As Chinese companies have announced plans to invest in building electric power plants in Russia’s Siberia and Far East jointly with Russian companies, analysts say the projects are mainly oriented at covering Russia’s growing domestic demand, while some power volumes are also to be earmarked for exports to China. Analysts note that China is among the priority power export markets for Russia, with supplies to this country, currently facing a power deficit, projected to grow several times in the near future.

Russia and China have recently been trying to enhance their economic cooperation, including in the electric power industry. Several Russian and Chinese power companies plan joint projects to build electric power facilities in Russia’s Siberia and the Far East. Specifically, in February, Russian power company EuroSibEnergo, part of businessman Oleg Deripaska’s En+ Group, and Chinese hydropower company China Yangtze Power set up a joint venture on a parity basis to build hydro and thermal power plants in Siberia. The companies later defined the priority projects to be implemented by their joint venture called YES Energo, which include the construction of the Lenskaya thermal power plant with a capacity of up to 1,200 megawatts (MW) in the Irkutsk Region town of Ust-Kut; the project to build the Nizhne-Angarskaya hydropower plant with a capacity of 600–1,200 MW in the Krasnoyarsk Region; and the construction of the Transsibirskaya hydropower plant with a capacity of 400–900 MW in the Zabaikalsky Region. The facilities are expected to meet Siberia’s growing demand for electric power and organize power exports to China’s northern and northeastern provinces, EuroSibEnergo said then. In the long-term, YES Energo plans to build up to 10 gigawatts (GW) of extra capacities, mainly in the form of hydropower plants, in Siberia.

In October, media reported that En+ Group and the State Grid Corporation of China (SGCC) plan to cooperate in building hydropower and coal power facilities with a combined capacity of around 10 GW in East Siberia and the Far East. The projected power facilities are intended to cover the growing demand for power in Russia and for exports to China as well.

To implement the project, the companies plan to borrow U.S. $10 billion, including from Chinese banks, sources said then.

Chinese banks have already started providing financing for the construction of power facilities in Russia. In June, En+ Group signed an agreement with the Export-Import Bank of China to receive U.S. $5 billion of financing for the development of mining and power projects in East Siberia. The bank is to provide financing for the construction of power plants, as well as for the development of coal fields and iron ore and copper concentrate projects in East Siberia.

“At the stage of preliminary talks the sides believe that the projects are profitable for them, but it will only be clear at the final stage if the companies take part in these projects,” said Konstantin Reyli, a senior analyst covering power utilities at investment company Metropol. The analyst believes that joint projects with China to build power facilities in Russia’s Siberia and Far East are mainly oriented at meeting Russia’s domestic demand for power. “The future power plants will be oriented for power supplies to large industrial enterprises and the creation of large industrial clusters in these regions,” he said. They will allow Russia to improve prospects for the development of certain industrial projects, he added.

According to EuroSibEnergo, the main power consumers of the Lenskaya power plant to be built in the Irkutsk Region will include the Baikal-Amur Railroad (BAM), gold production companies in the north of the Irkutsk Region, and the Taishet aluminum smelter of aluminum giant UC RUSAL, also controlled by Deripaska, which is currently under construction. The potential power consumers of the Nizhne-Angarskaya power plant include gold producers, the North Siberian Railroad, which is currently being designed, and the Taishet aluminum smelter.

Reyli from Metropol expects that only insignificant power volumes from the proposed plants could be supplied to RUSAL facilities. The analyst believes that RUSAL’s demand for power is now fully covered by existing power plants. Moreover, the Boguchanskaya power plant is currently being built for power supplies to RUSAL, he said.

Participants of the projects claim that the proposed power facilities are expected to be used for meeting Siberia’s growing demand for power. The Energy Forecasting Agency projects that electric power consumption in Siberia will grow around 25% by 2020 as compared to 2010.

Demand for electric power is growing everywhere in Russia, Reyli from Metropol said, adding that it was not growing at a very high pace in Siberia. The additional volume of electric power is rather necessary to meet the growing demand of certain industrial facilities, he said. He also noted that the hydropower potential of Siberia and the Far East was huge, but was being used only inconsiderably.

Commenting on Russian-Chinese plans to jointly build power plants in Siberia and the Far East, Dmytro Konovalov, an analyst at HSBC Bank, said the development of the Far East was strategically important for the Russian government and the construction of power facilities was very vital on the area. The current level of development in the Far East is very low, while the availability of cheap power is expected to allow for industrial development in the region, he said.

By cooperating with Chinese companies Russia gains the possibility of financing power projects, Konovalov noted. Reyli from Metropol believes Russia could also receive some technologies of building power facilities by cooperating with Chinese companies.

Explaining Chinese companies’ readiness to make investments in the Russian electric power sector, Reyli said that China had accumulated experience of investing into power infrastructure facilities and is now searching for other sites for infrastructure projects, and Russia is among them.

China is interested in using its own equipment and expertise to build power plants in Russia and is also making financing to receive an income subsequently, said Konovalov from HSBC Bank.

Although EuroSibEnergo announced that construction of power facilities jointly with Chinese companies will be oriented at power exports to China as well, Reyli from Metropol believes that China does not expect to receive much electric power from the proposed facilities. “Exports to China are expected to play a secondary role in these projects,” the analyst said.

Part of the produced power is expected to be earmarked for exports, Konovalov from HSBC Bank said. “Receiving power from the future power plants is one of the main goals standing behind Chinese companies’ investments in construction,” the analyst said. But this is not the foremost goal, he noted.

China is quite an important export direction for Russia, which is, however, poorly developed so far, Konovalov said. Meanwhile, China’s demand for electric power is increasing, as the country is facing a power deficit, partially due to a shortage of coal for thermal power plants. China said earlier it expected its power consumption to almost double from the 2010 level to 8.2 trillion kWh by 2020. Russian electric power supplies to China were resumed in March 2009 after they were halted in 2007 due to price disagreements and currently amount to only around 1 billion kWh per year. Exports could increase four- or fivefold in 2013 after additional power transmission lines are launched, said Reyli from Metropol.

There are also several power plant projects in Russia, where Chinese companies plan to participate, which are not connected with power supplies to China. Specifically, in September, Russian power producer Territorial Generating Company-2 (TGC-2) and China’s Huadian Corporation started building a 450-megawatt (MW) power plant in the Russian city of Yaroslavl, with total investments in the project expected at 20 billion rubles. In addition, China’s Norinco International Cooperation Ltd. plans to participate in Russian corporation GazEnergoStroy’s project to build the 600-MW Ogorodny Proezd–Novomoskovskaya power plant in Moscow, with investments in the project estimated to exceed 30 billion rubles.

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