The WECM is the place of circulation of electricity and capacity within the framework of the Unified Energy System of Russia (UES of Russia) with the participation of large producers and buyers of electricity and capacity (as well as other organizations who have received the status of a wholesale market entity). It is regulated by the Federal Law “On the Electric Power Industry”.
2022 results show that consumption of electricity in Russia grew amid an improvement in payment discipline among consumers in the Wholesale Electricity and Capacity Market (WECM). However, the debt of end consumers grew in the Retail Electricity Market (REM).
According to data of the Center for Financial Settlements1 (CFS), the level of payments in the WECM for electricity supplied in 2022 grew by 1 percentage point and 0.5 percentage points compared to 2021 and 2020, respectively. Debt for electricity supplied in the WECM in 2022 declined by 14.3% compared to 2021 and amounted to RUB 12.3 bln (Fig. 1–2).
1 The CFS is a commercial infrastructure organization of the WECM, whose main task is to provide a comprehensive service for calculating the requirements and obligations of WECM participants and making financial settlements between them.
The main reason for such a sharp decline in debt was the signing of an agreement between PJSC ROSSETI and energy companies on restructuring the debt of electricity sales companies based in the North Caucasus at the end of 2021. Under this agreement, the sales companies (Chechenenergo JSC and Rosseti Northern Caucasus PJSC) handed promissory notes to the generating companies in March 2022 in order to pay off the debt formed before 2022. Chechenenergo JSC and Rosseti Northern Caucasus PJSC thereby payed off 90% and 83% of their debts, respectively. The size of debt amounted to around RUB 12 bln, 85% (around RUB 10.2 bln) was repaid by transferring promissory notes. In 2022–2026, the scheme of mutual settlements in terms of shortfalls involves payment in two ways: promissory notes (bonds) or cash with an interest-free deferral of 13 years. At the same time, there are conditions with regard to discounts — 10% for Chechenenergo JSC and 17% for Rosseti Northern Caucasus PJSC. It is planned that from 2027, these companies will fully perform settlements using ‘real’ money.
According to JSC System Operator of the Unified Energy System2 (JSC SO UES), consumption of electricity in the UES of Russia grew by 1.5% in 2022 compared to 2021, and by 7% compared to 2020.
This growth was due to both colder weather in the winter period and growth in electricity consumption by oil production and transportation enterprises (Fig. 3). In 2020, warmer weather and coronavirus restrictions had an adverse effect on electricity consumption. Growth in consumption in 2021 was due to both colder weather compared to 2020 and the restoration of the positions of the domestic electric power industry amid growing demand from the Russian economy following the removal of pandemic restrictions.
2 JSC SO UES is an operational dispatch control entity (the term ‘system operator’ is also used in regulatory and technical documentation), which carries out centralized operational dispatch control of the UES of Russia. JSC SO UES is authorized to issue operational dispatch instructions and orders that are mandatory for electric power sector companies and electricity consumers, which affect the electric power mode of operation of the energy system.
An IES is a set of several energy systems united by a common mode of operation, with a common dispatch control as the highest level of control in relation to the dispatch controls of its constituent energy systems. The UES of Russia includes seven region-based IES, one of which — IES of the East — operates separates from the other six.
Electricity consumption in 2022 was higher than in 2021 for most of Russia’s interconnected energy systems (IES), and for most of them, these indicators exceeded 2020 results (Fig. 4).
Total debt in the WECM amounted to RUB 74 bln in 2022, which is lower than the indicators as of the end of 2021 (RUB 86.3 bln), but slightly higher than at the end of 2020 (RUB 72.9 bln). At the same time, it should be noted that the volatility of this indicator is mainly due to the abovementioned mechanism on restructuring the debt of the sales companies of PJSC ROSSETI in the North Caucasus (Fig. 5–6).
Figure 5. WECM debt by federal district as of year-end, RUB bln
The REM is a marketplace for both electricity purchased in the WECM and electricity offered by generating companies not participating in the wholesale market.
Figure 6. Annual WECM payment discipline, including assignment agreements, by federal district, %
Sources: CFS, ACRA
In 2022, the growth rate of debt in the WECM in the North Caucasian Federal District declined, but in natural terms the size of debt was higher than in 2020 (Fig. 5–6).
Most of WECM debt is formed by sales companies that buy electricity in the wholesale market and sell it to end consumers in the REM3. In 2022, the WECM and the REM demonstrated multidirectional debt dynamics: WECM debt decreased, while REM debt continued to grow; the amount of REM debt, as before, significantly exceeded WECM debt (Fig. 7). These dynamics are mainly due to adjustments in liabilities in the WECM (write-off of bad debts), as well as the compensation by retail electricity providers for end consumer debts.
It should be noted that in 2022, according to CFS, the growth rate of consumer debt in the REM has increased: over the past year, debt increase by RUB 32.4 bln, while in 2021 and 2020, it grew by RUB 2.4 bln and RUB 24.1 bln, respectively (Fig. 8). In general, REM debt growth was caused by weakening payment discipline among almost all categories of consumers.
3 REM participants: electricity consumers; utilities providers; guaranteeing electricity suppliers; electricity sales companies; electricity suppliers; electric power producers for retail markets other than wholesale market participants; electric grid companies, owners of electric power facilities; system operator.
Market Council (Nonprofit Partnership Council for Organizing an Efficient Trading System in the Wholesale and Retail Electricity and Capacity Market) organizes wholesale and retail trade in electric power and capacity (previously Trade System Administrator Nonprofit Partnership).
Guaranteeing Electric Power Supplier is a company that is obliged by the Federal Law “On the Electric Power Industry” to conclude an electric power supply agreement with any consumer who applies for such agreement.
In ACRA’s opinion, end consumer debt is primarily borne by electricity sales companies. Oftentimes, this leads such companies to bankruptcy and/or loss of WECM participant status due to late payments for electric power/capacity. For example, by its resolution dated June 22, 2021, the Market Council withdrew the aforementioned status from three guaranteeing suppliers controlled by PJSC ROSSETI: JSC Kabbalkenergo, JSC Kalmenergosbyt, and JSC Karachayevo-Cherkesskenergo, due to their multi-billion ruble debt to generating companies. In addition, consumer debt is also borne by electric grid and generating companies, which could potentially lead to insufficient cash to cover their operating and capital expenses necessary to maintain the reliability of the UES of Russia.
In the period from January 1, 2023 to March 20, 2023, the volume of planned electricity consumption[1] in Russia increased by 0.6% year-on-year, according to the Association NP Market Council.
At the same time, WECM debt increased by RUB 0.3 bln in January–February 2023 compared to an increase of RUB 5.7 bln in the same period in 2022. In January–February 2023, REM debt increased by RUB 69.2 bln, which is higher than RUB 65.8 bln in the same period last year (according to NP Market Council).
In ACRA’s opinion, electricity consumption dynamics in Russia in 2023 will range from -1.5% to 0 compared to 2022 due to the delayed impact of external economic sanctions on industrial production and economic activity in the country. Nevertheless, even if the volume of electricity consumption in Russia in 2023 remains at the level of 2022, the debt for supplied electricity will continue to increase, which is likely to affect the financial performance of companies in the industry. At the same time, despite the formation of unfavorable trends, ACRA believes that in the medium term (six to twelve months), the industry will be able to absorb negative shocks.
4 Planned electricity consumption is the total planned volume of consumer purchases determined as a result of a competitive selection of applications for the day ahead. Volumes of export deliveries of electricity are excluded from consumption volumes by price zones.
