CEZ Sells More Future Power Output to Shield From Price DropKrystof Chamonikolas
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 expected next-year production sold in January to July rose to 72 percent from 65 percent in the same seven-month period of 2012, the company said yesterday. Two years ahead the hedging 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 said its second-quarter profit tumbled 16 percent from a year earlier.
“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,” he wrote in a report to clients yesterday.
RWE AG, 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.
The company’s stock rose 0.2 percent today to 444.90 koruna at 9:33 a.m. in Prague.
CEZ’s expansion plans have been set back the falling prices and the collapse of Premier 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.