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Government might return to the idea of merging European and Siberian energy regions

According to Vedomosti, the government might return to one of the most ambitious Soviet and post-Soviet projects: merging the European and Siberian energy regions. A request to access the visibility study of the potential project was sent by Deputy Prime Minister Arkady Dvorkovich to the Ministry of Energy, Ministry for the Economy, Council of the Market, System Operator and FSK. According to the newswire, the most probable scenario might be the construction of an energy bridge through Kazakhstan.

Constructing an energy bridge between the Siberian and European parts of Russia would have a positive impact on the security of electricity supplies and would help to use the ambitious, but still unexplored, hydro potential of Siberian rivers. However, from the economic stand point, the project does not look so brilliant, in our view, and if the government decides to give a green light, it might only be fulfilled in 5-10 years. First of all, the project would call for another huge portion of new investments under the contained growth in tariffs.

The merging of two energy regions would allow Siberian generators to sell their cheaper electricity (mostly hydro and coal-fired) in the European part which would put pressure on spot prices.

As regards electricity prices for end-users, the impact is likely to be tiny, as lower spot prices might be counterbalanced by higher transmission costs. 

Mikhail Rasstrigin, Alexander Seleznev
VTB Capital analyst

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