24 JANUARY 2013


By Artem Volynets

The Wall Street Journal Asia, 24.01

Hydroelectric power might be as old as electricity itself, but it offers a very modern answer to one of Asia's greatest challenges. As policy makers struggle to secure and increase energy supply while reducing carbon emissions, hydro-power ticks all the boxes. The trick will be new policies, including trade policies, to enable countries in the region -- and especially China -- to capitalize on the hydropower boom.

Hydro generation is understandably appealing to Beijing. It is clean, and based on a long-proven technology with low operating and maintenance costs. Unlike wind or solar power, it is less dependent on the weather and can be switched on to meet demand.

So China has invested heavily in the technology, tripling its capacity in the first decade of this century to generate more hydropower than any other country. And Beijing plans to double its current capacity as part of a plan to generate 15% of its energy from renewable sources by 2020. The highest-profile result of this policy push is the controversial Three Gorges Dam project.

But no matter how many more dams Beijing builds, the country's demand for energy may be so high it won't be able to meet all its needs domestically. These concerns have been fuelled by the government's determination to ensure new dams don't have a negative impact on the country's environment and communities. As an alternative, renewed attention is being given to the potential for Russia to help meet Asia's needs for sustainable energy.

There is nothing new about international cooperation on hydroelectric power. Canada, whose hydro generating capacity is second only to China's, has been helping to meet peak electricity demands in the United States from its rivers for more than a century. Around 9% of hydroelectric power produced in Canada is now exported to its neighbor.

Russia can play the same role for Asia. Russia is capable of delivering up to 35 gigawatts of new capacity in the next 15 years. In the context of China's aim to build hydropower generating capacity of 250 gigawatts by 2015, Russia's extra capacity is significant.

While Russia is already the world's fifth-largest generator of hydropower, only 20% of its potential has yet been realized, with an even lower proportion in the great river basins close to the Chinese border. Boosting the hydro industry in the east could also kickstart desperately needed development in a region that for too long has been the country's poor relative.

There are signs of progress in seizing this opportunity. The amount of electricity exported to China from Russia increased by 26% last year. But this is just the tip of the iceberg. We believe the potential exists to increase this figure 20-fold by 2020.

Closing the gap will require several steps. First, there has to be major new investment in generating capacity. The joint venture between EuroSibEnergo, part of the En+ Group, and the Chinese Yangtze Power Company, set up last year to develop new energy projects in East Siberia, is a major step in the right direction. China Yangtze Power is the country's largest public hydropower company, and the joint venture with EuroSibEnergo aims to build up to 10 gigawatts of new power generation facilities, mostly hydro, in Eastern Siberia.

This matters because despite its long-term cost effectiveness, hydro power entails high up-front costs. Partnerships that help meet these capital requirements and ensure long term supply agreements are critical to get projects off the ground.

Second while new hydroelectric capacity is vital, we also need to find a way of moving power between where it is generated and where it is needed. Canada and the U.S. cooperate so successfully because the two countries share an integrated electricity network. We need to develop the same cross-border grid between Russia and China.

Again there are signs of progress. The completion of a new transmission line from Russia's Far East to the Chinese city of Heihe should enable electricity exports to double this year. En+ is also in talks to build a new power transmission line from Russia into China, perhaps going as far as Beijing. The Chinese government is balancing its need for electricity with security considerations. But pressure to meet hydroelectric power generation targets will necessitate China forging deals with its northern neighbor.

Some Chinese leaders may be wary of trusting a regional market to meet China's electricity needs, and so might prefer to focus on rapidly expanding domestic production. But it's not clear China can meet its own demand for hydropower solely from domestic sources. This is a classic case where cross-border trade can enhance China's energy security by allowing more supply to enter the country.

The International Energy Agency expects that as much as $10 trillion will be invested in the Asian energy industry in the next decade. Private investment will follow if the right conditions are put in place by governments. While we are moving in the right direction, there is a need for greater urgency if we are to seize the opportunities ahead.

Mr. Volynets is chief executive of En+ Group, a Moscow-based mining, metals and energy company.