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Russia Power Report Q4 2013 - New Market Research Report

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2013-09-17 09:01:46 - Recently published research from Business Monitor International, "Russia Power Report Q4 2013", is now available at Fast Market Research

We maintain the view that Russia is unlikely to register significant growth in its power market over our forecast period. Instead, we continue to anticipate only moderate growth as macroeconomic headwinds and a shrinking population sap power demand, while structural risks such as the opaque business environment and weak institutional capacity continue to deter significant foreign investment in the sector. As such, with much of the country's aging capacity having been built in the 1960s and 1970s, we expect most of the investment that is channelled into the country's power sector to be aimed at modernising and substituting aging and inefficient thermal and nuclear capacity, and improving the country's inadequate transmission infrastructure.

While Russia's current 'Energy Strategy 2030' outlined plans for

the expansion of the nuclear and nonhydropower renewable industries, delays to the construction of nuclear installations, and the absence of an appropriate policy and regulatory framework to stimulate demand and attract investors within the renewable industry, reinforce our belief that these targets will not be realised. Instead, BMI believes that Russia's heavy reliance on thermal energy sources, particularly gas, will continue into the next decade. According to our forecasts thermal generation currently dominates (and will continue to dominate) Russian power generation to the end of our forecast period. To this end, we expect gas generation to register an annual average growth rate of 2.25% between 2013 and 2022 and account for just under 50% of all generation to the end of our forecast period. Large indigenous reserves of coal will also continue be utilised in power generation (as well as for export) and will account for 18% of total generation by 2022.

Full Report Details at

Furthermore, macroeconomic conditions in Russia also appear likely to weigh on demand in the power sector and the investment climate more broadly. BMI's Country Risk team has recently revised down what was an already-below-consensus forecast for economic growth in Russia due to weaker manufacturing data and a slowdown in consumer credit growth. Additionally, concerns about the inefficiency of Russian companies and, consequently, the ability of public-private partnerships (PPPs) to channel funds into productive investment - something that is particularly important if Russia hopes to draw private investment into the power sector - will also continue to weigh on foreign investor sentiment. Furthermore, with oil revenues falling, state-run companies rather than the government will likely have to support any capital expenditure, as the Kremlin attempts to improve its balance sheet.

Among the key trends and developments observed in the market, we also highlight that:

* State-owned monopoly Gazprom is focusing on investment in its domestic market, with a number of high-priority power generating projects currently under construction. These include a new 660MW coal- fired generating unit at the Troitsk SDPS and gas-fired generating units with the aggregate capacity of 1,060MW at CHPP-12, CHPP-16 and CHPP-20 in Moscow. On August 13, Gazprom also reportedly won a bid to acquire almost 90% of Moscow United Energy Company (MOEK) for US$2.89bn. MOEK currently provides most households in Moscow with heat and power.
* Meanwhile, Reuters reported in July that Russian state holding company Rosneftegaz was considering buying a 13.76% stake in state electricity firm Inter Rao. Inter Rao is one of numerous companies the government seeks to privatise by 2016, as it attempts to attract foreign investment and expertise and boost state coffers.
* In June 2013, US company General Electric (GE) said it had signed a memorandum of understanding with Russian state-backed private equity fund the Russian Direct Investment Fund to build a series of 25MW mini power plants across Russia. The mini power plants will be built independently of the federal power grid and will not need transmission lines. The project will focus on providing electricity to manufacturing plants and infrastructure projects in the Russian regions.
* In July 2013, German engineering company Siemens was contracted by Russian engineering company Technopromexport to deliver the key components for a power station that will supply electricity and heat to the Yamal Liquefied Natural Gas (LNG) production plant in northern Russia.
* Also in July 2013, Energy Minister Alexander Novak said that RusHydro's Sakhalin-2 district power plant (also known as Sakhalin GRES-2) in Ilynisk, located close to a LNG facility that is planned by Rosneft, could run on gas rather than coal. The new facility, which will be commissioned in 2015, will replace an older facility - with gas being considered as a fuel source because it will be delivered to the LNG facility in any case.
* Rosatom decided in June 2013 to revise plans to build the 2,300MW Baltic Nuclear Power Plant (NPP) near the town of Nieman in Kalingrad - based on new plans to build small and medium-sized reactors which could prove more economical taking sunk costs into account. We have also seen delays to a host of other nuclear projects including reports in June that the 1,150MW Nizhny Novgorod NPP has been delayed yet again because an investment decision has still not been made - with reports a new gas-fired plant may come online in the region instead.

About Business Monitor International

Business Monitor International (BMI) offers a comprehensive range of products and services designed to help senior executives, analysts and researchers assess and better manage operating risks, and exploit business opportunities, across 175 markets. BMI offers three main areas of expertise: Country Risk BMI's country risk and macroeconomic forecast portfolio includes weekly financial market reports, monthly regional Monitors, and in-depth quarterly Business Forecast Reports. Industry Analysis BMI covers a total of 17 industry verticals through a portfolio of services, including in-depth quarterly Country Forecast Reports. View more research from Business Monitor International at

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