IES Holding: crisis to bring lower gas prices, long-term contracts
MOSCOW. Feb 24 (Interfax) - Viktor Vekselberg's IES Holding sees some bright spots for the power generation sector amid the economic crisis in Russia.
"Three outside factors will help make it possible to cope with the crisis. The first, oddly enough, is the low price of oil," IES business director Roman Nizhankovsky said in an interview with the corporate publication "Gazeta IES."
IES Holding includes two major heat production hubs burning fuel oil - in Sormovo and Nizhny Novgorod - as well as the Vorkuta heat center.
"We have already felt the benefit of falling oil prices: fuel oil is cheaper. Of course, this is hardly more than 1% of our fuel balance, but practice shows that as the price of oil goes, so goes the price of the main type of fuel for our power plants: gas," he said. "The time lag between the decline in the price of oil and the price of gas is six-nine months. So, in the summer we are hoping to see serious movements on the gas market," Nizhankovsky said.
A second factor that will help cope with the crisis is having major consumers with large export contracts and revenue streams in dollars.
"In the first place this concerns petrochemical enterprises. A significant portion of them have maintained their financial stability. We have such customers: in Berezniki, Kirov, Nizhny Novgorod," he said.
A third factor is that major companies have decided against building their own generating capacity. "They will most likely decide against these plans under the new circumstances. It is important that we not miss the chance and conclude long-term, 10- to 15-year contracts with them," he said.
The crisis will also be a catalyst for altering the existing model of the electricity market, primarily the competitive capacity selection mechanism, he said, noting that IES Holding did well in the previous competition selection.
"We chose a model of operation that made it possible for use to sell all capacity at the maximum possible price," he said, adding that: "The situation on the market really is challenging."
The addition of new generating capacity under capacity provision agreements has resulted in a surplus of about 15,000 megawatts of capacity. "It can be assumed that in the early 2020s the country will begin to emerge from crisis and it will demand annual capacity growth of 5%-10%. But we do not expect demand to grow in the next few years. For that reason, there needs to be a determination about what volume of capacity must be retained in the country given future growth. I believe that withdrawing capacity to reserves, mothballing capacity, given an appropriate mechanism for compensating expenses that arise, is the most likely path to resolving these problems," Nizhankovsky said.