Russia Country Market
Insights and Opportunities
Electric Power Generation Sector
Overview: Russia holds the world’s largest natural gas reserves, second largest coal reserves, and eighth largest oil reserves. It is the fourth largest generator and consumer of electricity in the world; its 440 power stations (77 coal-fired) have an installed generation capacity of 220 GW. The grid links over two million miles of power lines, 93,000 miles of which are high voltage cables over 220 kV. Electricity generation is based largely on thermal (gas - 46%, coal - 18%), hydro (17%), and nuclear (16%) power. 60% of thermal generation is from combined heat and power plants (CHP). Russia operates 31 nuclear power reactors in 10 locations, with an installed capacity of 21 GW. Despite considerable geothermal, wind and wave resources, renewable energy production accounts for less than one percent.
In 2002, the Russian government began reforming the power sector. The main goal was, and remains, to upgrade the aging and outdated heating and electricity infrastructure. The restructuring involved the separation and privatization of the generation, transmission and sales companies. The grids were brought under regulatory supervision. Power generation was divided up into seven wholesale generating companies (OGK), 14 territorial generating companies (TGK), independents and state-owned entities. OGKs contain power plants and specialize mainly in electric power generation. TGKs contain predominantly combined heat and power plants (CHPs). The gradual liberalization of the electricity market (currently at 60%), due to be completed in 2011, should allow producers to charge market prices.
Foreign and domestic companies have invested about $27 billion in the sector; as a condition of their investment, they committed to create 186 GW of new capacity by 2020. However, due to decreased demand for electricity and changes in plans of big industrial electricity consumers since the onset of the economic crisis, the Russian government has allowed certain companies to alter investment plans, including delaying construction or moving plants. According to a recent study by KPMG Consulting, the Russian electricity sector will require $500 billion investment over the next decade to avoid regional blackouts and meet future demand. This will include installing new generating capacity and significantly modernizing what is currently installed.
The European Bank for Reconstruction and Development has invested in many of the new power generating companies. In addition, as part of its crisis response actions in its Russia strategy for 2009-2012, EBRD states it will provide support to both private and state-owned power companies, with balance sheet restructuring, refinancing, liquidity support or financing of investment shortfall for priority projects with high energy efficiency parameters. There are already signs of a moderate recovery in electricity demand in early 2010 and industry experts predict that the demand for power equipment will reach the pre-crisis level by 2011-12.
Russian equipment producers are also modernizing their production. Power Machines (Siloviye Mashiny) is the market leader with a share of over 50%. It unites production, supply, construction, maintenance and modernization of equipment for thermal, nuclear, hydraulic and gas turbine power plants. The following big international energy equipment holdings are well established and have joint ventures or their own production facilities in Russia: General Electric, Siemens, Alstrom, ABB, Skoda Power, Mitsubishi Heavy Industries, Ansaldo Energia, and Areva.
Opportunities: Over the past few years, there has been a growing demand for highly technological equipment in the electricity sector, required for heat and power plant construction and modernization, which cannot be met by Russian manufacturers alone. High capacity gas turbine technologies (gas turbines >250 MW) are in demand, as domestic manufacturers are not active in this production area. (Russian producers are competitive in the production of 200-1200 MW power stations working with different kinds of fuel.) Power companies also seek ultra supercritical steam turbines, waste heat recovery boilers, high voltage power transformers, compressors, process control systems, hardware components for microprocessors and semiconductors, etc.
The most competitive markets are concentrated around the cities of Moscow and St. Petersburg, whereas the regions are considered growing markets. Western equipment is usually installed in newly built infrastructure, while existing equipment is mainly maintained with locally produced equipment and to a lesser extent upgraded with Western devices.
Russia is generally very receptive to U.S. products. Companies such as General Electric, Dresser-Rand, and Compressor Controls Corporation are present in the Russian market and their products are available either directly or through representatives or distributors. Imports from third countries are also growing. U.S. firms encounter increasing competition in the Russian market from European and Chinese manufacturers.
Tenders for energy projects are processed through the world’s largest marketplace for power generation equipment online at www.b2b-energo.ru. Most of the OGKs and TGKs also have their own marketplaces on their websites. A foreign vendor needs to keep in mind that paper documentation for tenders is generally required in the Russian language. The power stations officially publish tenders for some renovation tasks. For major projects, they work with specialized engineering, procurement and construction companies (EPCs).
Current information about new tenders, analytical materials, regulatory documents, application procedures and other participation requirements may be found at http://tenderenergo.ru. The website is in Russian and intended for local representatives of foreign companies and Russian power supply firms. Information on state procurement (government purchases) can also be found at http://www.b2b-energo.ru/?lang=eng.
The Russian government has stated that it intends to expand the role of nuclear and hydro-power generation in the future, to allow for greater export of fossil fuels, with a plan to increase nuclear generation to twice its current level. However, many nuclear plants are due for decommissioning and meeting such a target will require billions of dollars of investment per year over the next decade.