New Energy market report from Business Monitor International: "Russia Power Report Q1 2014"
Boston, MA -- (SBWIRE) -- 12/31/2013 -- With Russia's broader economy stalling, a slowdown in household consumption and structural impediments to broader growth and investment are likely to have a deleterious impact on the country's power sector - with power demand highly correlated with economic development and industrial production. As such, 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.
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Our relatively subdued outlook for the Russian power market is underpinned by a revision to our macroeconomic forecasts this quarter. In October 2013, BMI's Country Risk team once again downgraded their already-below-consensus outlook for the Russian economy based on a sharp slowdown in economic activity over 2013. Furthermore, we believe the slowdown is structural rather than cyclical and, as a consequence (unless structural reforms are implemented), economic growth is likely to remain subdued over our forecast period to 2022. To this end, household consumption, which is the main driver of growth, is set to slow due to slowing income growth, slowing credit growth and elevated inflation.
Making matters worse, we also believe that the diminishing windfalls from rising oil and energy prices will reveal the structural impediments to investment, such as corruption, grossly inefficient bureaucracy, inadequate property rights and questionable autonomy of the judiciary. With this in mind, and taking into account that power demand in Russia is highly correlated with economic development and industrial production, we have also revised our power forecasts to reflect the impact of these strengthening economic headwinds heading into 2014. We now expect electricity generation to increase at an average annual growth rate of 1.47 % between 2013 and 2022, with the country generating 1,164TWh by the end of our 10-year forecast period. Notably, falling demand could also weigh on much needed investment in modernising and substituting aging and inefficient thermal and nuclear capacity, and improving the country's inadequate transmission infrastructure.
Although Russia's current 'Energy Strategy 2030' outlines plans for the expansion of the nuclear and non-hydropower renewable industries, we remain cautious based on delays to the construction of nuclear installations and the slow development of the renewables segment. As such, although the outlook for renewables is improving, with Russia successfully closing its first renewables auction, we maintain the view that the country's heavy reliance on thermal energy sources, particularly gas, will continue into the next decade.
Among the key trends and developments observed in the market, we also highlight that:
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