Generators Get Break On Bidding Deadline

The government has canceled the 2010 deadline for bidding on reserve capacities, the Energy Ministry said Friday, giving private generators a respite as demand for electricity plummets and financing for the sector has dried up.

The ministry will also allow some of RusHydro’s hydroelectric stations to take part in the tenders, a right previously reserved for gas and coal power stations.

“We have decided to introduce these changes because there is no urgency to build reserve capacities now as electricity consumption is falling,” an Energy Ministry spokeswoman said.

In order to encourage the development of reserve power stations in areas where power shortages are expected and infrastructure is sparse, the government introduced reserve capacity tenders in 2005.

The winner of the tenders agrees to build reserve power stations in key areas and is compensated for its investment by higher electricity prices set by the System Operator, the electricity market regulator.

The new rules, announced by the Energy Ministry on Friday, remove the capacity limit for generators to qualify for the investment compensation. The limit previously stood at 5 gigawatts. The ministry will also allow some of the capacity and electricity generated at reserve power stations to be sold on wholesale markets.

Power consumption fell 6.6 percent in the first half of the year, and generators are finding that they have enough on their plate — primarily their investment obligations that they agreed to as part of the privatization of Unified Energy System — without having to worry about reserve capacity auctions.

“We currently focus on the power stations that we are obliged to build for our investment program,” said a spokesman at Integrated Energy System, a Viktor Vekselberg-controlled electricity holding.

Most private generators will not take part in the auctions at least until 2012, since most of their financing will be spent on their obligatory investment programs, Renaissance Capital utilities analyst Vladimir Sklyar said.

“Reserve capacities may be built by foreign investors who haven’t taken part in the privatization but are still interested in the Russian market,” Sklyar said.

The compensated investment program will make it safer for foreign investors to develop the sector, but the compensation mechanism — transparent pricing and profitability levels in particular — still need to be worked out, Sklyar said.

The government has ordered the Energy Ministry to work out the rules for capacity tenders within the next three months, the ministry said Friday.

Among the main winners from Friday’s announcement will be the state-run companies that control sites already chosen for guaranteed investment projects, including Inter-RAO and RusHydro, Sklyar said.