In a recent study of the Russian electricity market by Frost & Sullivan, power g ...

In a recent study of the Russian electricity market by Frost & Sullivan, power generation installed capacity is forecast to reach nearly 247,000 MW in 2016, compared to about 222,000 MW in 2008. The country’s binding investment programme is also predicted to promote the installation of 40 GW 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 two to three 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, notes the study. 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. Despite this, several foreign manufacturers are 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,’ comments 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 and 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.’