Milan Urban, Minister of Trade and Industry said yesterday, following CEZ’s virtual power plant (VPP) auction, 400 MW capacity (3% of CEZ’s total capacity) showing a 17.1% increase in electricity price against 2006 level to EUR42.8/MWh, that household electricity price may growth less than last year (8.9% y/y on the average). In addition, the Prime Minister, Jiri Paroubek, called CEZ’s CEO Martin Roman to explain what will be the electricity price in 2007. According to Mlada Fronta daily, Paroubek reportedly asked Roman to increase electricity prices by less then 17% y/y. The state holds 68% stake in CEZ.
Our view: The result of the VPP auction (showing 17.1% increase vs. 2006 price level and 18.5% increase against the result in 2005) is an outcome driven by the increasing demand for electricity, expected closures in the CEE region, high electricity prices in Germany and high oil price. As mentioned yesterday in our note, we expect the main wholesale electricity auction (result may be known on Aug 15) to show an increase in the 2007 prices slightly lower that in the VPP; in the range of 16-18% against the result last year and 15-16% against 2006 price level. Note that the wholesale price forms c1/3 of the household price, which includes distribution, transmission fees, VAT etc set the Energy regulator in November. We however also noted significant public outcry against the price increase in the VPP and also reminded that the Czech Republic may be heading into early elections, hence electricity prices will become a political issue. Given the above information, we would wait for the result of the final wholesale auction to asses the impact on CEZ’s valuation.
Source: CTK, Bloomberg