Restructuring the Russian Electricity Sector: Re-Creating California?

Abstract

The Russian Federation has begun the restructuring of its electricity sector, following the now standard restructuring model of complete vertical separation of generation from transmission, with the aim of creating competition in regional wholesale generation markets. This paper examines the structure of the six principal regional generation markets that are in their early stages of development and argues that they are likely to be characterized by high levels of market power on the part of individual privatized generation companies, especially during the peak winter demand season. These levels - considerably higher than those that caused competitive problems in California - seem to create a serious risk of price spikes in deregulated wholesale electricity markets, and thus of significant price increases to consumers of electricity.

Keywords: Russia, electricity, restructuring, vertical separation, competition, market power

JEL Classification: L13, L22, L94, L98, P28