Market Know-how: Energetic Optimism

In July at a session of the city government the head of the town-planning policy, development and reconstruction department of Moscow Vladimir Khaikin announced the following figures: in Moscow there are more than 150 out-of-date electric-substations which are rendering an adverse influence on the environment, are complex to operate and are dangerous. Also, according to him, in Moscow there are electric transmission lines measuring almost 1.26 million metres with a voltage of 6 to 500 KW. Maintaining such lines, according to the Moscow Geologic-Geodetic Survey Trust, occupies more than 9,000 hectares or about 10 per cent of the whole city. According to Khaikin, the realization of a project on the complex development of the territory under electric transmission cables will take 6-10 years.

These figures don’t sound so great now, but they are not as threatening as several years ago when experts considered the situation with electric supplies as critical. For example, the notorious Moscow black out on May 17, 2005, when due to a fire at the Chagino substation the whole city was disconnected and plunged into darkness. That was when it was first publicly admitted that the two burned down transformers had been installed in 1958 and 1960. However even without such shake-ups the situation was more than sad, including in connection to new objects. Back then much was spoken about the opacity of the process of obtaining capacities, and sometimes about the impossibility of obtaining them. However, in the opinion of builders, the situation is slowly getting better. There is a real deficit of capacities, experts say, but not in such volumes as several years ago.

Any whim for your money

In 2006 the federal law "On tariff regulation" came into reglaution. According to the law, work on lining networks and connecting subscribers have been shifted to energy suppliers (in the capital this is Moscow City Electric Grid Company (MGESK). However, a subscriber is obliged to pay for the work. Another innovation is that any interested person can obtain permission for connection, but he will only get these capacities in the near (or not really near) future. In any case todays expert’s opinions, although are not in unison they are more optimistic.

"From a builder’s point of view the fact that the majority of technical conditions issued by MGESK stipulate the connection of subscribers to a power station that does not yet exist, speaks volumes about the almost complete absence of vacant capacities," considers Vladimir Voronin, president of Lider financial-building corporation. "However, the situation is gradually levelling out due to the active construction of new substations,” adds general director of MIAN-Development Oleg Rubin with some optimism. It has been announced that 14 new substations will be put into operation by the end of 2009, which will help reduce the deficit that exists today.

The situation with networks is also becoming better. "Networks are seriously worn out, but there is an advantage: their repairs are being done operatively and qualitatively,” considers managing partner of Alcon Development, Alexander Sorokin. Work is being done on both new cable lines and lines of the distributive network, and on the replacement of the old equipment of transformer substations, and, in Rubin’s opinion, the results are visible. "If you compare today’s situation to 10 years ago, there is a huge difference: there are much less failures of substations. Substations have become more reliable and operate more safely due to the use of modern equipment and materials. Cable lines are not insulated by paper materials like before, but by polythene which is more reliable and durable," he says.

As for the traditional problem that Moscow "has places where there is no electricity at all," it also has no bases. The only exception is the city centre.

"The annual demand for additional electric power of different Moscow districts varies slightly but in those districts where new generating capacities and network objects have already been put into operation, there are less problems with connections,” considers Rubin. “As a result the center is in a less favourable position in comparison with the suburbs as the majority of new substations are being built in the suburbs. But the whole central district is practically under development by [builders], and therefore there is no crisis situation."

How to work without crisis

The absence of crisis is undoubtedly a positive fact, however there are still problems with connection. Moreover, the deadline for completing the first signed contracts of so-called "730-day contracts" which, in Voronin’s opinion, has both positive and negative consequences, is coming up.

If a builder has approached MGESK, on the one hand, MGESK can not refuse to provide connection to electric capacities, but on the other there is no power station physically present.

The new form of the contract, explains Voronin, means that the city electric network company concludes a standard contract with the builder on the connection of energy-receiving devices (real estate premises) to an electric network in which the executor (MGESK) undertakes to perform in no more time than 730 days work on designing and the laying of the necessary cable lines, the construction of the energy object and connection of the subscriber. But at the moment the conclusion of such a contract with a power station, and the connection to which means performing work under a contract, the timeline of it being put into operation can not be considered only directive (declared by the contractor - the builder of the power station), for failure to meet this deadline is the responsibility of the executor in the contract, which is not stipulated. Thus, it turns out, that builders regularly pay rather large sums to MGESK, which in turn regularly performs all work under the contract, but there is no electric power and so the blame falls on a “third party” - the contractor, who has not managed to construct a power station in time. Another situation may develop: the builder cannot construct the premises (apartment building, etc.) quicker than 730 days. Then it must wait for works under the contract with MGESK to end. Whether these problems are hypothetical or real, in Voronin’s opinion, all will become clear soon when termination dates of the first contracts approach.

The right of inheritance

The ability to connect electric systems and the possible scheme of electric supply is a defining factor in choosing a site for a constructer. And from this point of view unattractive industrial zones would be a good choice. "Right at the beginning, at the stage of deciding what to do with the site, the constructer approaches MGESK to find out the capacities in the given area and the prospects for its development. At this stage a preliminary scheme of electricity supply, which becomes one of the major conditions of the valuation of the site, is made," says Sorokin. If a premises is under construction on the territory of a former industrial zone, and industrial enterprises usually possess greater capacities, then these capacities are passed on to a new premises in case of their presence on the site. If there are premises that have bee allocated limited energy consumption on the site and these premises are being demolished, the constructer has the right to issue capacities itself and request from MGESK the missing capacity only, explains Voronin. At the same time director of the department of technical support of construction at ADG Group Vladimir Gazetin pays attention to the following: on closer examination it may seem like released capacities (for example, the closure of manufacturers) have been given to other consumers, sometimes with the consent of the former owner of the enterprise. "Also it is necessary to take into account the fact that with a change of owner of an enterprise, new technical conditions should be received and it is necessary to pay for their preservation." For example, the construction of a business center by Alcon Development on the territory of the former Izolyator A.Barkova factory. "The factory possessed the established capacity of 7,120 KW, but an additional 6,330 KW are necessary for the new premises. We will receive these from a new power station, which will be constructed in the Khodynskoye polye area," says Sorokin.

Own pride

Basically, constructers can avoid contacting the city networks and "waiting and asking" them. Gazetin gives the Borodino Plaza complex, which has its own constructed generating installation station. Such practice is more common in the Moscow region. "Even if near the developed area there are no free electric and thermal capacities, there is the opportunity of constructing so-called mini-heat electro power stations – gas-turbine stations which simultaneously develop electricity and heat,” says Rubin. “In some cases the initiative and expenses on building such premises are incurred by the local government, and sometimes by the investor. Everything depends on the "sociality" of the premises."

How many watts?

How much electricity is needed in a modern city? According to experts, for the construction of a class A office center 110 KW per sq.m are required to guarantee supply to the power-intensive office equipment of tenants. For class B offices the projected capacity can be less - 70 KW per sq.m, but this is not obligatory, and everything depends on the purpose of the premises and the needs of the tenants. Modern shopping centers require large amounts of energy. The necessary capacity in many respects depends on the specificity of the tenants. In addition to the retail areas there may be restaurants, a cinema, an entertainment center, a skating rink, etc. Therefore the concept of the shopping center, on the basis of which the technical design project is developed. And only then do you know the capacities needed. The range of consumed electric power is great with regards housing. According to Voronin, in an apartment measuring 100 sq.m power consumption can be from 4 to 50 KW and higher. A building requires much more electric power than a simple sum of the apartments in it. Lifts, engineering, lighting - all this consumes much and constantly growing tariffs forces everyone to think of usine energy saving technologies. Besides issues in acquiring capacities another question is of payment. You are charged for technological connection regardless of whether there is a technical opportunity to connect the building or not. Regardless of whether it is necessary to build a substation or simply to lay 100m of cable, payment for connection will be identical. And it will not be small. According to a decision by the regional power commission of the government of Moscow No. 39 dated September 8 2006 the payment for connection in Moscow is 45,000 rubles. In other words, the opportunity of connecting a kettle with a capacity of 2 KW in Moscow costs 90,000 rubles. The cost of connection also varies depending on the remoteness from the center. The most expensive electricity is in the Central Administrative District can cost up to 120,000 rubles per KW. As a result payment for connection to electric systems per sq.m of an apartment is 3,000-5,000 rubles depending on the location of the building and class of housing. It is not difficult to calculate that electric power for 100 sq.m would cost from 300,000 to 500,000 rubles. This seems small at the present prices for housing and on the other hand, $20,000 is never spare.