CEZ Says European Power Prices Don’t Have Much Further to Fall

CEZ AS, the largest Czech power producer, said electricity prices in Europe probably don’t have much space to fall further.

“We have reached fundamental barriers, with almost all gas-fired power stations in Europe being switched off,” Chief Financial Officer Martin Novak said in an interview in Prague. “A major factor obviously remains what will happen with carbon permits and how commodity prices will develop.”

Like other European utilities, CEZ is battling reduced demand and low power prices, which have been kept down by increasing output from subsidized renewable energy and an influx of cheap coal. The company said yesterday fourth-quarter profit fell by half and introduced less ambitious 2014 earnings targets that disappointed analysts.

Power for next-year delivery in Germany, where CEZ sells about a fifth of its output, tumbled 16 percent last year. The forward contract has extended the sell off this year, falling to a record-low 35.35 euros ($48.35) per megawatt-hour on Feb. 25.

CEZ is committed to maintaining its A- credit rating and expects to reduce its debt-to-Ebitda ratio, currently at 1.9, over the next two years, Novak said. The company still believes it will be able to finance the $15 billion Temelin nuclear project from its own cash flow, he said.

CEZ postponed the decision on a Temelin contractor until at least next year and is asking the Czech government to come up with some form of guarantee that would make the project more economically feasible, a demand the cabinet has rebuffed.

Turkey Partnership

The company has no plan to sell its assets in Turkey, where it’s been in a partnership with a local utility since 2008, Novak said. The fall of the lira and the country’s recent political turmoil have not shaken CEZ’s commitment to the market, he said.

“We have to look at Turkey’s medium- and long-term potential, which is still significantly bigger than in central Europe,” the executive said. “Turkey still remains a very interesting market for us.”

CEZ will maintain its dividend policy of paying shareholders between 50 and 60 percent of earnings this year, Novak said. The state controls 70 percent of the company.

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