The Ministry of Energy may prohibit direct connection to main power grids

As Kommersant found out, the Ministry of Energy wants to prohibit businesses from directly connecting their enterprises to main power grids of the Federal Grid Company (FGC, part of Rosseti). From January 2024, all new clients will be required to join FGC only through a backbone grid company, whose tariff will be many times higher. The industry strongly objects: the initiative, in their opinion, will hurt energy-intensive enterprises and investment projects. Special economic zones in the regions will also suffer, analysts warn.

From the Ministry’s bill, it follows that the Ministry of Energy may prohibit businesses from connecting directly to the FGC’s main power grids (Kommersant has got the document).

The LGO (local grid operator) tariff is usually several times higher than the FGC tariff, therefore the expenses of new customers to pay for transmission services will significantly increase. In 2023, the FGC tariff will be 241 thousand rubles for 1 MW per month. The Ministry of Energy did not respond to Kommersant.

The Ministry of Energy wants to create one backbone LGO in each region, which is necessary to implement a new wave of consolidation of small private grids. The largest LGO in the region will receive the status of backbone operator, therefore, in terms of the constituent entities of the Russian Federation, the status will obviously be obtained by the subsidiaries of Rosseti. All customers will be required to sign a transmission service agreement with a major LGO. The Ministry of Energy hoped to launch the mechanism in 2023, but this summer the Ministry had to submit these amendments for approval by the departments again (see Kommersant publication of June 6). According to Kommersant’s information, the document has now been submitted for discussion by the task force “on regulatory guillotine.”

The Ministry of Energy has long been preoccupied with the rates of main power grids: the ministry wanted to double the FGC tariff, while promising to reduce the tariff on distribution mains. However, this initiative was abandoned after fierce criticism of large business and other ministries.

Now FGC is obliged to serve all “indirect” consumers on par with LGO (regardless of power of the connected power receivers). The introduced requirements will not apply to those “indirect” consumers who have already been served by FGC, the state holding noted.

The industry has criticized restrictions created for a direct access to FGC’s networks. “The sole aim of the ban introduced is to increase the revenue of the grid monopoly, in unreasonable manner,” Kommersant was told by the Community of Energy Consumers. “There are no additional costs for the grids, and there is no shortage of funds. Upon an actual connection to the backbone grid, the contract with the backbone LGO is artificial; it rolls the situation a decade back to the “last mile” lease agreements. The initiative will primarily hurt investments in energy-intensive projects; it will hold back import substitution and economic recovery as a whole.”

FGC’s low tariff incentivizes end consumers to look for ways of direct or indirect connection to the main grids, according to Sergey Sasim from the Institute for Economics and Regulation of Infrastructure Industries at the National Research University Higher School of Economics.

The Ministry of Energy probably proceeds from the logic that FGC is a backbone network that is not intended to connect consumers, and its function is to form regional energy systems, as well as provide links between regional energy systems.

Mr. Sasim notes that, first of all, the initiative of the Ministry of Energy will affect consumers connected to FGC not directly, but through direct consumer networks. If the bill is adopted in its current version, such indirect consumers will pay for transmission at higher tariffs of distribution mains. If FGC ceases servicing indirect consumers, that will increase the net supply of distribution mains, which will help curb the growth of common pot tariffs, the analyst admits, but consumer payments after leaving FGC networks will significantly increase. “Before the adoption of the law, it is necessary to additionally analyze economic consequences, especially for zones of advanced economic growth, which regional authorities often organize according to the plan of indirect connection, thereby providing investment-attractive tariff conditions,” believes Sergei Sasim.