Russia dam disaster shifts power sector assumptions

* Power prices jump 24 pct on Siberian spot market * Faith in RusHydro as safe blue chip undermined * Long-term prices to rise as state steps in, more coal used By Simon Shuster MOSCOW, Aug 19 (Reuters) - A disaster at Russia's largest hydroelectric plant continued to play havoc with the power sector on Wednesday, shifting basic assumptions on investor stock picks, the fuel balance and the long-term price of power. On the Siberian spot market for electricity, prices jumped 24 percent as demand overwhelmed alternative power suppliers, two days after a turbine room at the Sayano-Shushenskaya plant flooded, killing 14 and leaving dozens missing. Later on Wednesday, the market regulator agreed with power suppliers not to allow such sudden spikes in prices, but the government still said the upward trend would continue. On the stock market, plant owner RusHydro was previously seen as one of the safest bets in the sector and a rising Russian blue chip. It had attracted huge investments from Mark Mobius's Templeton and other global funds. Since Monday's disaster, however, which knocked out a quarter of the firm's production capacity, $1.5 billion has been shaved off of RusHydro's market value. The stock has also been downgraded by Citi and put under review by Alfa Bank and others. Citi said the firm's net income will drop by 20 percent next year, while free cash flows could be negative even beyond 2011. The loss of faith in RusHydro coincided with a scramble for shares in other generating firms, some of which had been among the sector's biggest losers due to ongoing lawsuits, low liquidity and weak demand for their power. This week firms like OGK-6, OGK-4, and TGK-11 have led the market with double-digit gains. The broader index has been roughly flat. PRICES RISING, COAL IN FOCUS These companies stand to gain from an expected spike in demand for power at the mainly coal-fired plants they own in Siberia, as well as the higher prices they will be able to charge while the region's biggest supplier stands idle. "The market regulator is already trying to convince the power producers in this area not to raise prices, but it's not clear how this can be done," said Alexander Kornilov, utilities analyst at Alfa Bank. On Tuesday, the Energy Ministry said state-set power prices would gradually need to rise next year to compensate for the disaster. "Prices will be raised, whether for the whole sector or just for RusHydro, but they will be raised," said VTB Capital analyst Dmitry Skryabin. He said that next year the growing cost of power from RusHydro's generators will have to bring the company up to 15 billion roubles ($470.1 million) as it tries to cope with repair costs of around 40 billion roubles. This could weigh heavily on consumers. United Company RUSAL, the world's largest aluminium producer, operates two smelters within 50 km (30 miles) of the dam. It faces losing 11 percent of its 2008 output. "This reinforces the message that you cannot have a modern, safe, reliable sector without proper funding," said Derek Weaving, utilities analyst at Renaissance Capital. "The state is not going to provide that funding, so it has to come from higher tariffs." Prices will also be pushed up due to the shift in the fuel balance from hydroelectricity to coal, a far more expensive source of energy, Skryabin said. "If this shut-off lasts until winter, when energy use always peaks, then more and more power will need to be bought from these more expensive sources, especially coal," he said. ($1=31.91 Rouble)