Increased coal exports may support the industry

4 august 2017 | Rossiyskaya Gazeta

The share of coal-fired generation in the Russian energy sector has begun to decline, giving way to gas. Tighter climate and environmental regulations for power plants would put further pressure on coal use. Such measures may weaken the country's energy security and may worsen the situation for more than a million Russians in the coal-mining regions. The decline in the share of coal-fired generation was one of the topics of the new energy bulletin prepared by the Analytical Center experts.

Oleg Kolobov
Oleg Kolobov
Department for Fuel and Energy Sector

Further tightening of this competition may cause a number of problems. According to experts, Russian natural gas reserves, given current consumption, will last for another 56 years, while the coal ones will be sufficient for 422 years. According to the Russian Ministry of Energy, in 2016 the share of gas-fired power generation increased by 0.7 percent, whereas the share of coal dropped by 1.8 percent. Gas is already dominant, but the market-induced plans to reduce the share of thermal power generation by 2035 are leading to a shutdown of the least efficient coal-fired power plants, the study says. The reason for coal displacement lies in the lack of interfuel competition. In order to make coal-fired generation more profitable, gas prices should be 2 to 3 times higher than the coal ones. However, the price ratio has not exceeded 1.59 point since 2014. Thermal power plants have to bear the costs of operation and maintenance of handling systems, warehousing, supply, coal production, combustion, slag disposal, etc. These costs do not allow achieving higher coal-fired power generation capacity.

"It is even more difficult for coal, since wholesale gas prices are regulated (restricted) by the government, while coal pricing is market-based," Oleg Kolobov, an expert of the Analytical Center, explained to Rossiyskaya Gazeta. The problem could be solved by gas market liberalization, which was once again postponed this year due to disagreements in the government. Market liberalization is a complex process, Kolobov admits. It will raise issues of gas transportation tariffs, abolition of state regulation of wholesale prices, and liberalization of exports.

Another problem should be addressed concurrently with these discussions. According to the Institute for Complex Strategic Studies, more than a quarter of coal mining mono-towns (30 towns with a population of 1.3 million) are among the cities in the most difficult socio-economic situation. Thus, a decreased demand for coal in the electric power industry may lead to a shutdown of a number of enterprises that are vital for 60% of the population in the Kemerovo region.

"The problem was first addressed in 1992 within the framework of the Coal Industry Restructuring Program," Kolobov said. "Rationalized employees completed retraining programs, received compensation or retired early." So far, social support has been provided: pension supplements, coal allowance, employment programs, and development programs for mining cities and towns. At the same time, the industry may be supported by increased coal exports, which has recently become a key driver of its development, the expert concludes.

Source: Rossiyskaya Gazeta