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Regulatory challenge of Russian energy sector reform

Regulatory challenge of Russian energy sector reform. Dominique Fache, General director for Russia and CIS ENEL. Enel: Global dimension ¹. 22 countries four continents Total capacity of 82 863 MW 259,7 TWh / year of electricity generated 1 583 000 km of power lines

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Regulatory challenge of Russian energy sector reform

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  1. Regulatory challenge of Russian energy sector reform Dominique Fache, General director for Russia and CIS ENEL

  2. Enel: Global dimension¹ • 22 countries\ four continents • Total capacity of 82 863 MW • 259,7 TWh/year of electricity generated • 1 583 000 km of power lines • 32 650 km of gas pipelines • 52,4 million customers • 85 485 people • 1,6 million investors • 13,1 billion euros of EBITDA ¹Figures as of 30.09.2008 1

  3. Russian energy sector structure Capacity of RAO UES 67 GWCapacity OGK 77 GW Capacity TGK 54 GW OGK1OGK2OGK3OGK4OGK5OGK6 2

  4. o Enel: Presence in Russia First Vertical Integration Built in Russian Energy Sector Power generation Upstreamgas Supply Integration allows hedging the risks on huge liberalised market, primarily hedging gas supply risks for ENEL OGK-5 • 49.5% of RusEnergoSbyt • Largest independent retail power company in Russia • 35 TWh sold in 2008 • 25 regional offices and 7 branches • Main supplier to Russian Railways (15 year long-term power supply contract). 20% of SeverEnergiya (50% - Gazprom, 30% - ENI) 55.9% of ENEL OGK5 • Gas fields in the north of Western Siberia • Covering the demand of OGK-5’s gas-fired plants Core asset of Enel’s vertical chain in Russia 3

  5. Generation • Transmission / • Dispatching • Distribution • Retail Regulatory framework Tariffs are regulated on cost plus basis Switching for RAB regulation in delay 4

  6. FREE MARKET REGULATIONS It is very difficult to find a balance between the price welcomed by customers and the payment “motivating” producers for further investments. 5

  7. Difficulties in taking consolidated decisions FTS ATS GENERATORS MRSKFSK MARKET COUNCIL ENERGY COMMISSION CRISIS COUNCIL OF ENERGY PRODUCERS MINENERGO SYSTEM OPERATOR NETWORKS SALES FAS 6

  8. The importance of the Regulatory framework Values • Independence and autonomy of Regulator • Consistency over time • Transparency of market rules and procedures • Predictability of evolution Key Principles • Market forces drive profitability and returns • Regulated returns reflecting industry/country profile for mandated programs and natural monopolies • Fair return on investments (especially mandatory investments) • Legal reliability guaranteeing security of investments Reliable regulatory framework = incentive for investors 7

  9. Households still regulated Market liberalization Gas prices Status of market reform 8

  10. Capacity market Why should be capacity remuneration implemented? supplyadequancy Short-run Capacity market opened 2H 2008 investment incentives Long-run Capacity Market Market Rules still in discussion First auctions for 2011 delivery postponed from December 2009 (as early planned) to September 2010* Price predictability * should be held by September 2010 9

  11. Delivery period Time necessary to carry out new investments КОМ ~ Year 2010 2015 2015+N new – Nyearsold – 1 year 4 years • By September 2010 auction with delivery in 2011 will be carried out • By November 2010 all transitional auctions with delivery 2012-2014 Capacity market • Short-run Capacity market opened 2H 2008 • Long-run capacity market model (rules still in discussion) 10

  12. Increasing debts vs generators • Accumulated debts is around 34 bln. RUR (July 2008 – September 2009) • Increasing non payments problem • Accumulated debts is around 90 bln. RUR (July 2008 – September 2009) Collection problems wholesale market retail market You can consume and not pay? Financial Guaratees Telemetering 11

  13. Tariff VS Intensity 12

  14. Smart technologies for the future Electronic metering for electricity and gas Smart Grids • 30 mln of electronic meters ALREADY installed in Italy • Exploitation of remote management of gas meters • Development of a multi-metering infrastructure • Integration and management of renewables • Local energy dispatching • Self-fixing grids 13

  15. Enel Group: Key Priorities in Russia Power and Gas MarketOpening Energy Market Cap Long-run Capacity Market Tariff Imbalances Efficiency Collection Problems 14

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