES-2 and three more large facilities in the Far East (of which GRES-2 accounted for 14,04 billion). Due to new circumstances, however, these funds were not enough. Financial problems, however, were promptly resolved: for example, the company attracted 5 billion rubles from the Fund for the Development of the Far East and the Baikal Region JSC at 5% per annum for 8 years.

Nevertheless, in 2018, a report by auditors of the Accounts Chamber appeared, which contained indications of the risks of higher electricity prices due to an increase in the estimate for the construction of GRES-2 and other facilities. The document indicated that local tariffs can grow first of all, while two points were kept in silence. Firstly, all tariffs are regulated on Sakhalin, there are no unregulated ones, this is a feature of this region. Secondly, since 2017, there has been a mechanism for equalizing tariffs in the wholesale market in the Far East through subsidies by consumers in the so-called price regions, that is, in central Russia. Thus, the likelihood of an increase in tariffs directly on Sakhalin was practically absent. Well, 2020 has come, and, of course, tariffs for the population in Sakhalin have not experienced any outrunning growth in 2020. So, since July 1, 2020, a kilowatt-hour for the population in the region has risen in price by 16 kopecks as planned (for reference, in 2018 - by 13 kopecks). But what about tariffs on the wholesale market and, in general, with reimbursement of investment costs?


For the period from 2009 to 2020, investments in the modernization of the Sakhalin Oblast energy system were estimated at 116,14 billion rubles. The sources of financing for modernization programs are budgets of all levels, including the federal one, as well as investment programs of large energy companies.

At the same time, the budget, in fact, is the main beneficiary of the commissioning of infrastructure facilities. Thus, according to the Strategy of Socio-Economic Development of the Sakhalin Region, the commissioning of GRES-2 on the horizon until 2027 will ensure an increase in the inflow of tax revenues by 8 billion rubles a year, the contribution to the GRP will be 31 billion rubles. These figures do not take into account the cumulative effect of increasing the investment attractiveness of the region as a whole. Thus, the region's investment portfolio contains signed agreements totaling 750 billion rubles.

The economic effect from the launch of most projects will begin to affect from 2023-2024. Of course, these projects cannot be implemented without ensuring a reliable power supply.

“Thus, the budget incurs costs, but also receives revenues. There is no other way in Russian realities, - says Sergei Pravosudov, director of the Institute of National Energy, - if you force the population and business to directly and directly compensate investment costs, both of them simply will not be able to do this. The investment needs of the country are enormous, and without the involvement of the budget, there will be no commissioning of new facilities. " 

“Ultimately, the consumer always pays for everything, but how exactly, in what proportion and at what rate - the state decides. In Russia, the retail consumer is extremely protected, this is the basis of the domestic socially oriented economic policy. The state decided that for the sake of the advanced development of the Far East, it is possible to temporarily transfer part of the tariff burden to wholesale consumers in the Central region. The expectation is that subsequently investment programs in the Far East will "shoot" and the costs will return a hundredfold. Do not forget that the budget is financed from taxes, and the task of increasing the tax base is a priority for the state. It is difficult to imagine how it could be otherwise. Don't build anything because it's expensive and you have to pay for it? Not a question, but then nothing will happen in the country, ”says Pravosudov.

“World practice knows a huge number of ways to compensate for investment costs in the modernization and construction of infrastructure facilities. For example, in the United States, the process is extremely "straightened": energy companies directly shift the investment burden onto consumers, including the population. Regulatory intervention is limited and often comes down to defining a “reasonable rate of return” in tariff setting. The system has the obvious disadvantage that opportunities for the construction of large facilities are extremely scarce: companies have to justify the need for construction before the regulator, and this is usually not easy. In an attempt to solve the problem, the United States is trying to introduce elements of deregulation, but in fact, the monopoly of vertically integrated holdings, which included both generators and suppliers, was replaced by a monopoly of suppliers. In Russia, such a system will not work, says RAS Corresponding Member Ruslan Grinberg, - one thing is a state in which “everything” has been built long ago, and only some modernization is required, another thing is Russia, which essentially has to re-industrialize. In this situation, delegating a decisive role to the state is the only possible solution. "

“We have a huge country with a relatively small population. The income level of the population, and of the bulk of the business, is not high by the standards of the United States. At the same time, we have not yet solved even the task of "linking" our entire territory with a single infrastructure: for example, the power system of the Far East is separated from the UES. The classical models for solving this dilemma, based on the development of competition, will not work precisely because of the small size of the population and its poverty. Thus, the development of infrastructure in Russia is primarily a concern of the state. It decides what to build and where. How to finance. How and in what way it will pay off. He has to control not even costs, as regulators in many other countries do, but the prices themselves. Only it understands what level of tariffs the population and business in a particular region will withstand. And where to get the funds from, if not directly from the tariff, ”says Greenberg.

Of course, the tough regulatory model has its drawbacks: for example, in a situation where the budget is both the main investor and the main beneficiary, it is difficult to ensure impressive GDP growth rates. But nothing else is given: the refusal to commission new facilities will lead the country into a paradigm of survival, which will result in a slow death of the economy, and giving up the processes to the free market will cause a collapse, and in this case, the collapse of the economic system will occur almost instantly, Greenberg sums up.
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