Small Scale Power Engineering at Great Cost

05.05.2010 — Analysis

In 2004 the Sverdlovsk Oblast government has approved the programme for the construction of 15 small hydro power plants in 12 municipalities with the total generation capacity of 7.6 MW. It had been planned that the project would be implemented within eleven years. The budget has funded the construction of the first two facilities having spent a total of 87 million roubles. At the same time the project has been looking for investors.

IGN, a Hungarian company, demonstrated interest in the project. The company had signed a cooperation agreement with the Ministry of Energy, Housing and Utilities of the Sverdlovsk Oblast. The Hungarians expressed the will to build several small hydro power plants simultaneously and even promised to commission the first train in a year in order to demonstrate their abilities. The company had also been planning to start the production of the state of the art diesel generator power units in Russia with the capacity of 0.5-1 MW and generation of energy through the incineration of railway sleepers.

The Hungarians have not accomplished their plans. Gabor Reppa, the Manager of the Department for Economic Relations of the Consulate General of Hungary in Ekaterinburg, told RusBusinessNews that the situation is developing but he does not want to speak about it in public. In the summer of 2009 the Consul complained in an interview to the agency about the hardships in the way of the project implementation and the lack of a guaranteed consumer market.

Experts reckon that the Hungarians are concerned that the project will not pay back very soon. It is possible to find electricity consumers but nobody can predict what would happen with the electric energy tariffs tomorrow as the campaign for the reduction of prices for utilities is unfolding in Russia. In these conditions of uncertainty nobody is going to build new facilities for power generation, more so if we are talking about a private foreign investor.

The State, however, does not adhere to the deadlines for the construction of small hydro plants either, having failed to fund the development of projects for the construction of hyrdo power plants at Verkhnemakarovskiy, Kashinskiy, and Lenevskiy hydroelectric installations in 2009 and having not allocated the money for the implementation of the programme in 2010. It is noteworthy that there were problems with the start up of the first two mini-stations: at Kiselyovskiy installation the level of water is insufficient and Nizhneirghinskiy station has not been started in the winter for the danger of icing up. Specialists say that in time all these problems will be resolved and small hydro plants will start generating. However, the difficulties encountered by the pioneers have turned out so serious that they might bury the very idea of the construction of small scale power engineering facilities in the Mid Urals.

Experts point out that the scheme for the connection of mini stations to the grid is not perfected and is very expensive which puts the construction of small scale generating facilities out of reach of a private investor. The current Russian legislation burdens with the connection payments not only the consumer of electricity, but the generating company as well. Naturally, the business plan has to include further 2 million roubles for the connection. The connection procedure itself is so complicated that even officials lost their cool; according to them, the amount of man-hours spent on the start up of a mini-station is comparable to that when commissioning the Sayano-Shushenskaya hydropower station.

The rules of the game are set by OAO "Inter-Regional Distribution Grid Company of the Urals" (MRSK) which takes the payment for the technical connection and suggests that the proprietor of a small hydro station calculates how the connection will affect the work of the grid. In order to coordinate the technical requirements set by the grid company you have to involve a project design company. All this means spending money and time. The proprietor of a mini-station is trapped as making the station autonomous is economically and technically inexpedient. Experts say that this is a classic situation of arm-twisting by a monopoly.

Dmitry Tyukhtin, the Manager of the Department for Liaison with Authorities, Community Organisations and Media of OAO MRSK of the Urals, explained to RusBusinessNews that the company is working precisely as the law prescribes whether anyone likes it or not. The same applies to the connection fee. "We do not set the price, the connection is done in accordance to tariff approved by the regional authorities in accordance to the current FST methods. All regulatory documents and tariffs can be found at the website of MRSK of the Urals and anyone wishing to do so can get this information. This is why these statements from people calling themselves experts about the "arm-twisting by the monopoly" are simply emotions which have nothing to do with the work of the company".

In the Sverdlovsk Oblast, the expert claims, there are 11 applications for the connection of the facilities of small scale generation. Six contracts have been signed, the others are being negotiated. MRSK stresses that in all the time of the fee being levied for the technical connection the company has never refused a "small" applicant. Mr Tyukhtin points out "We always are particularly careful when considering these applications because the connection of a generation facility demands technical solutions ensuring the simultaneous work of the generating equipment and the grid".

There are no disagreements between proprietors of small scale generation and grid companies in Bashkortostan where mini stations are being constructed by OJSC Bashkirenergo which then commissions them from itself. Naturally, there are no problems with connection there, the only issue remaining there is the payback time for the small scale generation facilities.

Valeriy Yampolskiy, the Deputy Chief Engineer of OJSC Engineering Centre of Urals Power Engineering, claims that it is totally inexpedient to construct mini hydro stations as one kilowatt of the stated capacity becomes as dear as gold. This cost is affected by the condition of the dams in the Sverdlovsk Oblast and the seasonal nature of the work of the station and the inability to sell the excess energy. This means, the expert believes, that all the generated energy will be used exclusively for the internal needs. In this situation the investment will not pay back very soon, taking into account the lack of locally made equipment and extremely high costs of special lubricants and maintenance. Mr Yampolskiy so far has not yet seen any small scale power engineering sites which paid for themselves. At the same time the experts admits that in some cases the construction may make sense, for instance in areas to which the construction of a power line would be inexpedient.

Aleksandr Yevplanov, the Head of Electrical Engineering Department at the Urals State Mining University, is convinced that the programme for the construction of mini-stations will not be implemented in the near future due to the lack of investment. Banks are not prepared to cover the existing risks and there is no mechanism to involve investors in projects co-funded by the budget. It is evident that authorities are not going to start resolving these numerous problems before the regions face power shortages again. Experts believe that this time will come quite soon; there have been cases when MRSK cannot provide the capacity requested by companies and does not give permission to new consumers for the connection to the grid.

Vladimir Terletski