Slovakia and Hungary already held an electricity auctions with prices rising by 16% y/y to EUR43/MWh in Slovakia and to nearly EUR47.5MWh. The significant growth reflects falling capacities in Slovakia; i.e. nuclear blocks and coal power plants in 2007 and 2008. Note that CEZ has already open an action for its 400 MW virtual power plant and the result should be know by August 2. The wholesales electricity price in the Czech Republic stands at cEUR36/MWh in 2006. CEZ’s CEO Martin Roman expressed himself that especially recent results in Slovak electricity auction are signal for the whole region as the current electricity price of EUR 36 is similar to that of Czech Republic.
Our view:
The significant electricity price increases in Slovakia and Hungary confirm our view that electricity prices in the CEE region would converge to the German level due to rising electricity demand combined with falling capacities. Currently, forwards for 2007 in Germany are traded at EUR55.3MWh. In our valuation model for CEZ, we expect a gradual price increases from the current EUR36/MWh (2006) to EUR45/MWh by 2010. However, we do not expect the domestic prices to reach similar levels as in Slovakia and Hungary in 2007, the development however may suggest faster and steeper convergence than initially expected.