Russian hydro catastrophe may cause price hike but no shortages

An accident at Russia’s largest hydro-electric power station, which left scores feared dead and strained East Siberia‘s power supply, may have serious implications for several industries in the vast region as electricity prices are expected to jump, energy consultant Konstantin Simonov, director of the independent National Energy Security Fund in Moscow, told New Europe on August 19.

A powerful explosion on August 17 blew out walls and caused the Sayano-Shushenskaya power plant’s turbine room to flood. Three of the plant’s 10 turbines were reportedly destroyed and three others were damaged. Electricity prices in Siberia could rise with more expensive gas and coal fired power stations increasing production. “There will be, of course,maybe increasing of price of electricity for Siberia and only Siberia because in Russia in reality there is no united electricity system. We have European system and system in Siberia, in the Asian part of Russia, and they are not interconnected with each other. If you are speaking about European part of Russia there will be no serious impact of this catastrophe,” Simonov said.

Sayano-Shushenskaya provides 10 percent of Siberia’s energy needs, and a key energy supplier for Siberian metallurgy. The accident caused power shortages in several towns and major factories, but by August 19 the power supply in Siberia had been restored with the help of rerouted supplies from other power plants.

Energy Minister Sergei Shmatko was quoted by the press as saying it would cost 40 billion rubles (USD 1.2 billion) to rebuild the power plant’s engine room.

Siberia-based aluminium producer, Rusal, the world’s largest aluminum producer owned by Oleg Deripaska, could be among the companies hit hardest by the price rise. “Electricity from hydro stations usually is the cheapest electricity in Russia. If we are using electricity gas station or coal stations instead of hydro stations, we will see the increasing of price,” Simonov told New Europe. “By the end of this year we are going to see an increase of prices in Siberia by five to seven percent, but I cannot say that this catastrophe will be the beginning of serious electricity crisis in Russia,” he said, adding that due to the serious decline of Russia’s gas exports to Europe triggered by the economic crisis, Russia has plenty of gas available for its domestic market. “Instead of hydro stations we can use these gas stations and there will be no problem with production. The main problem will be price because we are speaking of production of aluminium,” he said. “It will be a problem for Rusal company because the question of price is very serious... And Mr. Deripaska, the owner of RusAl, has problems of debt.”

The crippled Sayano-Shushenskaya hydro-electric power station has been shut down since the accident and could be out of service for a significant time as repairs are made. Deripaska toured the damaged plant on August 19 and talked with Russia’s energy ministry and RusHydro about securing energy supplies during the upcoming repairs, which are expected to take up to two years. More than 70 percent of all the energy from the hydroelectric plant goes to four Rusal smelters, which are believed to be the company’s most efficient plants.

Simonov reminded that there is also another big project – building the Boguchanskaya hydro station. “The idea will be to finish the project of Boguchanskaya station,” he said. Deripaska is also an investor in Boguchanskaya together with RusHydro. “It is also possible to finish the project of Boguchanskaya station and this station can also be serious producer of hydro electricity,” Simonov said.

The Sayano-Shushenskaya accident prompted new warnings about increasing risks posed by Russia’s aging infrastructure. Russian Prime Minister Vladimir Putin visited the Siberia blast site on August 21, promising victims’ families one million rubles (USD 30,000) each in compensation. A day earlier, the premier ordered that key parts of Russia’s aging infrastructure be checked and upgraded. “The tragic event at the Sayano-Shushenskaya has clearly shown how much we need to do to ensure safety of hydropower facilities,” Putin told a Cabinet session in Moscow. “We need to conduct a thorough check of all strategic and vital parts of infrastructure and work out a plan for their regular upgrade.” He also emphasised the need to make sure that workers observe industrial safety standards. “In our country ... discipline in dealing with technology is very low,” he noted.

Chris Weafer, chief strategist at Moscow’s Uralsib bank, told New Europe on August 21 “the accident definitely served as a very stark reminder of just how urgently Russia needs to increase its spending on improving its infrastructure and both upgrading the existing infrastructure and adding new capacity.”

Kostis Geropoulos

Source: New Europe, August 23, 2009