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Russian Market Rules Changes Needed for Exports, Researcher Says

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Dec. 12 (Bloomberg) -- Russian power shipments to the Nordic region via Finland will remain at historical lows unless Russia modifies its electricity market rules, a Finnish researcher said.

Annual Russian power exports to Finland have dropped to about a third of previous 12 terawatt-hour levels after Russia introduced a capacity tariff that made it less viable for exports since August 2011, according to data from Finnish grid operator Fingrid Oyj.

“To remove the commercial bottleneck that halts power trade on the Finnish-Russian border, Russia needs to modify its power market rules, which is unlikely,” Satu Viljainen, professor at the Lappeenranta University of Technology, said yesterday in an interview in Helsinki.

In a bid to modernize its electricity industry, Russia uses a mechanism where consumers subsidize investments made by power plant operators, while also rewarding operators for guaranteeing back-up capacity, regardless of whether they produce energy or not.

Power export monopoly OAO Inter Rao UES faces extra costs for shipping power abroad. In 2010, Finland bought 56 percent of Russia’s total 18.6 terawatt-hour power exports, followed by a slump to a 42 percent share last year, and a further decline year to date, according to data from the company.

As a result of a capacity tariff of roughly 25 euros ($32.5) a megawatt-hour levied on exports, it is no longer viable for the majority of the time for Russia to ship power to Finland. The import-dependent Nordic country used electricity imported from its eastern neighbor to meet more than 10 percent of national demand until last year, according to Fingrid.

“There is a message here to the European Union, that the union should at least gauge the impact on cross-border trade before countries introduce capacity tariffs or equivalent new market designs,” Viljainen said.

To contact the reporter on this story: Torsten Fagerholm in Helsinki at tfagerholm@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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