Research of development of heat supply systems in conditions to union of energy markets of the Eurasian Economic Union

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1 Research of development of heat supply systems in conditions to union of energy markets of the Eurasian Economic Union Marishkina Iuliia Dept. of Economics, Management and Humanities, Czech Technical University, Technická 2, Praha, Czech Republic Abstract. The article analyses the possible directions for development of heat supply systems of the countries participating in the when creating a united electricity market. The present problem is subject to the fact that the key technology for the production of energy products, which forms the basis of the energy systems of the former Soviet Union countries, is combined generation of electric and heat energy from the combined heat and power plant. At the same time, this type of combined production is ineffective on the energy market conditions, and creation of a unified energy market can significantly affect the energy and economic efficiency of regional heat supply systems and energy security of states. In this regard, possible ways of sustainable development of regional heat supply systems in the context of integration of market pricing mechanisms are proposed and risks of various business models of commercial activity in the sphere of heat supply are identified. Keywords, united energy market, regional heat supply systems, sustainable development, heat energy marketing models 1. United energy market In order to develop foreign economic activity and build up the resource and production potential necessary to overcome the global economic crisis and create a driver for the growth of national economies, countries unite their efforts in the economic sphere and form common economic spaces that are inherently a common market. This common market ensures the movement of goods, capital, services and labour between the member states of the common economic space. At the same time, the economic policies of the participating states are coordinated with respect to the macroeconomic and financial sectors, transport and energy, trade and industry. Within the framework of international agreements on Eurasian Integration in 2012, a common economic space between Russia, Kazakhstan and Belarus was formed, known as the Eurasian Economic Union. In 2015, the Eurasian Union also included Armenia and Kyrgyzstan. It is planned that the integration of the economies of the post-soviet countries through the creation of a common market will lead to the following macroeconomic effects: Decrease of the price for goods due to a reduction in transport costs for the transportation of raw materials and equipment necessary for production Increasing competition in the common market of the Eurasian Union by ensuring an equal level of economic development Increase the average salary by reducing costs and increasing productivity Increase the production capacity due to increased demand for products Increasing the welfare of the peoples from the countries of the Eurasian Union through lower prices for goods and increasing employment in the foreign economic sphere Reduction in the payback period of new technologies and goods due to expansion of the capacity of the market Growth in the gross product of the countries of the by at least 25%. The creation of a common market between the countries participating in the implies the unification of national commodity markets in all spheres of social production, including the organization of a unified electricity market. The United Electric Power Market is a system of relations between the subjects of the domestic electricity markets of the member states of the single economic space related to the purchase and sale of electricity (capacity) and related services, acting on the basis of general rules [1]. help: The combination of electricity markets will Increase of economic efficiency and reliability of functioning of electric power complexes of the member states,

2 I. MARISHKINA, RESEARCH OF DEVELOPMENT OF HEAT SUPPLY SYSTEMS IN CONDITIONS OF ASSOCIATION OF ENERGY MARKETS OF THE EURASIAN ECONOMIC UNION Improvement of the model of the wholesale electricity market operation, Increase the capacity of cross-border trade in electricity, both within the unified economic space and beyond, Stabilization (reduction) of electricity prices and, as a result, the creation of a beneficial investment climate, Additional growth of the gross product of the member states of the unified economic space due to the synergetic effect. The energy systems of the countries of the were formed according to a unified concept during the times of the Soviet Union and constituted a unified energy system, which was artificially divided after the collapse of the USSR. This fact also contributes to the creation of a unified energy market, as it can be said about the existence of the necessary technological infrastructure: Availability of high-voltage cross-border transmission networks with a current surplus capacity of the export-import section, The energy systems of the participating countries operate in parallel mode with the same characteristics and requirements for the quality of energy products. At the same time, the key technology for the production of energy products, which is the basis of the energy systems of the post-soviet countries, is the heat supply, which assumes the centralized power supply of consumers on the basis of joint generation of electric and thermal energy at the combined heat and power plants (CHPP). In Russia, more than 40% of electricity is produced at the CHPP, in Kazakhstan - 36%, and in Belarus - 56%. The role of CHPP in centralized heat supply is even more significant: in Russia, about 46% of heat is produced at the CHPP, in Kazakhstan - 74%, in Belarus - 83%. At the same time, it should be taken into account that the population is the main consumer of CHPP energy products, which determines the significant social role of heating [2, 3]. Despite the advantages of joint production of thermal and electric energy in a common production cycle, expressed in saving fuel for regional consumers by 20-30%, under the conditions of the market model of the electric power industry, in particular, the wholesale energy market, this type of generation faces significant challenges of maintaining competitiveness in comparison with separate production and individual heat supply to consumers. This phenomenon is associated with a variety of reasons; the main one is the low maneuverability of the CHPP, which consists in the absence of the opportunity to reduce the generation of electricity while maintaining a constant heat load. This leads to a price failure in the electricity market during the night hours (sometimes to zero), when the heat generation is significant, but the demand for electricity is quite low. CHPPs are often unable to execute the System Operator's command and respond to uneven electricity consumption, which prevents them from participating in various competitive electricity trade sectors, as well as indicates their inability to use in the energy market. CHP plants, displaced from the energy market, are inherently converted into large boiler houses. All the advantages from the combined energy production and centralized heat supply to consumers are lost [4]. The spread of the market model for the functioning of the electric power industry in the countries of the and the creation of the unified energy market can exacerbate the above-described problem and significantly affect the energy and economic efficiency and sustainability of the development of regional heat supply systems. In this regard, it becomes important to consider possible ways of integration of the member states of the common economic space and identify the risks of various business models of commercial activities in the field of heating. Despite the fact that the energy systems of the countries of the were formed within the same concept, the countries created different strategies for the development of the energy sector after the collapse of the Soviet Union. Implementation of these strategies in recent decades has led to significant differences in the structure and approaches to the management of energy systems of states. 2. Analysis of heat supply systems of the countries participating in the The heat supply systems in the countries of the are mainly built according to a centralized scheme, within which a single heat source (CHPP or district boiler house) supplies heat to a large number of consumers through a central heat station. About 63% of the housing stock is provided by heat and hot water from district heating systems in Russia, in Belarus and Kazakhstan at least 50%. Heat supply consists of three main processes: heat transfer to the heat carrier, its transport and use of the thermal potential. In accordance with this fact, it is possible to allocate a heat source, a heat network and a heat consumption system with heating appliances in each heat supply system. The most common in the countries of the European Economic Union is an independent heat supply system, in which the heat network piping systems form several independent circuits separated by an intermediate heat exchanger that transfers heat when in contact with the heat carrier. Typically, the network water acts as a heat carrier, and its temperature conditions are set by the temperature graph. The

3 temperature graph varies depending on the region and corresponds to 105 to 150 C for direct network water (determined by the average climatic temperature level) and 70 C for the reverse [5]. The heat supply system is designed to provide the population and industrial facilities with heat for the needs of heating and hot water supply. Figure 1 presents the graphs showing the dynamics of heat consumption in Russia, Kazakhstan and Belarus. Fig. 1 - Dynamics of heat consumption of the countries of the According to the graphs, heat consumption in the countries of the is declining. At the same time, if we analyze the change in the heat capacity of gross domestic product, an inverse picture is usually observed (Figure 2). This indicates the existence of crisis phenomena in the economies of countries, which leads to a reduction in gross product. Also the reduction in heat consumption due to the modernization of heat supply systems and the reduction of heat losses can not compensate for the negative trend in the growth of heat consumption in GDP. Fig. 2 - Dynamics of heat capacity of the GDP of the Two variants of heat supply for residential and industrial facilities are typical for the countries of the : Centralized heat supply systems from CHP plants or large boiler houses, when heat for several buildings is supplied from a single source, Individual, when the heat source is in a heated building or outhouse. After analysing the complex structure of heat supply systems, it should be noted that the choice of a particular business model for the development of regional heat supply systems in the context of creating a unified energy market will largely be determined by the entrepreneurial risks of rendering services to provide consumers with thermal energy. In view of the fact that the organization of reliable and efficient heat supply to consumers is one of the key tasks of the countries participating in the, their assessment for each of the business models is relevant not only for enterprises of the entrepreneurial type in the form of heat supply organizations, but also for the relevant ministries and regional administrations, which need to predict development and monitor business activities [6]. 3. Business models for the development of heat supply systems Based on the above system analysis of the organization and functioning of the energy systems of key countries participating in the Eurasian Economic Union, it can be assumed that the liberalization of economic relations in the heat supply, facilitated by the creation of a unified energy market, can lead to the emergence of the following business models for the development of regional heat supply systems and the provision of thermal energy: system based on the sale of thermal energy through a wholesale reseller. system based on the direct provision of heat supply services using own or leased networks. system based on the direct provision of heat supply services to consumers with transit through the networks of a third-party organization. The first model describes the situation when a heat source (thermal power plant) releases heat energy from the collectors in the network of a wholesale reseller. At the same time, the cost of the energy sold is calculated on the basis of the volumes actually released and the tariffs established by the regional energy commission. In this case, the wholesale reseller will also be the owner or operating organization of heat networks. The second model implies the absence of any intermediaries between the heat source and the consumers of thermal energy. To implement this model, the generating company must have both transmission and distribution heating networks. The latter model is the most complex from the point of view of the regulatory system and the potential conflicts inherent in it between market participants. At the same time, this is the most probable in the conditions of liberalization of economic relations in heat supply. 4. Risks of the above business models of development of heat supply systems Risks in case of using of a business model for the sale of thermal energy through a wholesale reseller: The emergence of a conflict of interests of the generating company with a wholesale energy reseller.

4 I. MARISHKINA, RESEARCH OF DEVELOPMENT OF HEAT SUPPLY SYSTEMS IN CONDITIONS OF ASSOCIATION OF ENERGY MARKETS OF THE EURASIAN ECONOMIC UNION Possible deviation of sales from planned indicators of the generating company due to high competition of heat energy producers for a single buyer in the person of a wholesale reseller. Possible decrease in the incomes of generating companies when introducing the pricing method on the basis of an "alternative boiler house" or the establishment of a maximum purchase price by a regional energy commission. The revenue part of the wholesale reseller's budget becomes constant in case of setting the limit value of the required gross revenue by the regional energy commission for the wholesale reseller or approval of selling tariffs for consumers. Consequently, the reseller creates economic incentives to reduce costs through measures to reduce heat losses in networks. At the same time, the sales of thermal energy from generating enterprises can significantly decrease (by more than 20%). Contrariwise, if the tariff is formed on the basis of the costs of the wholesale reseller, it will lead to the disappearance of incentives to reduce costs and efficient distribution of heat load. As a result, the choice of heat source can be made not from the principle of its effectiveness, but from the affiliation and own business interests of the wholesale reseller. Risks for application of the business model of direct provision of heat supply services using own or leased networks: Probability of overhead costs for maintenance of operating heat networks. The emergence of financial losses when the actual energy consumption exceeds the planned (calculated norms) of energy consumption. The emergence of seasonal cash gaps in view of the discrepancy in the monthly dynamics of payment for services and incurred operating costs for the provision of heat supply services. Risks in case of using the business model of direct provision of heat supply services with transit through third-party networks. The appearance of a conflict of interests of the generating company with the heat distribution company for the distribution of heat losses (payment for excess losses). The emergence of financial losses when the actual energy consumption exceeds the estimated energy consumption standards. The emergence of seasonal cash gaps in view of the discrepancy in the monthly dynamics of provision and payment for heat supply services. Conclusion The establishment of a unified power market of the countries participating in the Eurasian Economic Union will affect the sustainable development and rules for the operation of regional heat supply systems. This is due to the fact that the key technology for the production of energy products is the heating system, which is the basis for the energy systems of the post- Soviet countries and involves the centralized energy supply to consumers on the basis of joint generation of electric and thermal energy at the CHPP. The analysis of economic relations in the electric power industry of the countries of the Eurasian Economic Union showed that despite the fact that the energy systems of the states were formed within the same concept, after the collapse of the Soviet Union, the countries developed various strategies for the development of the energy sector. Russia and Kazakhstan have followed the path of liberalization of the electricity market; Belarus has retained the planned management of the energy sector. Market mechanisms introduced in the energy sector of Russia and Kazakhstan are aimed at increasing the capacity of the electricity production in order to reduce its unit cost and increase exports to energy-deficient countries. The planned development of the energy sector in Belarus involves the rational use of heating capacities and the extraction of the maximum economic and environmental effect from the combined production of electrical and thermal energy. This leads to conscious energy-deficient development of the unified energy system of the country. Despite the opportunity to fully provide the domestic market with electricity of its own production, Belarus largely imports electricity from neighbouring countries, which in the future may affect the energy security of the country. The implementation of these energy strategies has led to significant differences in the structure and management of the energy systems of the states in recent decades. The creation of a unified energy market will lead to the introduction of common market rules for the operation of heat supply systems for member states of a common economic space. At the same time, various business models for the development of regional heat supply systems and the provision of thermal energy sales services may arise. The most difficult from the point of view of the system of regulation and potentially embedded conflicts is the model for the development of the heat supply system based on the direct provision of heat supply services to consumers with transit through the networks of a third-party organization. At the same time, it is the most possible in conditions of liberalization of economic relations in the heat supply and development of the unified energy market, in spite of the allocated entrepreneurial risks. Acknowledgements Research described in the paper was supervised by Prof. E. Lisin, National Research University Moscow Power Engineering Institute and supported by the Russian Ministry of Education. References

5 [1] GULIYEV, I.A., MEHDIEV, E. T., LITVINYUK, I.I. Cooperation of the countries of the customs union and the single economic space in the energy sphere. Juvenis Scientia, 2016, no. 4, p [2] YESSIMSEITOV, M.S., ESIMSEITOVA, K.A., MARATOV, R.N. Strategy of development of power engineering in Kazakhstan in conditions of deepening of economic integration. International Journal of Experimental Education, 2016, no. 11-2, p [3] ZORINA, T.G. Formation of the economic mechanism of sustainable development of the electric power industry of the Republic of Belarus. Sustainable Development of the Economy of Industrial Enterprises, 2015, p [4] LISIN, E.M., STEPANOVA, T.M., ZHOVTYAK, P.G. Investigation of the influence of cost distribution methods on the competitiveness of CHP plants in energy markets. St. Petersburg Polytechnic University Journal of Engineering Science and Technology, 2016, no. 6, p [5] Statistical reports of the administrator of the trading system of the wholesale electricity and capacity market, Russia, [6] LISIN, E.M., ANISIMOVA, Y.A., STRIELEKOVSKI, V., KOCHEROVA, A.A. Prerequisites for the formation and development of national energy systems based on heating technologies. Ivanovo State University Journal. Series: The Economy, no. 1, p About author studied at National Research University Moscow Power Engineering Institute since She successfully defended the graduation work of bachelor of engineering and technology in "Power system" and master's program of economy. Currently she is studying on the PhD-program on the specialty Economics and National Economy Management at MPEI. During all study levels she has been participating in several All- Russian and International conferences, schools and internships, such as she won the competition for the scholarship of the President of the Russian Federation to study at Czech Technical University, Faculty of Electrical Engineering during 1 year. Her current scientific research is connected with the organization and economic mechanisms of increase of efficiency of inter-country electric power system integration with a combined heat. I. MARISHKINA was born in Tula, Russia. She