Ben Aris in Abakan -

Walking out from the main turbine hall of Sayano Shushenskaya, the biggest hydroelectric power station in Russia, there are four high-voltage lines that are literally crackling with power. The path leads down one side of the river that powers this plant, completed in 1978, and passes a small golden-roofed shrine to commemorate the 75 that died here in 2009 when one of the turbines broke loose and caused one of the worst industrial accidents in Russia's modern history. But the plant has now been largely repaired and its operator RusHydro is doing well, thanks in large part to the advent of a wholesale market for power in Russia.

The company's finances are in good shape - on April 30, RusHydro reported first-quarter results that showed a strong growth in profit margins thanks to high water flows and high spot prices for electricity in Siberia where Sayano Shushenskaya is located. RusHydro's cash flow (Ebitda) for the period rose 38% from the year before to RUB16.1bn ($537m) and net income jumped 49% to RUB11.2bn. The Ebitda margin was up 5.2 percentage points to 63.4%, reports VTB Capital, thanks to an increase in hydropower production of more than a quarter as new production capacity built last year came online, which took RusHydro's total capacity of its operating power plants to 35.2 gigawatts (GW).

Sayano Shushenskaya's turbine room houses 10 turbine units that each have a capacity of 640 megawatts (MW) - enough to light a reasonably sized town. Five units are already working and another five are being upgraded to more modern designs and will come online this year. In all, the repair work will cost RUB40bn ($1bn), almost all of it coming out of the company's own pocket.

Russia's oil and gas reserves are well known, but it is also home to some of the world's best green-energy resources. The huge rivers that snake across Siberia between the low-lying mountains are ideal territory for hydropower dams (known by the Russian acronym GES) and the state-owned RusHydro that was formed to look after these plants after the break-up of state-owned holding company United Energy Systems is busy adding over 8GW of new capacity. That is almost three-times more than the 3GW of capacity Russia has added over the last decade.

Towards the end of the pre-crisis boom years, Russia was growing so fast that it was starting to run out of power. Even the nation's capital Moscow was hit by blackouts as the state had failed to invest into new capacity. The 2008 crisis bought some breathing space as it knocked economy growth back by 8% in 2009 alone and reduced the demand for power, but RusHydro has not been sitting on its hands since.

Fatal accident

For all their many faults, the Soviets were good at big engineering projects. The concrete curtain wall that holds back the river Yenisei towers 242 metres over the turbine room at its base, making Sayano Shushenskaya the biggest plant in Russia and the fourth largest in the world in terms of height. It is also in the Guinness Book of Records as the word's strongest dam, holding back more than 30 kilometres of river that is used to turn the turbines.

The turbine room is huge. A glass covered hall, it is big enough to house a World Cup's worth of football pitches. But on August 17, 2009, exactly a year after Russia's last big economic crisis, one of the turbines broke loose.

There has never been an official explanation for what exactly happened, but talking to the engineers at the plant they believe that because hydropower plants are used to regulate the power supply to the grid - unlike thermal power plants they can be turned on and off almost at will - the constant change of speed caused excessive vibrations in the turbines that gradually broke their restraining pins.

On that fateful day, turbine number two suddenly snapped away from its housing in the floor of the turbine room. Some 500 tonnes of spinning rotary leaped into the air and careened around the room wrecking everything in seconds. The enormous space was flooded with water in less than 10 seconds. The people on the turbine room floor didn't stand a chance.

The automatic systems that are designed to shut off the water flow in the case of an accident simply didn't have time to react before the disaster was already over. Some of the workers who realised what was going on sprinted to the crest of the dam and closed the sluices manually, but not before 75 workers in the turbine room had been killed. "Since then, we have introduced many new safety elements," says Alexsander Goldin, RusHydro's head of investor relations. "But the most important one is the work on the overspill chute was accelerated. And now there is a new rule that there are no permanent posts at below flooding level in the plant."

Two tunnels lead from the river through hills at the side of the dam and can be opened at a moment's notice to siphon off excess water and take the pressure off the dam in an emergency.

Rebuilding and recovery

The main hall is a hive of activity today. At its far end stand four round metal plates in the floor, the lids for the massive turbines that lie beneath. The speed of their rotation can be felt through the feet as a constant quiet rumbling.

The other five turbine holes are open, full of workers. The turbines are in various states of repair; massive pins and wheels lie about on the shop floor like the toys of some absent gigantic baby. Just the nuts for the bolts that hold the assembly together are as big as a man's torso. "All the turbines were damaged in the accident," says Goldin, "but four of the 10 units were not damaged too badly and one of these was already out of operation for repairs and so was in the best shape."

Siberia, and especially the RusAl aluminium smelter a few miles away, which consumes about a quarter of the plant's power, was plunged into darkness on the day of the accident. But as a hydropower station typically works at 40% capacity, Sayano Shushenskaya only ever had four of its ten turbines running at any one time, so the station could be put back into operation in less than a year. The speed of the repairs was helped by RusHydro's management having already decided to upgrade the technology, so all the planning work was already done and some of the machinery already ordered. The upshot was that all the turbines were converted to more modern technology earlier than expected, supplied with equipment from Russian heavy engineering firm Power Machines based in St Petersburg.

New capacity, old tariffs

Russia is in the midst of trying to upgrade its entire power sector and hydropower plays an important role. RusHydro invested RUB116bn into its plants last year, of which 19% went to Sayano Shushenskaya, while another 19% was spent on building new capacity, mostly at sister plant Boguchanskaya under construction on the Angara River in the Krasnoyarsk region. However, the largest part of spending, some 22%, went on modernizing or rehabilitating existing power stations.

The company is in the "harvesting time," as Goldin puts it. Almost all the new 8GW of capacity will come on line between 2012 and 2013, most of that from work done at Sayano Shushenskaya (total capacity 6.4GW) and Boguchanskaya (3GW). In 2014, about 1GW of capacity will be added in odds and sods elsewhere in Siberia and the Far East. Altogether, the new capacity should be enough to enable Russia's economy to grow strongly for many more years to come.

Still, there are still several challenges to overcome. The old bilateral relations between power stations and factories that used to set prices have given way to a wholesale market for power, but the reforms that will affect the price of power are in disarray.

Russia is split into three mega-zones when it comes to buying power on the spot market: European Russia (zone #1), Siberia (zone #2) and the Far East. Factories can buy power from the spot market in both zones #1 and #2, but as most cities in the Far East are so isolated the price of this zone's power is still set by the government.

The so-called RAB scheme that was supposed to put the price of generating power on a commercial footing was abandoned last year as unworkable and a new version is meant to be ready by the middle of next year.

The uncertainty over how profitable power generation in Russia will be has hurt the share prices of power companies; RusHydro's shares - 40% of which are publicly traded - have lost more than half their value over the last few years.

Some resolution to the current uncertainties could be reached next year when the Russian government is due to put forward a new plan for calculating tariffs and regulating power prices that should guarantee investors decent, and more importantly predictable, returns, which are a pre-requisite to attracting the kind of huge amounts of investment the sector still needs.