What Makes Russia's Proposal Possible

Power markets have a way of seeming abstract to the average consumer. Few people wonder where their electricity comes from when they switch on the lights – and when they pay the bill it's just "the power company".

But it’s not that easy, and this is why Russian-European linkage could mean serious business.

The power in your socket does not always come from the nearest power plant. In recent years, new trading systems have developed by which power companies buy and sell electricity in blocs, as effortlessly as others trade pork-bellies. Enron, the now-bankrupt US energy company, led the way by putting this market online.

Yet, online or not, the market is only as big as its physical infrastructure, and Europe’s grid has never been linked to Russia’s, once the pulsing heart of Soviet power.

A link would pose massive business opportunities for both sides.

For consumers in the European Union – both households and industries – access to Russian power could mean sharp drops in prices. For Russia’s deteriorating power plants, it would mean fresh sources of income and a new lure for Western strategic investors.

European power plants might one day find buyers in Russia, as well, while access to electricity from renovated Russian plants could provide European countries an alternative to new construction, according to the EU's "Energy Outlook to 2020".

Despite its over-capacity, the EU foresees a building spree of power plants through 2020, providing an additional 594 gigawatts and outpacing consumers’ galloping demand.

By twist of fate, the EU’s power plants are currently called upon to generate about half their full capacity of 575 gigawatts. Russia’s capacity of 204 gigawatts also far outstretches its generation, but Chubais describes 52% of UES’s fixed capital as "deteriorated", since two-thirds of Russian plants were commissioned more than 20 years ago.