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TGK-1 is a generating company in the North-West of Russia that supplies electricity and heat to Saint Petersburg, Karelia and the Murmansk Region. What sets it apart among the territorial generating companies is its significant share of hydroelectric plants. The shares trade on the Moscow Exchange under the ticker TGKA.
The company combines two types of generation with entirely different economics. The thermal plants run on gas: their production cost is determined by the price of fuel, and part of their output goes into city heating systems at a regulated tariff. The hydro plants buy no fuel at all — their production cost is among the lowest, and their output depends on the amount of water in the rivers.
Hence the double sensitivity of the result: to the price of gas and to the water inflow of the year. A high-water year improves the result on its own, because cheap hydro output displaces expensive thermal output.
The northern location adds seasonality: the heating period is longer here, and so heat supply is higher as well.
Gas-fired plants producing electricity and heat for cities.
Hydroelectric plants in Karelia and the Murmansk Region with minimal production cost.
Heat delivered into district heating systems at a regulated tariff.
Strengths and weaknesses describe the business itself. Opportunities and threats describe what may happen around it.
The company produces electricity and heat at thermal and hydroelectric plants in Saint Petersburg, Karelia and the Murmansk Region, supplying them to the power system and to city heating networks.
It buys no fuel: the energy comes from the flow of water. The production cost of its output is therefore several times lower, and it does not rise along with the price of gas. In exchange, another dependence appears — on the amount of water in the rivers.
It is how much water comes into the rivers over a year — from precipitation and snowmelt. In a high-water year the hydro plants generate more cheap energy, in a low-water year less, and it has to be replaced with expensive thermal energy.