As two years have passed since a major accident at Russia’s largest hydropower plant, analysts claim the safety level at the country’s plants has increased and the whole situation in the industry has improved. Although the worn-out level remains high, many hydropower plants are undergoing large-scale modernization and chances of similar accidents being repeated are lower than two years ago. Analysts are also doubtful about the government’s plans to retain only a golden share in hydropower monopoly RusHydro, saying it will now be difficult to find a large private investor in the company and claiming that economic stimuli are needed to promote investments in the construction of hydropower facilities.

Hydropower sources are renewable and the most environmentally friendly sources of energy. Of all existing types of electric power plants, hydropower plants are the most maneuverable and are capable of significantly increasing power output over several minutes when necessary, thus covering peak burdens, while for thermal and nuclear plants such moves require several hours.

Russia currently has 15 hydropower plants with a capacity of over 1 000 megawatts (MW) that have either already been built or are under construction and over 100 hydropower plants of a lower capacity. The country’s largest hydropower company is RusHydro, which operates 61 power facilities with a combined installed electric power capacity of 26 gigawatts (GW).

Concern about the situation of the Russian hydropower complex grew after an explosion at RusHydro’s Sayano-Shushenskaya hydropower plant in the constituent republic of Khakasia in August 2009 that killed 75 people. At present, 40% of the plant’s capacity has been restored while the full restoration, estimated to cost 45 billion roubles, is scheduled to be completed in 2014.

Analysts claim the situation in the sector has improved over the last several years. “The current state of the Russian hydropower complex is satisfactory,” as estimated by Vasily Konuzin, head of the analytical department at A’lemar Investment Group. “Investments into the safety and modernization of hydropower plants improved after the explosion at the Sayano-Shushenskaya hydropower plant,” he said. Compared to the reality five to 10 years ago, the situation in the sector is now getting better, though the worn-out level of hydropower equipment remains high, the analyst said.

A number of the country’s existing hydropower plants were launched even before the Great Patriotic War, and the level of their equipment wear is on the average 50%-60%, Konuzin said. While some hydropower plants are currently undergoing large-scale modernization and their level of wear could be lowered to 40%, no modernization has been carried out yet at some other plants, he said. The state of water engineering facilities is worse, with the level of wear estimated at around 70%, Konuzin said, adding that large-scale modernization was required.

“The level of wear in the hydropower complex is inexcusably high, standing at around 50%, while the average global wear level is 30%-35%,” as estimated by Vladimir Sklyar, an analyst at Renaissance Capital. The analyst, however, noted that the wear level at thermal power plants was even higher.

Sklyar also said that during the 15 years prior to the power sector reform that was completed in mid-2008 the power industry was subsidizing the entire economy, and there were no funds for modernization at that time. Now technical modernization of the sector is being carried out at a high pace, he said.

The surveyed analysts also said they believed the safety level at hydropower plants had increased after the accident. “Safety measures were toughened following the accident and more attention started to be paid to the technical parameters of operations of equipment,” said Konuzin from A’lemar. Sklyar from Renaissance Capital agreed that the level of technical safety had increased, but said there was no safety against terrorist attacks.

A number of experts claim that the accident at the Sayano-Shushenskaya plant was inevitable and similar accidents could be seen in the future. Vitaly Bushuyev, general director of the Institute of Energy Strategy, believes that “any physical system fails sooner or later.” “Unfortunately, the repeat of accidents of such a size in Russia is possible and inevitable, and they will become more frequent and severe,” Bushuyev said, explaining his forecast by the aging of equipment, among other reasons. He also said that Russia has not drawn a lesson from the event and no necessary organizational changes were made.

Meanwhile, some other experts claim there is not much chance of similar accidents happening. “A repeat of an accident similar to the one that occurred at the Sayano-Shushenskaya plant is unlikely, but should not be ruled out,” said Konuzin from A’lemar. He also said that hydropower facilities were now facilities of enhanced security around the whole world.

“It was rather a tragic juncture of circumstances than a purposeful mistake by some executive,” said Sklyar from Renaissance Capital. “The occurrence of an accident like the explosion at the Sayano-Shushenskaya plant could not be fully ruled out,” he said. “There are now fewer chances for such an accident than two years ago, but they still remain,” he added.

Shortly after the accident, Alexander Khloponin, who was the governor of the Krasnoyarsk region at that time, said that there was no threat of a similar accident happening at other hydropower plants. “Hydropower plants currently under construction are such powerful, serious, fundamental facilities that it is hardly possible to speak about a catastrophe that could await us,” Khloponin said.

“The accident has brought to the table a large-scale renewal of the equipment that has been in operation over several decades,” according to Anatoly Vakulenko, an analyst at investment holding Finam. The equipment renewal requires significant financial expenditures, but owners of power plants are not ready for such costs, especially amid limits on power prices, the analyst said.

RusHydro CEO Yevgeny Dod said in late 2010 that the company planned to spend more than 350 billion roubles on upgrading its hydropower plants by 2020.

Along with modernization processes that are carried out at Russian hydropower plants and increasing safety measures, the Russian hydropower complex could see some changes in the near future, as the government has announced plans to sell its stake in RusHydro. The government, which currently holds a 57.9% stake in RusHydro, initially said it planned to sell 7.97% minus one share in the company in 2011-2013. However, it later revised the privatization list and announced its intention to retain only a golden share in RusHydro by 2017.

Commenting on the government’s plans to sell its stake in RusHydro, Konuzin from A’lemar said that this was a long-term goal, and there was no certainty that it would be implemented. “On the one hand, privatization of RusHydro could allow attracting new funds into the company without loading the budget, but on the other hand the company is too strategic for the country,” the analyst said. He said RusHydro was not currently ready to be managed by a private investor. If the government implements its plan to sell 7.97% in RusHydro, it will still keep control over the company.

Further on, Konuzin said it would be logical if the government sold at least a blocking stake in RusHydro to a large power consumer such as aluminum giant UC RUSAL. This would be efficient to form a dialogue between power producers and consumers, he said.

The Russian hydropower industry does not currently offer any economic stimuli for making investments in the construction of new power plants, Sklyar from Renaissance Capital complained. Having control over RusHydro, the government now forces the company to build power plants, which sometimes bring very small profits. If new mechanisms for operating in the sector are not offered, then there will be no investments in the construction of hydropower plants, the analyst said. Moreover, there is no certainty that some investor would now like to get control over RusHydro, Sklyar said. “The chances of a successful privatization are low. It will now be difficult to find a large private investor in RusHydro,” he said. Over the last year, the government was changing rules of the game too often and there are currently no guarantees that the rules wouldn’t change again, the analyst explained.

For the entire sector the privatization of RusHydro could be successful, Sklyar also said, adding that foreign investors such as Germany’s E.ON and Italy’s Enel proved to manage Russian power assets efficiently. In the long-term, the privatization could lead to a decrease in prices for electric power, he said.

Sklyar was positive about the potential for hydropower development in Russia, saying it is very high and unlike other countries Russia still has areas for growth. However, the question is how the construction of facilities will be carried out, whether through forcing RusHydro or by providing an economically reasonable stimulus.