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CEZ says it will profit as Czech power rises to German levels

CEZ AS, the Czech Republic's biggest power producer, expects wholesale electricity prices in its home market to rise faster than it had previously predicted because of rising demand and power-plant closings in southeastern Europe.

Czech power prices could close a 17% discount to the German electricity market by the end of this year, after which the German market will determine prices in both countries, Alan Svoboda, CEZ's executive director of sales and trading, said yesterday at a conference in London. „The price fundamentals are the same for the whole region,” Svoboda said. Previously, oversupply made Czech power cheaper than Germany's. Now, higher demand from Balkan countries that have closed aged power plants will absorb the additional power-generation capacity, he said. The Czech and German power grids are connected by cross-border cables, creating arbitrage opportunities between the two countries. Demand for capacity on the interconnector to export power to Germany has exceeded availability in recent years. That demand may diminish, or even reverse, Svoboda said. Already the price to secure capacity on the power grid to export to Germany from the Czech network has fallen, relieving the previous bottleneck at the border, Svoboda said. Flows may eventually reverse, so German power is transmitted to the Balkan region, he said.

CEZ will be well-placed to benefit, according to Svoboda, because of its presence in power-production companies in the Balkans and its plans to produce more electricity by increasing the capacity and reducing the frequency of maintenance halts at its nuclear power plants. The company has also benefited from carbon trading, Svoboda said at the conference. Emissions of carbon dioxide by CEZ in 2006 were 34.3 million metric tons, compared with an allocation of permits from the country's government of 36.9 million tons, Svodoba said. CEZ sold the surplus permits before prices declined, he said. Any permits it needed for to produce power later were bought back from the wholesale market at the time of sale. The European Union's emissions-trading program sets limits on the amount of carbon dioxide that factories and power plants can emit. If they exceed their emissions cap, they can buy additional permits in the market. The first phase of the system lasts for three years, through this year. (Bloomberg)