E.ON Sets Course for Russian Power Market

E.ON and Russian energy company STS founded a joint venture called E.ON-STS Energia today in Tyumen in western Siberia. Each of the partners owns 50 percent of the new company.

STS has a number of shareholdings in power generation and distribution. STS supplies electricity and gas to about 1.1 million customers in western Siberia. E.ON operates numerous techno-logically advanced power plants in Europe and has extensive experience in liberalized energy markets.

STS intends to transfer some of its own generating capacity into the new joint venture. In order to expand its market presence in the region, E.ON-STS Energia will participate in the privatization of power producer TGK-10. Plans call for STS to transfer some of its generating capacity to TGK-10 before the joint venture acquires a majority in the company. TGK-10 intends to build about 1,000 megawatts of new generating capacity over the medium term.

Entering Russia's electricity industry is attractive for E.ON. Russia's electricity market is one of Europe's largest and fastest growing, with an annual growth rate of 5 to 6 percent. The upcoming liberalization of the country's wholesale power sector will create an attractive business environment for investments in power generation. The very low thermal efficiency of Russia's existing power plants will make it possible to achieve significant efficiency enhancements that will also help protect the earth's climate. E.ON's long-term objective is to establish a strong position in Russia's fast-growing industrial regions in the Urals, western Siberia, Volga, and central Russia.

It is estimated that Russia's electricity industry will require annual investments of more than $20 billion over the next 15 years. This will involve not only the modernization of power stations and transmission systems but also the construction of new generation capacity to meet Russia's growing demand for electricity. RAO UES, Russia's state-owned holding company for its electricity interests, and the Russian government have therefore taken steps to liberalize the country's electricity market. These steps include the introduction of a largely deregulated wholesale power market and the privatization of 20 large power and heat generation companies, such as TGK-10, currently in RAO UES's portfolio.

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Posted 24/05/07

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