The risk of changes in the Wholesale Electricity and Capacity Market and/or restrictive measures imposed by the government
Making amendments to the existing rules of the wholesale electricity and capacity market may cause the Group’s financial performance to deteriorate from the sale of electricity and capacity
Changes in the mechanism for selecting a composition of included generating equipment (SCIGE) may lead to increasing the volume of the price-taking offers on the DAM and creating low DAM prices, which would reduce the marginal profit of the Group.
Day-ahead market (DAM) price risk
Changes in the market environment related to increased competition on DAM through changes in the volumes of production by industrial generating assets (NPPs, HPPs, CCGTs introduced under the CDA, and new CCGTs), as well as the dynamics of fuel prices (gas, coal) cause price fluctuation on the energy markets, which leads to deviations from the planned value of the Group’s marginal profit.
The risk of reduced guaranteed return on investments under the capacity delivery agreements (CDA) and the share of costs of a CDA object compensated at the expense of capacity fees
The dependence of the guaranteed return on investments under CDA on the average return on long-term government liabilities (LGL) determines a possible deviation from the estimated capacity price under CDAs and the proceeds from a capacity sale under CDAs with respect to the values established in the business plan.
The necessity to specify the value of compensable costs reflecting the expected profit from electricity sales as regards the actual value of profits for the period preceding the adjustment leads to the deviation of the proceeds earned by CDA objects as regards the values established in the business plan.
The risk of reduced productive supply of heat energy
The decrease in the productive supply of heat power due to seasonal temperature variations, cessation/reduction of consumption by major heat consumers, the establishment of standard consumption rates below actual consumption, and excessive consumption of utility services for communal needs may lead to adverse deviations from the target marginal profits.
The risk of unfavorable tariff balance resolutions in the field of heat supply made by the regulator
Unfavorable tariff balance resolutions may lead to a decrease in the Group’s necessary gross proceeds (NGP) received from the sale of heat energy on the retail market down to a level which would not allow it to compensate for the expenses of functioning as a unified heat supply organization.
The risk of reduced equipment availability
Equipment failures at the Group’s production units, high rate of fixed asset depreciation, and changes in the work schedules of power generating units enhance the likelihood of emergencies, which reduces equipment availability and may lead to financial losses for the Group (including in the form of unpaid available capacity, losses on the balancing market at own instance, costs for repairs and commissioning or lost profit from underproduction of electricity).
Fuel supply risks
Value appreciation of the fuel component (being the main item in the cost of electricity production) due to increased prices for energy carriers and/or their transportation may lead to a decrease in marginal profits.
To manage these risks, the Group:
- takes part in the workgroups of the Ministry of Energy of the Russian Federation and submits proposals regarding generation issues to the Methodological Council of the Federal Antimonopoly Service and the Supervisory Council of the NP Market Council Association;
- forecasts change in the workflows and modes, optimizes the composition of the operating equipment in case of such changes, and interacts with JSC SO UES (System Operator);
- controls the measures taken within the scope of repair and investment programs, including in terms of schedules, volumes and quality of repair, construction and assembly works;
- audits technical safety and controls the measures taken based on investigations of process violations;
- develops plans of organizational and technical measures based on the analysis of the breakdown rate with regard to the indicators and the specifics of each branch and intended to ensure efficient repair and maintenance of the primary and ancillary equipment to reduce the breakdown rate, to increase reliability and efficiency, and to control the fulfillment of measures based on the investigation reports of process violations;
- plans production repair, reconstruction and re-equipment programs based on the breakdown rate analysis;
- monitors on an ongoing basis the condition of the equipment and the climate factors, and informs the core units in a timely manner of any significant risks that may affect the condition of the equipment;
- optimizes fuel balance, uses long-term fuel supply contracts, creates fuel reserves, and monitors the quality of the fuel supplied;
- promptly provides supporting materials and estimates, taking into account all expected expenses and shortfalls in the income of past periods while handling tariff applications and approving the necessary gross proceeds;
- disputes any tariff and balance resolutions in compliance with industry laws;
- optimizes the balance of thermal energy and participates in the actualization of heat supply schemes for municipal entities in the regions where the Group’s thermal assets are present, in order to ensure that the heat supply schemes are in accordance with the interests of the Group’s thermal controlled entities;
- mitigates harmful and hazardous production factors, meets the mandatory fire, health, and safety requirements, and observes its local safety regulations;
- implements measures to optimize the process of revising or establishing standard consumption rates for utility services that exclude insufficient receipt of proceeds in the territories of presence of Inter RAO Group’s controlled heat supply and power supply companies;
- elaborates measures aimed at preventing departure or returning previously departed consumers of thermal energy, expanding existing supply markets for thermal energy while connecting with new consumers and setting unregulated prices for consumers of heat energy released by steam;
- ensures that the interests of Inter RAO Group are reflected in the regulatory legal acts in the field of heat supply in order to create conditions for improving the efficiency of the heat supply activities of Inter RAO Group’s controlled entities;
- takes part in actualizing heat supply schemes for municipal entities in the regions where thermal assets of Inter RAO Group are present.