Boston, MA -- (SBWIRE) -- 10/03/2013 -- We maintain the view that Russia is unlikely to register significant growth in its power market over our forecast period. Instead, we continue to anticipate only moderate growth as macroeconomic headwinds and a shrinking population sap power demand, while structural risks such as the opaque business environment and weak institutional capacity continue to deter significant foreign investment in the sector. As such, with much of the country's aging capacity having been built in the 1960s and 1970s, we expect most of the investment that is channelled into the country's power sector to be aimed at modernising and substituting aging and inefficient thermal and nuclear capacity, and improving the country's inadequate transmission infrastructure.

While Russia's current 'Energy Strategy 2030' outlined plans for the expansion of the nuclear and nonhydropower renewable industries, delays to the construction of nuclear installations, and the absence of an appropriate policy and regulatory framework to stimulate demand and attract investors within the renewable industry, reinforce our belief that these targets will not be realised. Instead, BMI believes that Russia's heavy reliance on thermal energy sources, particularly gas, will continue into the next decade. According to our forecasts thermal generation currently dominates (and will continue to dominate) Russian power generation to the end of our forecast period. To this end, we expect gas generation to register an annual average growth rate of 2.25% between 2013 and 2022 and account for just under 50% of all generation to the end of our forecast period. Large indigenous reserves of coal will also continue be utilised in power generation (as well as for export) and will account for 18% of total generation by 2022.

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Furthermore, macroeconomic conditions in Russia also appear likely to weigh on demand in the power sector and the investment climate more broadly. BMI's Country Risk team has recently revised down what was an already-below-consensus forecast for economic growth in Russia due to weaker manufacturing data and a slowdown in consumer credit growth. Additionally, concerns about the inefficiency of Russian companies and, consequently, the ability of public-private partnerships (PPPs) to channel funds into productive investment - something that is particularly important if Russia hopes to draw private investment into the power sector - will also continue to weigh on foreign investor sentiment. Furthermore, with oil revenues falling, state-run companies rather than the government will likely have to support any capital expenditure, as the Kremlin attempts to improve its balance sheet.

Among the key trends and developments observed in the market, we also highlight that:

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