Barriers and opportunities for new market players in the Russian power sector

Provision of adequate supplies of electricity is one of the most challenging policy issues in the recently restructured Russian electricity market. In 2008 a decision was taken to develop a capacity market in order to ensure reliability of supply and timely investments. At the time, Russia experienced a considerable capacity deficit and thus waiting for market-based investments was not a viable option. For this reason, obligatory investment programs were launched. The programs close the market from new entrants, distort competition and make it impossible to attract investments in a market-based manner. This paper highlights the trade-off between designing a market that can ensure the timely development of new generation, through the introduction of capacity delivery agreements (CDAs), and running the power system as efficiently as possible. Introduction of CDAs seems to eliminate the risk of supply scarcity and ensures the development of new generation. However, it creates real threats to competition and the efficiency of the power sector.