Inter RAO and RAO ES of the East are making export plans

The state-owned companies Inter RAO and RAO ES of the East are trying to promote alternative options for the construction of the Sakhalin-Japan export energy bridge. The Inter RAO project is larger: the company wants to build up to 3 GW of new coal and gas generation. RAO ES of the East, on the contrary, intends to utilize its existing units and build no more than 1 GW of thermal power plants for export. But both projects still look hypothetical: neither project operators nor investors have been identified, and large deliveries are possible only by laying power lines to the island of Honshu.

The head of Inter RAO Boris Kovalchuk on Friday presented in Vladivostok the project for the Sakhalin-Japan energy export bridge. In addition to power lines, it includes the construction of 3 GW of thermal power plants on Sakhalin, investments are estimated at $7 billion, exports - up to 20 billion kWh per year. The first stage, scheduled for 2016-2020, is the construction of a 1 GW coal-fired thermal power plant in Uglegorsk, a power line to the La Perouse Strait, an undersea cable crossing to Hokkaido and the expansion of networks in Japan. This will fully satisfy the demand in Hokkaido. ABB, Prysmian, Integrated Energy Solutions, Sumitomo, Toshiba are ready to build the underwater section, according to Inter RAO materials.

At the second stage, in 2021-2025, it is proposed to build up to 1.05 GW of coal capacity on Sakhalin and two gas blocks of 400 MW each. The region is interested in the development of coal deposits: the authorities previously insisted that RusHydro build the Sakhalin State District Power Plant-2 using coal instead of cheaper gas blocks. In the future, 2026-2050, it is possible to unite Sakhalin with the Unified Energy System of Russia and lay a power line to Honshu, where energy is most in demand. The project requires up to 8 million tons of coal per year and up to 1 billion cubic meters of gas. Export is possible under a long-term offtake contract with a Japanese company or large consumers, as noted in Inter RAO materials. According to Boris Kovalchuk, it is necessary to discuss issues of tax incentives and financing, including with the RDIF and the Far East Development Fund. He added that in Japan the law still prohibits energy imports; the problem must be resolved at the intergovernmental level.

Inter RAO's interest in the project seems unexpected: back in July, the company informed the Ministry of Energy that it was suspending work on the Sakhalin-Hokkaido energy bridge “due to the difficult forecasting of the macroeconomic situation,” according to the minutes of the meeting of the working group under the Ministry of Energy. Inter RAO transferred funds for engineering surveys and development of pre-feasibility studies provided for in the investment program to subsequent years.

In parallel with Inter RAO, RAO ES of the East (part of RusHydro) is also developing its own version of the energy bridge. The company plans to complete the pre-feasibility study in the third quarter and is negotiating with Japanese partners. In October-November, RusHydro plans to sign binding documents on the energy bridge, said the head of the company, Evgeny Dod, in July. But RAO ES of the East offers exports mainly from existing power plants (belonging to the holding) with a possible expansion of capacity. The first stage is the sale of surplus 500 MW from Sakhalin at night after the construction of GRES-2. The ex-governor of Sakhalin, Alexander Khoroshavin, estimated the project at $5.6 billion, and the head of RAO ES of the East, Sergei Tolstoguzov, admitted that there is no energy shortage in Hokkaido, and the main subject of negotiations is the power line to Honshu. “We proceed from the real possibilities of the island’s resource supply and plans for the development of the region’s infrastructure,” RAO ES of the East emphasized. “Taking into account the completion of stations on the island, according to experts, it is possible to build a little more than 1 GW.” To promote the energy bridge, it is necessary to identify project operators from the Russian and Japanese sides, the protocol of the working group says, but, according to Kommersant’s source, this has not yet been done.

The main prerequisites for building an energy bridge, according to Inter RAO, are the shutdown of nuclear power plants in Japan after the Fukushima-1 accident and the poverty of natural resources, but the problems have already begun to be resolved. The Russian Foreign Ministry warned energy workers about Japan's plans to commission several nuclear power plant units and its interest in exporting LNG from Russia, the minutes say. Nevertheless, the price of electricity in Japan is attractive: according to the IEA, $0.17 per 1 kWh for industry in 2014. Due to the devaluation of the ruble in the Russian Federation, electricity is now half as expensive as in the EU, 20% cheaper than in the US, and 30% cheaper than in China, notes Vladimir Sklyar from Renaissance Capital. At the same time, the Inter RAO project still looks risky: there is no long-term contract and investment guarantees, partners are unknown, and the pool of submarine cable suppliers is limited. The analyst notes that Inter RAO seems to be politically important to announce a project with investors from Asia, but, for example, numerous export agreements between Russian companies and China have not led to a significant increase in supplies.

Anastasia Fomicheva

Racing on the Japanese energy bridge