A mid-term strategy development for a power generation company

Kirishi CHPP, the largest power generation facility in the NorthWest of Russia, presently a part of OGK-2, is one of the backbone elements of the country's United Energy System. At the time of the project, the company was in a state of uncertainty due to the unfolding industry reform involving transition to the market-driven model of regulation (namely, transit from the ‘planned economy’ electricity generation to unregulated energy supply to an open competitive market). The Client’s top management needed Investorium to develop mid-term (over 3 to 5 years) business development strategy, including a strategy for entering the newly formed Federal wholesale electricity market (FOREM).

In the course of the project, Investorium’s team encountered a number of interrelated challenges both on the inner and outer contour of the Client’s business: In addition to the hardship of transition to the new market regulation model, the Client’s company work was complicated by an insufficient supply of gas and uncertainty concerning its continuous supply in the future, let alone the fact the Kirishi power plant was viewed by a lot of market players as an expensive and inefficient supplier. What was a separate challenge within the project was the need to build and prove economic rationale for a strategic partnership with the neighboring KINEF Oil Refinery, the largest consumer of the power plant’s heat and electricity, whose critical concern was the reliability and stability of electricity and heat supply required to ensure the continuity of its technological process.

On the other hand, the power plant is advantageously located in proximity to St. Petersburg and other fast-growing industrial zones of Russia’s North West and hooked to the main backbone power lines connecting the power grids of the North-West and Centre of Russia with the power grids of Northern and Eastern Europe via the Vyborg power distribution hub, this hub being the main cross-border point of Russian electricity and capacity exports. Therefore, Kirishi CHPP was poised to play a key role in forming the energy balance, ensuring the reliability of the united power grid of Russia’s North West, and in providing power to major regional industrial users, as well as contributing to cross-border energy flows.

The results of Investorium’s work formed the basis for the Client’s mid-term business strategy that allowed the power plant to painlessly transfer to the unregulated competitive market, successfully integrating into the Federal wholesale electricity market (FOREM). The company was also able to increase sales in the market segments with the highest added value, which seriously strengthened its long-term competitive position. Afterwards, the business strategy was broken down to functional strategies for main business units and functional blocks and served as the basis for subsequent business reorganization.