OREANDA-NEWS. July 12, 2010. The Energy Ministry has approved the investment program of OGKs and TGKs: the overall capacity commissioning should reach 27.7GW by 2015, and this will be boosted further to 28.3GW by 2017, reported the press-centre of OTKRITIE Financial Corporation.

The largest capacity addition will be done by OGK-4 (4GW), OGK-6 (3.46GW) and Mosenergo (2.9GW). These investment projects will be mandatory for the gencos and will be included in their Capacity Delivery Agreements (CDAs) to be signed with the government. Details of the investment projects are not available at this point.

View: The Capacity Delivery Agreements will specify the location, size and commissioning timeline of the new generation power units that OGKs and TGKs will be required to construct. The CDAs will also specify the capacity payments for these new units, calculated under the methodology that was approved by the state earlier this year. We believe that new capacity payments will be adequate to allow positive NPV for these investment projects, and therefore we think that the signing of CDAs will be a positive trigger for the TGK/OGK segment. Approval of the overall generation investment program is a prerequisite for proceeding with the CDAs.

Valuation: The Russian thermal generation sector currently trades at an average EV/installed capacity multiple of USD230/kW, which is significantly below the EM average of USD1,030/kW.

Action: We regard this news as a positive development for the generation segment, and reiterate our top picks: Mosenergo, TGK-1 and OGK-1.