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40 I Cover story bne September 2022
gas pipelines or airplane engines. Russia has been unable to make the much larger turbines that are used in gas-fired power plants, which provide 80% of the power for the core of the Russian economy. The system still consists largely of backward Soviet- era equipment, which urgently needs modernisation. For this, Russia depends almost entirely on Western technology. How did this happen? Over the past twenty years, in Europe and the US, there has been a revolution in the design and fabrication of large gas turbines for power generation. Today’s turbines are far more powerful than their predecessors. They use more advanced materials, such as single- crystal turbine blades made of heat- resistant nickel-steel alloys, and as
a result they operate at much higher temperatures and pressures, with correspondingly greater efficiency and reliability.
The greatest single breakthrough in the industry is the development of so-called “combined-cycle gas turbines,” or CCGTs, in which a gas turbine is coupled with a steam turbine, resulting in efficiencies of 60% or more, by far the highest of any power-generating technology. CCGT’s are the gold standard in the industry today.
But Russia largely missed out on this revolution. In the chaos that followed the Soviet collapse, little attention
was paid to the modernisation of the power system. The network of research and engineering institutions that had supported turbine development in the Soviet Union dissolved, as funding disappeared, and they were sold off for their land and assets. But in the 1990s, this decay went largely unnoticed: natural gas was plentiful and cheap, and demand for power was stagnant.
Compounding the problem was that no one paid their power bills. Russia had degenerated into a barter economy; cash was scarce; and there was no way to shut off non-paying customers, who were allied with powerful regional governors. In this situation, there
was no incentive to invest in new technology, and investors kept their
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distance, while the power system continued to decay.
But in 1998 Anatoly Chubais – famous (or notorious, take your pick) for being the “father of Russian privatization” – was named chairman of the Russian power monopoly, YeES Rossii. He tackled the broken system, and
over the next ten years he brought about a revolution. His approach
was taken straight out of the classic neoliberal playbook: He split the power monopoly into separate generating and distribution companies; he raised power tariffs; and he laid down strict new rules to force power consumers to pay their bills. In the newly-privatised “energos,” as they were called, a new generation of professional managers purged the Soviet-era electrical engineers. The new managers looked to their bottom line, and the energos became solvent.
In 1999-2000, thanks to rising oil prices, the Russian economy started growing again, and power demand abruptly turned around. But the capacity of the power system was continuing to decline, for lack of investment. Chubais went on a one-man campaign, warning that rising demand would soon exceed capacity, and that disaster lay ahead if the sector didn’t modernise.
He became famous for a graphic, which came to be called “Chubais’s cross,” showing the curve of demand intersecting the curve of declining capacity, and which he showed to anyone who would listen. Chubais then used his power as head of RAO YeES
to institute a bidding system to kick- start investment. An energo whose modernisation project was approved by RAO YeES could recover all of its capital costs and pass them on to consumers in the form of
higher tariffs.
Initially the response was modest, until events came to Chubais’s rescue. In May 2005, a power outage left large parts of central Moscow in the dark, together with several cities in nearby provinces. Tens of thousands of people were trapped in the Moscow metro and in
elevators, and parts of the government were put out of action. Over 2mn people were affected.
The blackout suddenly dramatised the decrepit condition of the power sector. The incident caught Putin’s attention, and overnight the message to the energos was: “Submit your investment project, and do it now. Money is no object, and order where you can.” In 2008 Chubais announced vast plans
to invest $56bn by 2010 in new power systems, featuring 133 gas turbines and 146 steam turbines.
Western companies come in
to the power sector
It was a situation made to order for foreign suppliers. For the next decade andahalf–rightuptothetimeof
the invasion of Ukraine – a handful
of Western companies, led by General Electric of the US and Siemens of Germany, led the modernisation of the Russian electricity sector, especially focusing on the gas-fired power plants.
By the time of the Russian invasion, there were over 100 foreign gas turbines operating in Russian power stations. Most of these came from General Electric, which opened an office in Moscow as early as 2004. In 2014, it formed a joint venture with the Russian company InterRAO and was producing 14 gas turbines a year. By the end of 2021 General Electric had over 1,000 employees in Russia, and had sold over 1,000 gas turbines of all kinds, and over 800 aircraft engines.
GE’s only rival in Russia was Siemens. Its power subsidiary, Siemens Energy, formed a 65% joint venture with a Russian turbine manufacturer, “Silovye Mashiny,” part of a large conglomerate owned by a Russian oligarch, Alexey Mordashov. By 2018 two-thirds of the new gas-turbine capacity installed over that decade consisted of imported models from the two companies, while the remaining one-third came from production under licence, mainly from the joint venture between Siemens and “Silovye Mashiny.”