Regulator Urges Investors to Fund Electricity Expansion

A noncommercial partnership that regulates the country's electricity-trading system said Wednesday that Russia would need another 10 gigawatts of power by 2014 to keep up with growing demand, calling on foreign and domestic firms to step up investment.

Analysts estimated that construction costs to produce the additional capacity would be from $12 billion to $20 billion — adding to the burden power companies face as they struggle to fulfill their investment programs, even as some question how fast demand will rise.

The Market Council, which represents the state and industry players, assumed responsibility for regulating the country's electricity-trading market after Unified Energy System, the former state monopoly, ceased to exist in July.

"With the current power-consumption growth of about 4 percent annually, which we expect to last until 2013, the electricity needs will be covered by generators' investment programs, as well as the nuclear and hydropower stations being built by the state," Oleg Barkin, deputy head of the Market Council, said at a briefing.

"But beginning in 2014, we will have a deficit again. It will grow to 17 gigawatts by 2015 and 52 gigawatts by 2020."

During the spinoffs of UES's assets, buyers were obligated to take on major investment programs to meet the country's rising demand, totaling 3.9 trillion rubles ($157 billion) through 2020.

David Herne, director of Halcyon Advisors, a portfolio investor in the Russian electricity market, said foreigners would take part in the construction so long as they felt that the return on their investments was adequate given the risk.

"There is an interest, but rules must be set up for the capacity market, and the system of grid-connection payments must be clarified," Herne said. "The more certainty we have, the better. And the money will be found."

Russian investors were less optimistic, however.

"We will make decisions on the construction of more capacity depending on the terms of a concrete project," said Nadezhda Rukina, a spokeswoman for Integrated Energy System.

But generators will not be able to afford the additional construction costs because they are already tight on financing for the current work, said Alexander Kornilov, utilities analyst at Alfa Bank, which forecasts that electricity consumption will grow at an average of 2.7 percent annually through 2020.

"Even the power stations being built now by generators under their investment programs may find some of their power not in demand," Kornilov said.