ČEZ admits that it’s in the frame to buy the assets of Vattenfall in Germany, but the big question is how profitable will the German government allow the lignite coal and power sector to be.
It’s a pretty open secret that ČEZ has been trying to read the tea leaves regarding the energy situation in Germany for quite some. And the reading has probably not been too easy. No so many months ago the German government was moving to impose punitive taxes on coal fired power plants in a bid to curb the country’s soaring emissions.
That proposal was shot down in flames. Instead, a new proposal has come out of the government for most of the worst polluting coal-fired power plants to be phased out by 2021 but for a coal plant reserve to be kept ready for emergency use if output from renewables or other power sources falls short of expectations. That proposal, which could take effect from the start of 2016, still has to be approved by parliament.
Apart from the fact that German energy developments and prices set the trend for those in the Czech Republic and rest of Central Europe, ČEZ is avidly following these developments because it is interested in making a bid for Swedish power company Vattenfall’s German assets. These are mostly lignite burning power plants, a few lignite mines, and some hydro plants might be thrown in for good measure.
A bid for these assets only makes sense if Germany’s energy laws mean that at least some of the more efficient coal-fired plants can make a profit. And that was far from clear when the punitive package was being bandied around. Even with German lawmakers talking up the chances of the latest proposal, there still seem to be doubts whether it will be cleared by parliament and emerge unscathed from any scrutiny from the European Union, anxious that illegal state aid is not being offered and fair competition being perverted.
Even so, estimated values of Vattenfall’s German assets are still ranging pretty wide, some put the values at 50 billion to 100 billion crowns. ČEZ says the values are highly speculative before it has gone through the accounts with a fine tooth comb. Even so, the near 70 percent state-owned Czech power giant would not be stretched that much if it had to pay on the higher side of the range.
As ČEZ finance director Martin Novák pointed out in an interview with the Patria finance server on Thursday, the German lignite mines are really a bridge as nuclear power is phased out and renewables pick up the burden as the main energy source. The question though is how long the bridge will be maintained and how profitable it will be allowed to be.
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