Given the high demand for electricity for 2007, CEZ will increase its net production to record 57 TWh after elimination of its own consumption compared to a previous record of 56 TWh. Also, CEZ will cut its exports to Germany and Austria in order to maximize its deliveries on the domestic market. Contracts in Germany and Austria will be covered by electricity purchased at these markets.
Our view:
The record net production in 2007 is in line with our forecasts. Elimination of exports should lead to lower cross border capacity prices to Germany, which stand at cEUR12.5/MWh in 2006 and hence support fast convergence of domestic electricity prices to the German level, assuming that all production goes to the domestic market; i.e. Czech and Slovak. Note that 2007F wholesale electricity price rose by 16.87% y/y. The 2007F price of base-load, forming 70% of wholesale electricity, increased by 19.5% y/y to EUR 44.1/MWh, which is still 23% below the current 2007F price level in Germany (EUR 57.4/MWh).