Ed Crooks Using Russian hydro to power China

RusHydro, the Russian hydro power company, listed its shares in London today, and set out its vision of how huge volumes of electricity could be exported to meet China’s growing energy needs.

In many ways, hydro power is the best of all energy sources: carbon free, proven technology, long-lived and with very low marginal cost. The problem is that there are not enough suitable rivers. The potential of hydro power is strictly limited by geography, and in most western countries all the suitable sites have been used. As a result, large-scale hydro has very little potential for growth.

In emerging economies, however, the position can be very different. Where France and Germany have used up about 95 per cent of their hydro power potential, and the US 82 per cent, Russia has used just 19 per cent of its potential. In Russia’s far east, including east Siberia, the scope for development is even greater. That creates a huge opportunity to export Russian electricity to China. There are, however, some daunting challenges to be overcome.

Last year, RusHydro sold just 1.2bn megawatt hours of electricity to China, representing only about 150MW of capacity, or roughly 0.6 per cent of its total.

However, Anatoly Chubais, the mastermind of Russia’s privatisations who ran the country’s electricity industry up until last year, believes RusHydro could export 60bn MWh to China every year: equivalent to about 2 per cent of the country’s present power consumption.

Vasily Zubakin, RusHydro’s chief executive, believes that that target is achievable. There is enough potential in eastern Russia, he said on a visit to London today, to double the company’s size by 2020.

That is a very ambitious goal. RusHydro is already Russia’s biggest generator, bigger even than the nuclear power company Rosenergoatom:

RusHydro is Russia's largest power generator

It is also the world’s second-biggest hydro power generator:

The water may be there. (Although there are some doubts even about that: the 1.2bn MWh of sales to China last year was down from a possible peak of 4bn because the water flow was disappointing.)

But even if it is, there will still be huge dams to be built and power lines to be put it. Mr Zubankin did not give much detail on the possible capital cost, but it is clear these are mult-billion dollar investment projects.

Even for RusHydro, which plans capital spending of about $6.4bn in 2009-11, that would be demanding. The timing is hardly ideal: that investment plan is little more than half the previously planned programme, cut backas a result of the financial crisis.

Perhaps the biggest obstacle is that two sets of network connections will have to be built. One, going to China, will be expensive but achievable. The Chinese are keen and have already started putting up pylons heading towards the Russian border. But RusHydro will also need a high-voltage network to transmit its power to the markets of western Russia. As Mr Zubakin points out:

If we make the investment in generation and there is no domestic market for this electricity, then China is a monopoly customer, which could wake up tomorrow and say: ‘I don’t like them any more’.

RusHydro has a plan, in alliance with the Siberian Coal Energy Company, to persuade Russia to invest in such a high-voltage transmission network to connect eastern Siberia to the west. Nothing is likely to come of the plan for now: falling energy demand and financial market turmoil mean this is the worst of times to be making big infrastructure investments in a volatile emerging economy such as Russia.

But Mr Zubakin argues it is only a question of “when”, not “if”.

In energy, projects generally do not get closed down, but they can be delayed. You cannot avoid the growth in electricity consumption. The only question is: ‘at what rate will it grow?’ So we never close down projects: we just move them in time until they become bankable.