russia.
qxd 2/27/2006 9:51 AM Page 30
POWER GENERATION
Resurrecting Russia’s power system
GLOBAL SUPPLIERS NEED TO PARTNER WITH LOCAL VENDORS TO ENTER THE POWER
MARKET THAT COULD BE DOMINATED BY COMBINED CYCLES
ALEXEY KALININ AND IRINA PETROVSKAYA
INSTITUTE FOR COMPLEX STRATEGIC
STUDIES, MOSCOW, RUSSIA
iemens’ persistence in trying to
S acquire Power Machines, Russia’s
premier power equipment maker,
shows how important the Russian
power generation market is — and
Russian vendors are for global suppliers.
The Russian government’s decision to
retain control of Power Machines
through Unified Energy System of Russia
(RAO UES), a state-controlled power
monopoly, shows that the government
wants to control the costs of modernizing
Russia’s installed base and building new
capacity. The government also wants to
ensure that Russian-owned companies
can cater to the country’s power genera-
tion market whose growth rate is set to
increase rapidly from about 1 GW per
year (2000 - 2005) to 2.5 - 3 GW per year
(2006 - 2012).
Local natural gas prices range from
$35 to $40/1,000 m3 (about one-sixth
European and U.S. prices) and gas is
expected to contribute significantly to
Russian power generation in the future,
mainly through efficient combined
cycles. However, Russian companies
have current technology only in steam
and hydro turbines. Their gas turbines are
not world-class and they do not offer
combined cycles. These vendors, who
have supplied not only to Russia but also
to friends of the former Soviet Union,
may need to partner with global suppliers
to bridge the technology gap.
A looming power crisis
Several factors are driving up global busi-
ness interests in Russia:
• The national power system is in urgent
need of renovation. A long-awaited mod-
ernization is expected to triple the
demand for power generation equipment
• Relatively inexpensive resources —
skilled labor, energy and raw materials —
can help global vendors to source equip-
ment and parts from Russia
• Soviet power generation equipment
accounts for 10% of the world’s installed
capacity in over 30 countries and all of
30 Turbomachinery International • January/February 2006
GW
Year
Figure 1: As the performance of Russia’s Soviet-era equipment degrades and demand grows, the
country’s reserve capacity will vanish by 2008
Russia’s current installed capacity of
216.4 GW. Partnership with Russian
companies would help global suppliers
enter the lucrative market for servicing
and modernizing Soviet-era equipment
Currently, the Russian power sector is
controlled by monopolies. The largest
generation and transmission owner is
RAO UES, which, together with its affil-
iates, produces 85% of the country’s
power. The remaining 15% is provided
by the state-owned RosEnergoAtom — a
Nuclear Power Plant (NPP) operator.
All Russian power plants are connect-
ed to a single grid, which means that
power flow can be distributed between
regions if some regions generate excess
power and some less. This feature makes
the power system reliable but dampens
modernization and new construction. If
generation capacity degrades in one
region, other regions can compensate.
Though Russia’s installed capacity
is 216.4 GW, the poor state of genera-
tion equipment means that actual capac-
ity is less than 180 GW. Gas-fired
capacity is 48%, hydro 21%, nuclear
10% and coal-fired 21%.
The average design life of Russia’s
power generation equipment is 45 years.
In 2005 its average age was 43 years, and
40% of the equipment was past its design
life. By 2010, 52-64% will be, and by
2015, 75%.
It must be noted that these estimates
are based on total fleet lifetime.
However, RAO UES also employs a con-
cept of individual lifetime, which is the
estimated working life of specific pieces
of equipment. Unlike fleet lifetime, indi-
vidual lifetime can be prolonged with
minor repairs, a widely practiced proce-
dure in Russia.
The gap between available and need-
ed capacity is envisioned by the so-called
“Chubais’ cross,” named after the current
head of RAO UES Anatoly Chubais
(Figure 1). Recently RAO UES said that
by 2008 electricity demand would out-
strip the supply capacity of the system,
leading to an energy shortage.
Signs of deterioration are already
being seen. In the summer of 2005
Moscow experienced a blackout that last-
ed for over eight hours due to equipment
breakdown. Economic losses from the
blackout were estimated at over $300
million for Moscow alone. More prob-
lems are expected this winter.
RAO UES estimates that a total of
$65 million would be needed to modern-
ize and repair existing capacity, and
install new capacity. Electricity demand
is projected to grow at an average of 2%
per year till 2010. Some $20 million will
be needed for modernization and repair.
But RAO spends only 50% of its annua
budget for this purpose.
Investments deferred
Even though the power system is facing an
increasing danger of power shortage no
actual renovation and new construction is
taking place. The reason is slow progress in
www.turbomachinerymag.com
russia.qxd 2/27/2006 9:51 AM Page 31
NPP — Nuclear Power Plant
HPP — Hydro Power Plant
TPP — Thermal Power Plant
CHP — Combined Heat & Power
Figure 2: The share of various generation
modes in Russia’s installed capacity.
Gas-based CHPs and TPPs are candidates for
conversion to combined cycle
the liberalization of the power generation
and distribution market, not lack of cash. In
fact, RAO UES is a cash-rich company. In
2004 its sales amounted to $27.7 billion; in
2001 - 2004 sales increased by 21%.
Under the proposed liberalization
program, RAO UES will be split into sev-
eral Wholesale Generating Companies
(WGC) and Territorial Generating
Companies (TGC), which will then be
sold to private owners. Free market regu-
lations are being developed and the
WGCs and TGCs would be prepared for
sale by yearend. This means that actual
liberalization will start only after 2008,
when strong independent players are
expected to emerge.
Private owners will be motivated to
invest in equipment modernization to
reduce costs. But RAO UES has no moti-
vation to make large-scale investments on
the eve of its privatization. Both the gov-
ernment and the monopoly are hoping
that the system will function until full-
scale liberalization is complete.
New equipment is needed
For over 85 years the primary focus of the
Russian power system was system relia-
bility and low maintenance. These priori-
ties were met by the former Soviet equip-
ment industry, whose technology devel-
opment reached a peak in the 1980s.
Since then the industry has experienced a
gradual decline due to lack of investment
in R&D and production facilities.
Currently available technological solu-
tions are over 20 years old.
But as power generation assets are
transferred to private investors, technolo-
gy priorities will shift to economic effi-
ciency. Russian equipment, mainly steam
and hydro turbines, is still competitive
because of its low price, high reliability
www.turbomachinerymag.com
and low maintenance costs. But Russian
manufacturers offer almost no gas turbine
and combined cycle solutions.
Natural gas accounts for over 40% of
total electricity production, while in the
European part of the country its share
reaches 80%. Since gas is one of Russia’s
major export items, and export prices for
gas are constantly growing, efficient gas-
fired generation will become the top tech-
nology priority. Most of the existing
Combined Heat and Power (CHP) plants
and gas-fired Thermal Power Plants
(TPPs) burn gas in boilers (Figure 2).
Therefore they would need to be convert-
ed to combined cycles. Russia’s combined
cycle capacity is currently less than 1 GW.
Power Machines produces GT-160 —
a local name for V94.2 gas turbines
licensed from Siemens. The company is
developing two indigeneous gas turbines
GT-65 (65 MW) and GT-180 (180 MW).
However, the initial performance of these
turbines has not matched that of their
contemporary foreign analogues. The
only other example of heavy-duty gas
turbine technology in Russia is the GTD-
110 (110 MW). This was developed by
NPO Saturn, an aircraft engine producer,
in cooperation with the Ukrainian design
bureau Zorya-Mashproekt. The GTD-110
gas turbine is designed for combined
cycle application along with Power
Machines’ steam turbines.
There are several Russian gas turbine
models for industrial applications, but
they are mainly aeroderivatives. Their
efficiency is well below that of foreign
analogues. The turbines are employed in
gas pipelines, which are owned and oper-
ated by Gazprom, a national monopoly
owning all natural gas transmitting infra-
structure in Russia.
NPO Saturn, headquartered in the city
of Rybinsk in the Yaroslavl region, and Ural
Turbine Works, headquartered in
Ekaterinburg, manufacture these gas tur-
bines. While NPO Saturn employs aircraft
engine technology, Ural Turbine Works
remains, besides Power Machines, the only
Russian gas turbine manufacturer not
bound with aviation technology. Apart from
a wide range of gas turbines (6 - 25 MW)
delivered primarily to Gazprom, Ural
Turbine Works is the only Russian produc-
er of extraction steam turbines (30 - 300
MW). Ural has an installed base of over
760 of these turbines, 90% of which are in
the CHPs of the European part of Russia.
Extraction steam turbines are impor-
tant products for the Russian power sys-
tem, especially in the European part of
the country where the heat supply system
is centralized and is based on the high-
capacity CHPs. In the densely populated
Moscow region CHPs form 60% of all
generation capacity. CHPs equipped
with Ural extraction turbines will
become the prime candidates for com-
bined cycle conversion.
Time for partnerships
To cater to the emerging combined cycle
market, Russian companies may have to
seek partnerships with foreign vendors to
acquire the latest technologies in gas tur-
bines and combined cycles. RAO UES
expects that investments in the power
sector will come mainly from strategic
investors, both foreign and national. The
primary role is expected to be played by
Russian tycoons — owners of large oil,
gas, coal and metal producers.
When large-scale modernization hap-
pens, Power Machines will occupy the
dominant position in the utilities and
Independent Power Producer segment.
Siemens’ share in the company is expect-
ed to increase and the OEM’s technology
in heavy-duty gas turbines will prevail.
Ural Turbine Works will remain the
main supplier of extraction steam turbines
for utilities, IPPs and industrial segments.
Ural has not contracted any technological
partnership though it does have indige-
neous gas turbines that could be used in
CHP conversion. Generally, foreign part-
ners are expected to bring advanced tech-
nologies, primarily gas turbines and ser-
vice solutions, and financial services.
The time is ripe for global equipment
suppliers to establish partnerships with
Russian manufacturers and to develop a
strategy for interaction with key decision
makers to gain a presence in the nation.
To succeed, they need time to deal with
complex Russian bureaucratic procedures
and to understand the technological sta-
tus of Russian equipment. TI
Authors
Alexey Kalinin is the
deputy general director
of the Institute for
Complex Strategic
Studies, a Moscow-based
think-tank specializing in
policy advice and indus-
try research with a focus
on heavy machinery and
power generation equip-
ment. Reach him at
kalinin@icss.ac.ru.
Irina Petrovskaya, PhD,
is chief of applied studies
department of the
Institute for Complex
Strategic Studies. Reach
her at petrovskaya
@icss.ac.ru
January/February 2006 • Turbomachinery International 31