ENERGY: Russia power prices to remain under pressure

Russian power prices will grow at below inflation rates until 2017 on the back of persistent overcapacity, weaker electricity demand due to Russia’s economic slowdown and limited growth in gas tariffs, according to Moody’s Investors Service.

The rating agency forecasts power prices to be in the range of 1,100-1,400 RUB/MWh (16-20 EUR/Mwh) in the European and Urals zone (Zone 1) over the next
12-18 months, where gas-fired plants dominate and 800-1,000 RUB/MWh (11-16 EUR/Mwh) in the Siberian zone (Zone 2), where coal-fired plants set the market price.
"We expect that Russian wholesale power prices will be broadly flat over the next 12-18 months compared with the current price of 1,200 RUB/MWh in Zone 1 and 850 RUB/MWh in Zone 2," said Sergei Grishunin, a Moody’s analyst and author of the report.
"While Russian power companies’ profitability and creditworthiness will be under pressure in the coming months as a result of price growth trailing inflation and the challenging economic environment, the metrics for rated companies will remain in line with current ratings", added Grishunin.
Producers with diversified business profiles and cost effective fuels such as Atomenergoprom, JSC (Ba1 negative), or those operating modern and efficient capacity like EON Russia (unrated) and Inter RAO, PJSC (Ba2 negative) will perform best in the coming months. Conversely, Moody’s views RusHydro, PJSC (Ba2 negative) and Enel Russia, PJSC (Ba3 negative) as being less well positioned to withstand price pressures.
Of the headwinds facing the sector, economic and regulatory uncertainty is a primary concern, in Moody’s view. The regulatory framework for Russian utilities and power generators continues to evolve, characterised by political intervention and frequent changes in tariff-setting mechanisms. This presents a key credit risk for the sector.