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But the going soon gets tougher
Unfortunately, after the first five years or so, the Russian market turned sour – for three reasons: First, the global financial crisis of 2008-9 caused oil prices to collapse, and suddenly the Russian economic boom of 2000- 2008 came to an end. Second, in the slowdown that followed, the expected tripling of electric demand never
gas turbine, licensed from Siemens under the two companies’ joint venture. It successfully passed all tests and was due to start assembly in 2023. It had even lined up its first customer, in Tatarstan, after the Tatar president appealed personally to Putin to grant an exemption from import-substitution rules. However, after the invasion the agreement
sectors of Russian industry, it is also due to two other factors – the inherited weakness of the Russian engineering sector (a legacy of the Soviet collapse and the chaos of the 1990s), plus the effect of misguided policies. The Russian government in the mid-2000s launched into a rushed modernisation programme, resulting in an extreme reliance on foreign technology,
which in turn made the power
sector vulnerable once the Western suppliers and partners withdrew. Then, starting in the mid-2010s, an overhasty reaction in the opposite direction, mandating all-Russian content, has locked the power
sector into continued dependence
on the backward Russian models.
The result will be a “modernisation” that will be anything but modern.
But this is very far from a “collapse
of the Russian economy,” as some studies of the impact of sanctions have claimed. That is because, at the same time, demand for electricity in the Russian economy is declining, and is likely to continue doing so for another decade. Moreover, natural gas will remain abundant and
cheap, as declining gas exports are re-allocated to the domestic economy, especially the power sector. Thus
the gas-fired generating sector will remain backward and inefficient, but it will be adequate to supply
a diminished Russian economy. Putin’s “turbine problem” turns out to be manageable – Putin-style.
Thane Gustafson, a professor at Georgetown University, is the author
and co-author of eight books on Russian affairs, including most recently Wheel of Fortune: the Battle for Oil and Power in Russia (2012), The Bridge: Natural Gas in a Redivided Europe (2020), and Klimat: Russia in the Age of Climate Change (2021), all with Harvard University Press.
This article first appeared on Gustafson’s substack “Devil’s Dance”.
“Overnight, two decades of the presence
of Western companies in the Russian power sector came to an abrupt end”
materialised. Suddenly there was
little call for new generators, halting the modernisation of the gas-fired fleet. Third, as Russian-Western relations deteriorated, official pressure for “import substitution,” that is, sourcing from Russian manufacturers, increased. In 2017, the Ministry
of Energy adopted a new tender system, which made Russian content mandatory.
Yet the Western turbine suppliers continued to make good money, right up to the time of the invasion, partly by servicing the existing foreign stock, and partly by supplying advanced components, such as turbine blades, which were all imported. And for
the handful of new projects that remained, the foreign companies retained the inside track, since
the Russian manufacturers did
not have a large model to offer.
Russian companies made two attempts fight back. First, an alliance of three state companies developed an all-Russian model of a 110-MW gas turbine – Russia’s first, with the ambitious goal of delivering 40 MW of new installed capacity by 2031. But their first prototype in 2017
was an embarrassing failure, and since the invasion there has been
no further mention of the 110-MW machine. The second attempt, by Mordashov’s “Silovye Mashiny”, successfully developed a 170-MW
collapsed, as both sides backed away out of fear of sanctions.
In the weeks following the Russian invasion, General Electric and Siemens both suspended all new investments and announced their intention to leave Russia by the end of the year. Two other Western companies, Enel and Fortum/Uniper, which had taken majority positions in two Russian ener- gos, likewise headed for the exit, as
did Mitsubishi, which had set up
a joint venture in eastern Russia. Thus overnight, two decades of the presence of Western companies in the Russian power sector came to an abrupt end.
Putin’s gas-turbine problem and
the power of western sanctions
The key point of this story is that
after 30 years of reform Russia ends up standing still in a key branch of industry. The lights won’t go out, but what those lights will continue to illuminate will be a technologically backward sector. The lack of advanced gas turbines will affect not only
power generation, but also other applications, such as the large gas turbines needed for LNG projects and turbines needed for wind generation. It will take Russia a decade or more to catch up, by which time world gas-turbine technology will have moved on the next level of efficiency.
But this result is only partly due to the Western sanctions. As in other
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