Exploring the Northern Dimension

Russia’s energy security in the long term: capacity remuneration mechanisms

Russia's capacity market and capacity remuneration mechanisms (CRMs) have not been effective in achieving the so called energy trilemma goals: energy security, sustainability and affordability. This is the finding of a doctoral dissertation at Lappeenranta University of Technology, LUT.

The results show that implemented CRMs can guarantee Russia's energy security in the short term. However, the current capacity market design cannot provide market-based incentives to invest in new power plants, thereby undermining the provision of energy security in the future. CRMs for renewable energy alone will not suffice to achieve the sustainability goals set by the policy makers, at least in the short term. At the same time, CRMs, capacity payments, and challenges faced in the wholesale electricity result in high final consumer electricity cost, incentivising consumers to leave the market.

Capacity remuneration means that power producers receive capacity payments, which should cover their investments in new power plants within 10 to 20 years, while agreeing on building contracted capacity on time. However, the implementation of CRMs, together with overestimation of the demand growth, has resulted in a capacity oversupply in Russia. This has increased the amount of the old capacity that receives capacity payments to stay in the market in order for the system to stay reliable.

"As a result, capacity payments question the design of the capacity market and impact on the final consumer capacity price, and thus, result in an energy affordability issue," explains Evgenia Vanadzina, researcher behind the study.

Read more on LUT website.

 

Tags: Business & Economy, Russia, Publication, Research

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