CEZ: Average Cross border capacity price to Germany falls by 60% to EUR5/MWh for 2007
Following the cross border capacity auction, the price of the capacity fell by 58% to EUR5/MWh for 2007. Given the Czech 2007 wholesale price of EUR44/MWh for 2007 and the cross border fee of EUR5/MWh for 2007, the total export price comes to EUR49/MWh vs. the current 2007 German forward of EUR54.7/MWh; 12% discount.
Our view: The fall in the price for cross border capacities confirms that demand for exports to Germany is falling due to increasing demand in the Czech Republic and Slovakia accompanied by falling capacities in the region. The assumption is also confirmed by the fact that the cross border fee does not even fill the gap between the domestic 2007 wholesale price of EUR44/MWh and current German 2007 forward of EUR54.7/MWh. This also confirms the assumption of fast domestic electricity price convergence to German price level expected by 2009 at the latest. We expect EUR50/MWh wholesale price level in CZ by 2009~giving us a fair value of CZK1,105/share.