Power Generation Technology Blog Russia

The Russian power sector is going through a difficult time at the moment, with available finance a major stumbling block for projects in the market. What is the outlook for the industry for the remainder of this year and through 2011?

Investments into the power generation sector in Russia have significantly suffered, not so much due to the financial problems caused by the crisis but by falling demand and a high risks of non-repayment. From the beginning of summer this year however, investors in this sector were buoyed by the launch of a system of Long-Term Agreements for Power Supply. Return for investors is guaranteed with predetermined payment for new power supply, and in turn investors have their own obligations of further capital injections. This will increase market growth, and indeed I believe that 2011 will see a significant rise in tenders for the construction of new power facilities.

There have been incidences where projects have been delayed due to financial constraints. The ambition to complete these projects in the shortest possible time however was the main target of both the EPC companies and the investors, with any delays costing both parties money. During 2010, private power generation companies completed projects with a combined power output of 4058MW. TechnoPromExport put two power generation units in to operation, each having the capacity of 450 MW.

What changes are you seeing from the de-regulation of the power-gen sector? What impact is this having on new construction or modernization?

With the launch of the new market system, the program for new construction of power generating facilities was the most vulnerable due to its requirement of large investments.

The key for the updated investment program is the scope of demand and the cost effectiveness of the power generation.

Market Council, a non profit organization, proved its effectiveness in the absence of total state control by bringing into balance the obligations of the electric power suppliers and buyers in Power Supply Agreements. Eventually, investors agreed with the punitive sanctions for defaulting on their obligations, and the consumers agreed with the revised future power supply price. However, the Ministry of Energy of the Russian Federation preserved their influence on the process, as they are responsible for the implementation of the development plan for power generation in general.

What changes have you seen in the market since the implementation of the energy efficiency laws?

In my opinion, speculation that it is possible to satisfy an increased demand for electricity at the expense of energy efficiency are groundless. These two processes must run in parallel. Implementing modern production technology will help reduce the excessive power consumption in Russian industry; it is not only a matter of increasing the efficiency of power generation.

As a leading EPC company in the region – what major projects are you currently working on in Russia?

At present, the company is implementing 5 major projects in Russia with a total capacity of 2125 MW. Set-up and start-up operations are being performed on two sites – Power Generation Unit PGU-450 of Uzhnaya Combined Heat & Power Plant TEC-22 in St Petersburg and TEC-2 in Kaliningrad, which are to be commissioned this year. Furthermore, the construction of the second power generation unit for 325 MW at the Ivanonvsk PGU has reached its final stage. The construction of 2 coal power generation units totalling 225 MW at the Cherepetc Power Plant is moving fast towards completion. Works have also been launched at the Urengoy PGU-450.

With many new construction projects scheduled for the near future – what major construction projects will be started by TPE over the next 12 months?

For the most part, we are targeting high capacity projects, however, we also try to bid for all available tenders. Our company has the most extensive experience among EPC-Contractors in Russia in the construction of Combined Cycle Power Plants (CCPP); this year alone we are in the process of commissioning two such plants and indeed three more are currently being built. This experience is one of the major competitive advantages of the company. The construction of PGU-450 in the town of Novy-Urengoy is at the initial stage.

Do you think there is more potential within the retrofit market than new build?

Unfortunately, the retrofit market hasn’t yet expanded in Russia. The capital capacity of retrofit doesn’t attract general contractors and they substitute retrofit by frequent routine maintenance. Reconstruction and modernization may be more cash consuming in our country when compared with the new construction, since the wear and tear and the rate of obsolescence of the equipment of old Russian plants is too high.

More and more western companies are entering the Russian power sector. How effectively do you feel their technologies are competing with Russian companies? High capacity projects?

The Russian power generation sector is large enough to incorporate both foreign and domestic equipment. The majority of Russian manufactures have full order books.

Occasionally, there are announcements on the establishment of joint ventures with western manufacturers for the production of power generating equipment in Russia; however, the number of projects that are implemented are low. To facilitate a higher presence of modern foreign equipment with enhanced performance it is important that Russian standards are brought more in line with their western equivalents.

Unfortunately, there is not much activity for the solution of this problem. The absence of harmonized standards is an obstacle for the promotion of the foreign equipment to the Russian market and indeed vice versa.

I understand that TPE have a strong international presence. What are your key international markets and what plans do you have for international expansion?

Currently, the ratio of Russian to foreign projects in our portfolio is 70/30. Looking forward, I believe, this ratio will tend to become 50:50. Traditionally, key international markets for us are the Middle East and South-East Asia.

Alexander Andreevich Lukin
General Director of Foreign Economic Enterprise VO “TekhnoPromExport” OJSC

Born: April 3, 1955 in the town of Kaltan, Kemerovo  Region
Education: Moscow Institute for Energy Technology, Open University Business School, UK (MBA Program)

1980 to 1987  – Power Stations Network of the Ministry of Energy of the USSR
1987 to 2005 – Foreign Economic Enterprise “TekhnoPromExport”, starting from the position of engineer and worked his way up to be appointed a Regional Director of European Countries. Head of VO “TekhnoPromExport” Rep Office in Pakistan.

2005 to 2009 – Vice President of the Global Distribution Network Alstom Power. Responsible for market development in Russia and the CIS countries.

From April 2009 until present: General Director of Foreign Economic Enterprise VO “TekhnoPromExport” OJSC