Electricity generators look for consolidation

Energy generation is a major need for Russia with current capacity stretched to the limit. The state is looking for private investors to step up, as industry players look for consolidation.

Russia has passed the most acute phase of the crisis and energy demand is beginning to recover. Now the question is how to make power generation a more profitable business than it was before the downturn. Deputy Energy Minister Andrey Shishkin says the government has played its part and pointed to private investors.

“To encourage investors the Russian government has signed a decree on the development of a long-term capacity market. It’s an important step and now its investors’ turn to fulfill all their obligations on the construction of new capacity.”

Most of power facilities in Russia are outdated. Losses in heating networks total up to 30% annually. But market players are optimistic. Money is coming back to the market as long-term contracts encourage new investment. Denis Fyodorov, General Director of Gazprom Energy Holding is also predicting there will be wholesale changes in the way the sector is structured.

“Consolidation is the main trend in the power market. We are looking at creating joint ventures with other players to develop new capacity. Gazprom is going to consolidate OGK-2 and OGK-6 and Russia’s biggest private generator KES holding is considering the consolidation of three of its generating companies. So in about two years we’ll see a significant change.”

Companies say consolidation will protect them from unnecessary investment risks and expect a wave of mergers and acquisitions in the next few years.