CEZ Sells More Future Power Output to Protect From Price Slump

CEZ AS, the Czech Republic’s biggest utility, increased forward sales of electricity to guard against a further slump in power prices.

The share of CEZ’s projected output in January to July next year that’s already been sold rose to 72 percent from 65 percent in the same seven-month period of 2013, the company said yesterday in a statement. Two years ahead the figure rose to 53 percent from 32 percent.

CEZ is attempting to lock in future revenues as Europe’s economic crisis curbs demand for electricity. A further drop in its price is possible, Chief Financial Officer Martin Novak told journalists yesterday after the Prague-based company reported a 16 percent decline in the second quarter.

“CEZ defied most analysts’ expectations and did not raise its profit outlook for this year,” said Josef Nemy, an analyst at Komercni Banka AS, who has a hold recommendation for the stock. Higher pre-sales show “the company correctly anticipated the downward trend in electricity prices and may even fear their further decline.”

RWE AG (RWE), Germany’s second-largest power company, said today that while it’s benefiting from having sold most of its power production two or three years in advance, it expects the positive impact of hedging to decrease year by year.

Power for next-year delivery in Germany, where CEZ sells part of its output, has dropped 17 percent this year and touched a record-low 36.20 euros a megawatt-hour last week, according to data compiled by Bloomberg. The average price of CEZ’s pre-sold output is about 46 euros for next year, 42.5 euros for 2015 and 41 euros for 2016, Trading Director Alan Svoboda said yesterday.

Expansion Plans

CEZ’s expansion plans have been set back by the collapse of Prime Minister Petr Necas’s government in June.

The utility will delay a decision on the supplier of two new reactors at Temelin, originally scheduled for the end of 2013, by at least one year until the new government completes its long-term energy strategy and provides guarantees that the project will be profitable, Chief Executive Officer Daniel Benes said yesterday.

U.S.-based Westinghouse Electric Co. and a Russian-Czech group led by Rosatom Corp. are vying for the contract, valued at about $10 billion.

“Without state guarantees, the project would be lossmaking under current conditions and would very significantly increase CEZ’s indebtedness,” Komercni Banka’s Nemy said in response to e-mailed questions from Bloomberg News.

To contact the reporter on this story: Krystof Chamonikolas in Prague at kchamonikola@bloomberg.net

To contact the editors responsible for this story: Will Kennedy at wkennedy3@bloomberg.net; Wojciech Moskwa at wmoskwa@bloomberg.net

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