German Chancellor, Angela Merkel announced that Germany will increase spending on new power plants to stop rising electricity prices, with E.ON and RWE to invest about EUR30bn, while renewable energy suppliers another EUR40bn by 2012. However, E.ON and RWE had already announced a plan to invest EUR40bn into power plants and another EUR40bn into networks by 2020. Its not clear whether the Merkel statement indicates any incremental rise in planned investment. Given the outlook for rising investment into new capacity, we expect German electricity prices to come down from their current levels of EUR64.75/MWh for 1Q07. On the back of the statement, the stock prices of German utilities traded down yesterday and this could be seen as negative for CEZ as well.
The CDU continues to support extending the lifespan of German nuclear power plants beyond 2021, but the issue remains open, due to the opposition of Social Democrats. However, most Germans now support the lifespan extension. We believe that the life of nuclear power plants will be eventually be extended, due to continuously increasing demand for electricity and high oil and gas prices. Of course, the EU plans to lower its dependence on oil and gas imports from third countries. As this is a longer-term issue and talks are ongoing, no immediate stock price impact is expected.