This research into the situation regarding сross-subsidies in Russia, and a related international benchmarking, was intended to initiate a discussion among market stakeholders on the challenges faced by and the future development of the power sector in Russia. However, unexpectedly high interest in the report’s findings internationally led us to prepare this English translation. We understand that this interest is being driven by two things: first, the rising importance of policy coordination to support decarbonization, while ensuring fair competition on international markets; second, a lack of comprehensive and transparent information for the international community on pricing regulations within the Russian power market –in particular for the EU trading partners of Russia.

The other reason for this English translation is an unexpected finding of the study: cross subsidization is not a specific issue affecting the Russian market only, but rather an established instrument within all power markets across the globe. Hence it can be viewed as being a formalized mechanism of power and climate policy, as well as a way to foster competitiveness among energy-intensive exporters in the EU, US, and other regions. Moreover, these countries have learned how to properly use and benefit from their cross-subsidization systems, due to a transparent and targeted goal-setting process and clear three-part pricing and cash processing models, comprising energy, networks, and taxes and levies components. Russia has adopted a far less transparent and manageable implicit approach, with cross-subsidies sitting within wholesale prices and network tariffs, and focuses mostly on maintaining the system’s reliability and large-scale social programs.

We hope the findings of this report will facilitate a better understanding of how the Russian power market is regulated and provide a basis for data-driven discussions on the topics mentioned above. Moreover, we hope that the results of our research will help regulators and businesses, both in Russia and the EU and other countries, better understand each other while working on creating a program to transition to a sustainable, low carbon future. We are confident that this study will provide you with much food for thought and challenge your established views and perceptions on issues governing how the power sector is regulated.