OREANDA-NEWS. April 20, 2010. The Energy Ministry has prepared a draft 2010-2016 investment program for the Russian power utilities sector. The ministry expects electricity demand to rise at an annual rate of 2.9% during this period, and envisages the following new capacity additions, reported the press-centre of OTKRITIE FC:

9.9GW of nuclear generation

4.5GW of hydro generation (including hydro-accumulation plants)

28.5GW of thermal generation

A detailed breakdown of investment projects is not available at this point.

View: We assume a slightly slower rate of electricity demand recovery during 2010-2016, i.e.  2.1% p.a. Our current generation segment investment program assumes the following capacity additions:

7.5GW of nuclear generation
4.1GW of hydro generation
32.9GW of thermal generation

We see a 13% decrease in thermal generation capex vs. our forecasts as positive for the sector’s cash flows over the next 6 years. We believe that the new investment program will represent the Capacity Delivery Agreements (CDAs) that OGKs and TGKs will sign with the regulator. Consequently, the effect on individual gencos will depend on the parameters of the CDAs, which will be determined for each company on an individual basis.

Valuation: Russian generation companies currently trade at an average EV/installed capacity multiple of USD322/kW vs. the EM peer average of USD1,061/kW.

Action: We expect a positive market reaction across the generation segment from this news.