The price of CO2 credits fell to EUR13.6/t on Friday falling 54% last week to their historical lowest level. As a result, Germany 2007 forward fell to EUR516/MWh (-14% w/w). The CO2 credits were falling after the Czech Republic, France, Belgium, Holland and Estonia reported a surplus of the credits for 2005. The market is still, however, awaiting the result of CO2 balances from Germany, Italy, Poland and the UK, which are the biggest polluters; the deadline is May 15. In any case, the future development of CO2 credits price may remain an unknown even ahead of the second round of allocations for 2008-2010 as the EU is expected to cut the national allocations.
CEZ has been negatively affected by the CO2 development, nevertheless, we repeat that fundamentally, the impact on CEZ is rather limited in the near term and positive in the mid-term as (i) CEZ has budget its surplus credits at cEUR20 per ton, (ii) its 2006 CO2 needs will be just covered by its balance and (iii) the company would have to be buying CO2 credits given its rising production in 2007. The negative is impact is on CEZ’s exports as these are realized at a lower prices but the size of exports is falling. Therefore, we believe that its more the negative sentiment rather than the fundamentals as the European utilities have been stable on Friday and more over these companies are more sensitive to the electricity price drop given the fact that the Czech electricity prices are significantly below those in Germany. Therefore, we reiterate our Buy recommendation.