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CEZ confirms it bet on EUA set-aside

12 Nov 2012 16:06:49 | edcm

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CEZ changed its hedging strategy this year on the hope that a EUA set-aside would be enforced, it has said.

The Czech incumbent held off selling a proportion of its forward electricity contracts in the first half of the year in the hope of a price boost. In August, the company reported that its total hedged production figures for 2013, 2014 and 2015 were 65%, 32% and 9%, respectively, from a total of 55-60TWh of capacity. This was in stark contrast to its 2011 strategy, when its hedged levels of 90% for 2012, 36% for 2013 and 9% for 2014 in the first half of the year (see sister publication EDEM 10 August 2012).

Yet in its Q3 2012 results, reported in November, CEZ revealed its hedging was up for normal levels - 94% for 2013, 48% for 2014 and 20% for 2015, from a total of 50-55TWh of capacity.

"Normally, utilities have kind of 'value at risk' levels in their forward hedging policy that they need to close at a certain period in time," one analyst told ICIS. "In CEZ's case, there are some other issues to be taken into account: the sale of one power plant.

"Also, CEZ's management believed that power prices would go up in the second half of the year on the back of stricter CO2 regulation. They had bet on higher prices, but now have to reduce the value at risk."

A decision on the possible delay to carbon allowance auctions was supposed to be settled during the EU climate change committee meeting in September. But the issue has still not been resolved (see EDCM 3 October 2012), and is due to be discussed again this Wednesday.

"We don't see any strong or positive signals for price increases," said Alan Svoboda, CEZ's executive director of sales and trading, in the Q3 results conference call. "We don't want to bet on any short-term improvement that would be worthwhile waiting for."

The average price of the Front-year Baseload electricity contract in the first quarter of this year was €47.49/MWh, which is 15% lower than the average price of the equivalent product in Q3 2011.

"The amount of forward electricity contracts sold during the first half of the year 2011 was exceptional because of the high price of electricity caused by the German nuclear exit," CEZ spokeswoman Barbora Pulpanova told ICIS.

"But I can also confirm that we were hoping for stricter CO2 regulations. The ongoing steps of the European Commission are slower than we expected, but we still believe they will finally lead to the remedy."

In its Q3 results call last week, the company also said it had reduced its estimated volume of electricity generation from 55-60TWh to 50-55TWh. This is partly due to an expected reduction in coal supplies because of its ongoing dispute with Czech Coal. KM

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