Russia’s falling power demand highlights growing stagnation

It’s a classic proxy for economic growth: Russia’s demand for power in 2025 turned negative for the first time in four years underscoring a self-inflicted economic slowdown that threatens to turn into a recession this year.

After four consecutive years of growth, electricity consumption in Russia contracted in 2025, a development that reflects the broader slowdown in the country’s economy. Citing data from the System Operator, Kommersant reported on January 12 that electricity consumption fell by 1.1% year-on-year to 1.161 trillion kilowatt-hours. Adjusted for the extra leap-year day and milder weather, the decline stands at 0.8% and 0.3%, respectively.

“Electricity demand is one of the most important aggregate indicators of the economy’s condition,” The Bell wrote. “The last time consumption fell was during the pandemic in 2020, when lockdowns and the collapse in oil production hit the economy hard.” The System Operator had initially forecast a 3% increase in electricity use in 2025.

Electricity generation also fell by 1.2% to 1.166 trillion kilowatt-hours, or by 0.9% when adjusted for the leap year. Thermal power stations continued to provide the majority of output (57.5%), followed by nuclear (18.7%) and hydroelectric (16.7%) sources. Total generation capacity grew marginally by 1.1 gigawatts to 271GW.

The primary cause of the decline was a record warm year. “2025 was the second warmest year in Russia since records began in 1891, second only to the pandemic year,” The Bell reports, citing data from the Federal Hydrometeorological Centre. However, it pointed out that the climate was not the only factor.

“Analysts interviewed by Kommersant link the fall in electricity demand not only to the weather, but also to a sharp slowdown in Russia’s economic growth.”

While GDP rose 4.3% in 2024, growth for 2025 is expected to be just 0.6%. Still, some regions saw rising demand, driven by infrastructure investment, new industrial projects, tourism and a shift to electric heating. ACRA analysts reported that Crimea and Zabaykalsky Krai saw year-on-year demand up 10.6% and 10%, respectively. Kalmykia, Buryatia, Tatarstan, Kaluga and Chechnya also registered notable increases.

But despite the outliers, overall the Russian economy has largely stalled, and was stalled on purpose. As bne IntelliNews reported CBR governor Elvia Nabiullina is engaged in an unorthodox experiment, where she has stamped on growth as the only way to bring down sky high inflation. With the Kremlin mandated military high and growing, the CBR had lost control of inflation and its traditional tools of rate hikes had become ineffective. So using the extremely crude tool of inducing an economic slowdown has been the only option available to the regulator.

And it has worked, to an extent. Inflation fell faster than expected from a sticky 10% to under 6% by the end of the year. But that has come at a cost; growth is only expected to be 0.5%-1% this year and Nabiullina is warning not only of possible recession in 2026, but stagnation if more reforms to revive the economy are not put in place. At the end of 2025 Russian President Vladimir Putin told the government to clean-up the economy and has launched a wide ranging National Projects 2.2 in December 2025 to do just that.

The jury is out on how successful this programme will be, but the economy is not about to collapse and the government will not run out of money to fund the war for at least two years, if then.

Still, the economy is hurting in the meantime. Electricity is not the only sector showing signs of strain. “Russian Railways just reported the steepest drop in freight volumes in 16 years,” The Bell wrote. Loading volumes fell 5.6% in 2025 to 1.11bn tonnes, with nearly all major categories — including coal, timber, construction materials, grain, and oil products — posting declines.

At the same time, wholesale electricity prices surged despite falling demand. According to the Market Council, electricity prices rose 17.5% in the first pricing zone (European Russia and the Urals) and 24.7% in the second zone, which was expanded in 2025 to include the Russian Far East. Price hikes were largely driven by rising gas and coal costs. Analysts forecast electricity consumption will increase by 1.3% in 2026.

“The cost of doing business is rising under the pressure of war, sanctions and increasing isolation,” The Bell concluded. “Whether demand falls or not, the bill for households and companies continues to grow.”