Paper Market: Where to Dispose of Excess Electricity?

Vladimir Putin ordered the signing of an agreement between Russia and Belarus to form a unified electricity market for the Union State. This international treaty establishes the legal foundations for the creation, functioning, and development of this market, regulating relations related to the buying and selling of electricity. Signing the document does not mean that the joint market will soon begin to function fully – it would require quickly incorporating what essentially is not a market into the market.

The document does not specify the timeline for launching the energy market of the Union State. It is presumably expected to start operating on January 1, 2025. In Belarus, the draft agreement was approved last year by the Decree of November 27, 2023, No. 376.

In December 2023, Belarusian Energy Minister Viktor Karankevich stated that the unified energy market would start operating on January 1. However, a few days later, the Russian Ministry of Energy canceled this unilateral announcement, stating that the launch dates were being postponed as the parties had not yet worked out all technical and legal details.

Later, it was announced that the joint energy market would launch on January 1, 2025, and in 2027, a unified energy market for the Eurasian Economic Union (EAEU) was planned. However, given the disagreements between the countries, these statements seemed utopian. Over time, it became clear that no unified markets would appear within the specified timeframes.

Belarus aims to play ahead in this matter, believing that the unified energy market will provide additional opportunities to export electricity to Russia. After the launch of the second unit of the Belarusian Nuclear Power Plant, a surplus of capacities emerged. The markets of the Baltic States, Ukraine, and Poland are closed to Belarusian energy producers due to sanctions.

In mid-July, electricity transmission system operators Litgrid (Lithuania), AST (Latvia), and Elering (Estonia) notified Russia and Belarus of their decision not to extend the parallel operation agreement of the power systems, signed in 2001 and effective until February 2025. It is also planned to dismantle the remaining power transmission lines. Instead, the Baltic States and Poland will synchronize their power grids. For this purpose, the EU allocated about EUR 1.2 billion, covering about 75% of the costs.

The Belarusian Ministry of Energy stated that the exit of the Baltic States from the power ring would not affect the operation of Belarus’ power system but would impact the cost of energy for consumers in the Baltic States. They prefer not to mention that the cost of electricity for Belarusians is constantly rising, notifying about it mostly retroactively.

It is too early to predict that after signing the necessary documents, cheap Belarusian electricity will flow unhindered into the Russian market. As specialists note, there is no electricity market in Belarus as such. At a minimum, because the Russian power system has been operating under market conditions for over 10 years, has the necessary infrastructure, retail markets, and exchange trading. Therefore, to trade electricity on the Russian market, Belarus also needs to create wholesale and retail electricity markets, as well as market participants.

Another important point: Russia is an energy-surplus country, with an excess capacity of about 20 GW. This means that Russia does not need Belarusian electricity supplies. In this regard, it can be assumed that Minsk’s desire to direct export electricity flows to the Russian market will face serious resistance from industry lobbyists in Russia.

Thus, to create a full-fledged unified energy market, Belarus and Russia will have to agree on very sensitive issues for both parties: approaches to unifying market models, methods of regulation, and price formation for services. Specifically, a full-fledged unified electricity market of the Union State will not function without equal gas prices for Belarus with Russian producers. The issue of a “fair” gas price has long been stuck at the level of political discussion.