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Following a long period of underinvestment, the Russian power generation industry launched a wide-scale reform in 2003. By 2011, the industry should emerge in a fully liberalised state, offering a number of opportunities for strategic and portfolio investors, equipment manufacturers and service providers. Due to a vast investment programme, the industry aims to upgrade its dilapidating generating assets, as well as its neglected transmission and distribution grid.
In a recent study performed by Frost & Sullivan (power.frost.com), Strategic Analysis of the Russian Electricity Industry, key analysts anticipate that the Russian Power Generation Installed Capacity will reach close to 247,000 MW in 2016 as compared to about 222,000 MW in 2008. Likewise, the binding investment programme will promote the installment of 40GW of additional thermal capacity by 2016.
"The most important driver for new capacity additions is the government-approved investment programme to which power generating companies must adhere," says Frost & Sullivan Research Manager in Renewable Energy, Alina Bakhareva. "The power generation industry is a key enabler for Russia's economic growth, as it is fuelled by the expansion of extracting and processing industries requiring significant amounts of power in their operations. Although postponed by 2-3 years, investment into new generation is assured, especially in energy deficit regions of Central Russia."
The growth in installed capacity translates into a healthy demand for power generation equipment and construction services. Although the competitive landscape is firmly-rooted, with a large number of both Russian and international players active in the market, there are certain areas in which Russian technology trails behind the Western precedent, presenting great opportunities for international players. For example, although the construction services market is dominated by local companies, instances involving the cooperation of Russian and European companies are increasing, setting the precedent for future development in this area.
However, the Russian market is not easily entered. With high entry barriers, due to the prevailing culture of preferred suppliers, high reliance on personal relationships, and bureaucracy, the market is heavily fortified against international competitors looking to privately penetrate the market. There are, however, several foreign manufacturers successfully permeating the market, either through the setting up of a subsidiary or through partnership with a local player. Russian companies appreciate the value of international partnerships, particularly with the West.
"Because national research and development, as well as heavy machinery production, fell behind during the Soviet era," says Bakhareva, "Western expertise and experience will continue to be in demand in Russia. It is true that Western companies will require a higher degree of precaution and preliminary checks when entering the Russian market; however, the level of opportunities presented justifies the high risk profile."
Further opportunities are expected due to increasing energy consumption upon recovery from the financial and economic crisis. Eventual economic stability and increased levels of output by heavy industries such as mining and metal processing, Oil & Gas, and transportation will encourage consumption throughout Russia. However, the present infrastructure of Russian equipment may not be able to bear the increase. Because most equipment is heavily outdated, past examples show technological failures stimulated by times of bolstered consumption.
"A large part of the country's power generation infrastructure has been operating beyond its useful life limit, increasing the risks of technological failures and decreasing the stability and security of power supply," says Bakhareva. "Once the electricity demand growth resumes, power shortages may be looming for several regions in Russia. Thus, increased consumption will call for new capacity additions and investment."
If you are interested in more information on this study, please send an email to Chiara Carella, Corporate Communications, at chiara.carella[.]frost.com, with your full name, company name, title, telephone number, company email address, company website, city, state and country.
This Frost & Sullivan research service entitled Strategic Analysis of the Russian Electricity Industry provides an in depth analysis of the historical market development, industry structure and major players, end-user analysis and power consumption trends, major players and policies impacting electricity supply and prices, market forces (industry challenges, drivers and restraints), installed capacity and new additions, and industry value chain. In this research, Frost & Sullivan's expert analysts thoroughly examine the following markets/applications/technologies: power generation, transmission and distribution, energy retail, value chain consisting of equipment manufacturers, stockists/dealers/distributors, EPC contractors and subcontractors.
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