The formation of a competitive electricity market is a vital prerequisite condition to attract private investments in developing the Russian electricity sector.
Under the new wholesale market model, the existing power and capacity purchase-and-sale relations in the regulated market sector are to be replaced by a regulated bilateral contract system. The new model also provides for other competitive mechanisms for power sales: trading at free unregulated prices under free bilateral contract, a short-term competitive market with supplies on the following day (the so-called one-day-ahead market), and a real time market (the so-called balancing market).
In 2006, the regulated contracts between suppliers and consumers will be in effect until year end and, from 2007 onwards, for a term of one or more years.
The new wholesale power (capacity) market model creates conditions for step-by-step market liberalization through the reduction in power (capacity) volumes traded under regulated bilateral contracts. According to the Resolution, the annual rate of liberalisation will be determined by the Government of the Russian Federation to account for 5% in 2007. In addition, starting from 2007, all new generating facilities and "new" consumption will automatically participate in the wholesale market at free unregulated prices.
The retail market rules specify the pricing procedure for the retail electricity markets and the basis for the interaction between all retail market participants, including end consumers, and the procedure for entering into and performing public power supply agreements.
The retail market rules define the status of guaranteeing suppliers working with each electricity consumer under public agreements and their bidding-based selection. In addition, according to these rules, competing energy-selling companies may participate in retail markets.
For the population, all electricity will be supplied at regulated tariffs. In other respects, the gradual implementation of competitive relations between wholesale market participants will also be translated into retail markets. For all other categories of consumers, electricity will be supplied at both regulated and free prices in accordance with the percentage of regulated bilateral contracts and competitive price trading in the wholesale market.
The system of relations to be established in both the wholesale market and retail markets will enable the market relations in the Russian electricity sector to come closer to the best systems applied abroad.
The imitation trading under the new power (capacity) market model organised by Trading System Administrator together with System Operator – Centralised Dispatching Administration was launched on March 15, 2006. More than 150 participants took part in the imitation trading, including about 100 subsidiaries of RAO UES of Russia. The total number of regulated bilateral contracts entered into between the market participants has exceeded 4,000.
