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En+ GROUP En+ Group Annual Report 2021 STRATEGIC REPORT CORPORATE GOVERNANCE FINANCIAL STATEMENTS APPENDICES BUSINESS REVIEW POWER SEGMENT REVIEW 3.8% increase in electricity consumption in the Siberian IES Market overview¹ Overview of the Russian power sector The Russian Federation's power sector is among the largest in the world, with installed electricity capacity of the Unified Energy System (UES) of Russia of 246.6 GW in 2021, and electricity output of 1,114.55 TWh. The UES of Russia covers the most populated areas of Russia. Grid interconnections between different energy systems are limited by long distances, with the Russian wholesale power and capacity market split into two market pricing and four non-market pricing zones. The first pricing zone (European-Ural)² includes the integrated energy systems (IES) of the North-West, Centre, Middle Volga, Urals and South in the European part of Russia. The second pricing zone, the Siberian IES, encompasses Siberia. The electricity prices of the two market price zones are driven by the differences in capacity and fuel mix in the respective price zones, while grid limitations are yet another factor affecting prices in the second pricing zone. The zones where special rules are used to set prices instead of the market environment, include the Kaliningrad and Arkhangelsk Regions, Komi Republic and the Russian Far East. The Group's power generation facilities are mostly located in the second price zone, the Siberian IES, which covers 4,944,300 km² and has a population of c. 19 million. The Siberian IES includes 118 power plants with an aggregate installed capacity of 52.3 GW, with 25.3 GW (48.4%) provided by HPPS, 26.6 GW (50.9%) by CHPs and 350.2 MW (0.7%) by SPPs (solar). The backbone grids of the Siberian IES consist of 102,807 km² of HV power lines of 110, 220, 500 and 1,150 kV³. A unique feature of the Siberian IES is the significant role of HPPS in both the installed electricity capacity mix and electricity output. Thermal power in the Siberian IES is generated mostly through coal-fired power plants, which are primarily located near regions where the coal is mined. Electricity demand Electricity consumption in the UES of Russia in 2021 increased by 5.5% y-o-y to 1,090.4 TWh. Electricity consumption in the European-Ural zone grew 5.9% to 830.2 TWh, and by 3.8% to 217.3 TWh in the Siberian IES. Electricity supply The total installed electricity capacity of the UES of Russia as of 1 January 2022 amounted to 246.6 GW and increased by 1.3 GW in 2021. The increase can be explained by the commissioning of 2.7 GW of new capacity, decommissioning of 1.9 GW of old capacity, and a 0.5 GW capacity increase linked to remarking, corrections, etc. In the second pricing zone, 60 MW was commissioned, no capacity was decommissioned and there was an increase in capacity as a result of 51 MW being remarked. In 2021, electricity output in the UES of Russia increased by 6.4% y-o-y to 1,114.55 TWh. Electricity output in the European-Ural pricing zone increased by 7.0% to 851.7 TWh. Electricity output within the Siberian IES in 2021 was 215.9 TWh, up 4.3% y-o-y. Output from HPPS in Siberia increased by 8.5% y-o-y to 127.8 TWh. In 2021, the Group's HPPs generated approximately 60.8% of the total electricity produced by hydropower stations in the Siberian IES. At the same time, thermal power plants decreased their electricity production by 1.4% y-o-y to 87.7 TWh. In 2021, combined heat and power (CHP) plants accounted for 40.6% of full-year electricity output within the Siberian IES, while HPPS accounted for 59.2% and SPPS contributed 0.2%. 4.3% increase in electricity output within the Siberian IES Electricity output in Siberian IES in 2021 (TWh) HPP CHP Total Total in Siberia En+ Group in Siberia 127.8 77.7 87.7 10.7 215.9 88.4 Electricity and capacity prices In the Siberian IES, electricity spot prices are effectively determined by the production costs of the least efficient coal-fired generation plants, with HPPS acting as price takers. Over the long term, electricity prices tend to move with prices of thermal coal. A significant proportion of the power generated by Siberian CHPs is produced using locally sourced brown coal. Due to seasonality in demand and the intermittency of hydropower, the price of electricity can exhibit significant fluctuations throughout the course of the year. One of the major factors exerting significant influence in the medium term. is the water inflow to and water volumes in the reservoirs of Siberian HPPs, which determines the availability of low-cost hydropower for the wholesale market. Reflecting the long-term nature of these decisions, the capacity market functions rather differently to the electricity market, with annual auctions carried out to determine the price and select an optimal set of generating facilities to meet the forecast demand in each pricing zone. Capacity prices are currently determined through to 2026, and prices are indexed annually at the previous year's Consumer Price Index (CPI) minus 0.1% - the indexation is applied starting from 1 January of the year when the auction was conducted, until 1 January of the year when the capacity is supplied. On 10 October 2021, the Russian Government issued Order No. 1852, changing the length of the period for which the results of the long-term auctions apply; effective from 2022, it is now 3 years instead of the previous 6 years. The same Government Order sets a deadline of 15 November 2023 for a capacity auction for the period till 2027. The shorter horizon is to ensure planning flexibility and better accommodate investment decisions taken in the electric energy industry. 38 Unless otherwise stated, data for the Power segment's "Market overview" section is sourced from ATS, Association "NP Market Council", System Operator of the Unified Energy System of the Russian Federation. Comprises the Central, Central Volga, Urals, North-West and South Energy systems. According to the System Operator of the Unified Energy System of the Russian Federation (www.so-ups.ru/). 3. 39
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