Stagnating Demand for Electric Power has Led to a Decline in Capital Investments in the Industry

9 march 2016

The Analytical Center has published a new Bulletin of the socio-economic crisis in Russia. This one is titled Trends in Electric Power Consumption as an Indicator of Economic Activity. Experts note that the overoptimistic demand growth forecast of 2007 has had important consequences for the current state of the industry (actual consumption in 2015 was 1.4 times below the projected value). As a result, even as the assets of RAO UES were being privatized on condition that they would be further developed, the new owners were having major difficulties with the investment portion in the electricity tariffs. Despite the fact that capacity available in the industry was growing at a slower pace than projected, today we have got a glut of generating capacity (in effect, this is a case of overproduction) while the current fall in demand for electric power has driven down capital investments in capacity expansion.

The Analytical Center's experts believe that investors should focus on improving efficiency and modernizing existing capacity, transmission and consumption of electric power as well as on reducing СО2 emissions and on shifts to low capacity generation, which would also have a positive impact on the planet’s climate. Projections should be based on the specific features of regional development rather than on any expected GDP growth figures. This means that the energy systems in the regions must be comprehensively assessed before their development strategies are adopted.

The decline in industrial output in 2014-2016 has had an impact on demand for electricity, albeit not critical, which had to do with the structure of consumption that is largely defined by industry (50% of demand), other sectors of the economy and by weather. External support of economic activity in less developed regions of Russia made those regions an exception in 2015 as power consumption there increased a little.

Russian economy is the most natural gas dependent in the world, with NG being the main fuel used by thermal power plants that compete against nuclear generation in European Russia and against hydroelectric power plants in Siberia. Coal-fired power plants have a very small share in total production but they still hope to improve their positions. Renewable energy (wind and solar) needs to be supported, especially in remote territories, to save on expensive infrastructure.

The Bulletin also contains comparative data on the global power sector.

For other Bulletins see Publications.