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. Last Updated: 07/27/2016

Ministry Sees High Capacity Price Cap

The Energy Ministry has suggested a price cap of 500,000 rubles ($16,000) per megawatt of capacity at newly built power stations in western Russia and 600,000 rubles ($19,000) for the stations located in Siberia.

The plan, set out in a draft of a government order, marks a significant jump from the previous levels permitted by regulators.

The document also defines for the first time a method for calculating the price for capacity, a measure generators have demanded since capacity auctions were first held in July last year.

At an annual auction held in December, generators make a proposal to the Market Council, an industry watchdog, outlining the price they intend to charge for the capacity of future power stations. The offer must be approved by the Market Council for the capacity to be sold on the market.

Mosenergo, Moscow’s utility, was allowed only 370,000 rubles per megawatt of capacity in December, compared with the 530,000 rubles it had requested. The Market Council turned down a proposal of 500,000 rubles per megawatt by OGK-1.

The Market Council will put the fair market price for capacity at 85 percent or 90 percent of capital and operational construction costs, as well as the costs for connection to the grid, the draft order said. Bids that exceed the limits will not be considered, the document said.

The order, which was placed on the Energy Ministry’s web site, is dated July 10, but major generators said Sunday that they hadn’t yet seen it.

Energy Ministry spokeswoman Irina Esipova could not be reached on her cell phone on Sunday.

“We consider as adequate the price limit and the method of calculations established by the order,” said Igor Mironov, the head of the Council of Electricity Producers and Strategic Investors. “We have asked for price limits to be fixed in official papers for a long time. And we also think that spelling out the rules in an official document is very helpful.”

Nadezhda Rukina, a spokeswomen at Integrated Energy Systems, billionaire Viktor Vekselberg’s power holding, said she couldn’t comment on the order because it was a draft document.

Spokeswomen at Gazprom Energy Holding, which manages the gas monopoly’s electricity assets, and OGK-1 said their companies’ management had not seen the document yet.

“Even though the real prices are likely to be lower than the limit, so high a limit tells us that the regulators are ready to provide for fair returns on investment in power station construction,” Rye, Man and Gore said in a note to investors Friday. “This makes the risks of building new capacity significantly lower.”