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Russian electricity monopoly Unified Energy Systems has dissolved as part of electricity reforms aimed at attracting investment in the Russian power sector.

Russia’s electricity monopoly, Unified Energy Systems (UES), officially dissolved the week of June 29 after a decade of selling off its assets in a series of auctions. The auctions, and other wide-ranging electricity reforms, are aimed at attracting investment in the country’s power sector and creating a competitive electricity market. However, as with anything related to Russian energy, there could be a few catches.

About 63 percent of Russia’s electricity sector depends on thermal power (oil, natural gas or coal), while hydropower makes up 21 percent and nuclear power contributes another 16 percent. Russia currently produces all its own electricity, and it exports a significant amount to the former Soviet states as well as China, Poland, Turkey and Finland. Moscow has plans to start electricity exports to Iran, Afghanistan and Pakistan, and it is negotiating with the European Union to integrate the EU and Russian electricity grids.

But Russia’s electricity sector is in desperate need of investment, modernization and repair, as the demand for electricity is far beyond what is being generated. Inside Russia, electricity demand is quickly growing — it increased 4.5 percent in just the first five months of 2008. The Kremlin has a twofold plan to meet this increasing demand: expand the nuclear sector, and modernize and expand current power facilities, most of which run on natural gas.

Russia plans to build 31 new nuclear reactors at 10 locations over roughly the next decade. Russia has already started to sink investment into the nuclear sector, allotting $960 million for the sector in 2008. Russia’s natural gas behemoth Gazprom is also pushing for more electricity to come from nuclear power (and also from coal-fired plants) so that more of its natural gas will be freed up for export.

Russia’s nuclear sector is severely aged. The working life of a nuclear reactor is typically 30 years, but nine of Russia’s 31 reactors are about to hit that age, and six more are more than 20 years old. Russia has only broken ground on three new nuclear reactors since the fall of the Soviet Union, and one of those is in China.