CEZ: EC to start assessment of national CO2 allocation plans for 2nd period today

The European Commission (EC) will start assessments for CO2 allocation plans for the 2nd period starting 2008 to 2012 today. This will include countries such as Germany, UK, France and Ireland. Note that the Czech republic has not yet submitted its CO2 allocation proposal for the 2nd period. Our view: Given the steep fall in the price of CO2 credits to current EUR8.9t from the high of EUR32/t following the excess of granted CO2 credits in 2005 making coal-based electricity production relatively cheaper, we believe that the EC will try to create a shortage in the CO2 credits in the second period. We expect that the allocation to Czech Republic for the 2nd period would be reduced given lower capacities compared to the 1st period. For CEZ, we expect CEZ's position to be balanced given higher utilization of the nuclear power plants and renewable of the current coal portfolio starting in 2008.