Russia Power Report Q3 2016 - New Report Available
New Energy research report from Business Monitor International is now available from Fast Market Research
[USPRwire, Sun Jun 12 2016] Our ten-year forecast for the Russian power sector remains muted - despite the country's rich resource endowment and size of its market. As a contracting economy, a weakened ruble and prolonged geopolitical uncertainty keep a hold of the country, development projects of Russia's power sector encounter increasing financial and political headwinds.
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The broader economic and political backdrop frames our views on the Russian power sector in 2016. The annexation of Crimea and perceived Russian belligerence towards the West has shattered investor confidence and will deter significant foreign investment. Meanwhile, global oil prices of below USD30/bbl in early 2016 (expected to remain around USD40/bbl for 2016) have made the government's budget assumptions untenable, which will necessitate further spending cuts. At the same time, tight credit conditions - exacerbated by international sanctions - will drag on economic growth.
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Weak electricity demand will result in overcapacity and feed into lower capacity payments in some of Russia's wholesale electricity pricing zones - weighing on the margins of utilities. Russia awards capacity payments to existing power plants - through competitive auctions to ensure plants remain capable of dispatch during periods of high electricity demand. Capacity auction payments for 2016 in Russia's first pricing zone (spanning European Russia and the Urals) fell 15.3% y-o-y on account of overcapacity amid weak demand.
Providing electricity supply to the annexed Crimea region will remain high on Russia's agenda, as Moscow looks to integrate the peninsula. Russian President Vladimir Putin switched on two power lines in late December 2015, with plans to turn on another two in 2016. In November and December 2015, Crimea was facing serious electricity shortages as a result of bomb blasts - carried out by unidentified assailants - which destroyed two pylons in Ukraine on November 22 2015.
Georgia, Iran, Armenia and Russia agreed in April 2016 to create a joint electricity market by 2019. The market will initially be open for large-scale users who use high-voltage networks. Following a successful first stage, the market may be liberalised for small and medium power users.
We have largely retained our forecasts for sluggish growth in thermal-fired power generation over our 10-year forecast period on account of generation overcapacity in some of Russia's electricity pricing zones, weak electricity demand and a deteriorating economic environment. We expect gas-fired electricity generation to register muted annual average growth of 1.07% between 2016 and 2025 - and maintain a steady 45% share of the generation mix over the next decade amid limited expansion in renewables and nuclear capacity.
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