Moscow. 1 November 2004. A year ago, 1 November 2003, enterprises of RAO "UES of Russia" started trading in the competitive segment of the wholesale electricity market ("5-15 market")*.

Today, the 5-15 market ranks among the world's ten largest electricity markets in terms of electricity trading volume. On 1 November 2004, the volume of sales in the 5-15 segment was in excess of 41 billion kWh of electricity valued at over RUB40 billion, with the market accounting for about 10% of all electricity generated in the European part of Russia and Urals.

RAO UES entities are active players of the competitive segment. 24 subsidiaries and dependent companies of RAO "UES of Russia" (SDCs) buy electricity in the segment, 22 SDCs are sellers, and 21 SDCs buy and sell electricity.

The launch of the wholesale electricity market of the transitional market ("5-15 market") is the first step towards competitive electricity trading in the Russian Federation. The reform of the electric power market has brought about quite a few positive results to the sector economy and electricity consumers.

The work of the 5-15 market has led to the following changes in the electricity trading principles: implementation of competitive pricing mechanisms in the competitive segment, transition to the hourly scheduling of electricity consumption, improvement of the real-time operation modes.

The new institutional and technological infrastructure of the wholesale market has emerged: the Administrator of the Trading System (ATS) has been created, the exchange trading techniques have been fine-tuned, the operational dispatch functions have been transferred to the newly established System Operator (SO), the SO technologies have been improved and computerized, which has enhanced the transparency of the overall dispatching process.

These changes have had a significant influence on the motivation of the wholesale market participants in their taking price decisions: the level of prices in the competitive segment is now driven by participants, which bear financial responsibility for the strategy and tactic of in their market practices, for the hourly consumption forecast, and strict compliance with the commands of the System Operator.

The price level in the competitive segment is lower than in the segment regulated by the state. In September 2004, the prices in the competitive market segment were 3.2% lower than those of the regulated market. As a result, each megawatt-hour of electricity purchased in the competitive segment on average was RUB16 cheaper than in the regulated segment.

The changes in the electricity market promote the sector reform, facilitating structural changes in the electric power industry. The free segment has a higher generation capacity utilization. Introduction of separate schedules for generation and consumption, and centralized control of the infrastructure will make it possible to abandon the vertical integration in the electricity industry in the future and unbundled the competitive businesses and natural monopolies in accordance with the sector reform plans.

The first year of the competitive market operation has demonstrated the efficiency of the current model, market mechanisms used in it, and the created market infrastructure. However, due to natural restrictions, it is impossible to derive greater economic benefits from the current model and the mechanisms inherent in it without restructuring the regulated segment and further liberalizing the competitive market segment—the ideas which underlie the future plans of wholesale electricity market reform.

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* The competitive (free) trading segment of the wholesale electricity market was launched pursuant to Order of the Government of the Russian Federation No. 643 of 24 October 2003 "On Wholesale Electric Power (Capacity) Market Rules of the Transitional Period".