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. Last Updated: 07/27/2016

Average Power Prices Reach a Record High

The country's average electricity prices on the free market hit an all-time high this week, due to rising gas prices and an abnormally warm summer, exceeding levels in some European states.

Prices hit 1,043 rubles ($40) per megawatt-hour in European Russia on Wednesday, official data showed.

"The spike coincided with maintenance works at some stations ... coupled with an abnormally warm August," said Sergei Pikin, head of the independent Power Development Fund.

Previous records were set in September and February, due to high demand in the heating season, and stood at 800 and 900 rubles per megawatt-hour.

Pikin said some generators had been forced to buy extra gas on the free market at higher prices to meet demand after the Kursk nuclear power station halted its second generating unit for maintenance work.

Higher gas transportation tariffs have also played a role.

Electricity and gas prices have been long capped in the country at low levels, supporting healthy economic growth. Last year, the government decided to fully liberalize them by 2011 and introduce competition in both sectors.

Some 10 percent of electricity in Russia is currently sold on the free market, while the free gas market accounts for only three percent.

Industrial consumers have to clear their consumption volumes with gas export monopoly Gazprom and former power monopoly Unified Energy System every year, but need to go on the free market to buy additional volumes.

If generators fail to buy extra gas volumes, they are forced to resort to fuel oil purchases. Fuel oil, a key export product, is sold at unregulated prices inside the country.

Analysts from Aton brokerage said Russian prices were very high compared with many European states, including the Scandinavian Nordpool market, where prices were around $24 per megawatt-hour and the EEX German market with prices of $48 per megawatt-hour.

"Taking into account that [Russian] electricity generators also receive capacity payments, which we estimate at about $15 per megawatt-hour, the total electricity price is nearing $55 per megawatt-hour, which we see as very high," Aton said.

Aton said it estimated current average state-regulated electricity prices in Russia at $25 per megawatt-hour.

Free gas and electricity trading is set to rise, and after 2011, regulated prices will be kept only for the household sector, while all industries will operate at free prices.

"In our view, the high price is more the result of increased gas prices than a capacity shortage, as Russia's electricity consumption grew only by 0.7 percent in the first seven months of 2007," Aton said.

It said high gas prices were pushing generation companies to make up for low regulated tariffs by setting higher prices on the liberalized electricity market.

"We believe rising prices should help power generators post better financials in the second half of 2007," said Aton, adding that hydro companies should benefit the most.