Yesterday’s results of the auction of 400MW of its capacity for 2006, which equals around 3.2TWh of electricity or around 4% the estimated domestic demand in 2006, showed a 15% price increase against 2005. The average 2005 price equals CZK 998/MWh while 2006 German forward prices stand at CZK 1,347/MWh. The result of the auction suggests that demand for electricity in 2006 may allow CEZ to increase its prices by 10-15%, which would be above our forecast of 5-6%. Assuming faster convergence to a long term sustainable electricity price of around EUR 43/MWh than expected, i.e. 10% growth in 2007 and 2008 with 5% growth in 2009, we estimate that the value of CEZ would increase by CZK 22 per share.
CEZ will start the auction of its electricity for 2006 on Friday. The auction will have 2 rounds ending in August 22 while the result will be announced on August 31.
There is rising electricity demand in the CEE region due to the growth of the local economies and expected closure of capacities in Slovakia, Poland and Hungary during 2006 and 2007. In addition, CEZ said that it expects to cover 62% of domestic electricity demand or some 53TWh, which is slightly above our expectation of 51.2TWh.