ČEZ profits slip amidst mixed prospects and diversification moves

08-11-2016

The Czech Republic’s biggest electricity producer, around 70 percent state owned ČEZ, has seen profits fall for the last quarter and for the first nine months of the year.

Photo: Filip JandourekPhoto: Filip Jandourek The net profit for the last three months to the end of September dropped to 0.9 billion crowns (around 32.2 million euros). After factoring out exceptional items, the third quarter figure rises to 1.9 billion crowns. For the first nine months of the year, ČEZ’s net profit is down around 10 percent at 16.7 billion crowns.

There has been a mix of good and bad news for ČEZ over the last quarter. Electricity prices, after a sustained downward slide, have climbed in recent weeks. There are a few factors that have been in play here: a drop in domestic coal production in China, interruptions to Australian coal exports, and outages at French nuclear power plants.

Sadly though, ČEZ’s crystal ball gazers see these as largely due to temporary factors and the company’s own forward sales of electricity testify to a renewed slide. The average price of pre-sold power for 2017 comes in at 31 euros/MWh but that drops to 29 euros/MWh for 2018 before bouncing back slightly to 30 euros/MWh for 2020. And, indeed, it’s only really in 2020 and after that ČEZ bosses see some real likelihood of prices advancing strongly. Part of those hopes are based on the reform of the European emissions trading system taking effect by then.

ČEZ’s recent profits and generation figures have been hit by extended outages at both theTemelín and Dukovany reactors, partly due to the long haul checks on pipe welds at both plants and partly due to problems at the turbine at the second Temelín reactor. The company reckons that the weld checks and associated outages have cost it around 3.0 billion crowns this year. The problems already began in 2015 and are due to continue in 2017, although ČEZ hopes that the disruption and lost production and earnings will be limited.

On the bright side, most of the shortfall on the nuclear side has been compensated by higher output from coal-fired and gas-fired power plants. The coal-fired output could have been even higher if not for continuing teething problems with the Ledvice power plant.

And ČEZ is pushing into new areas outside conventional power production and supply where it sees the chance of boosting its profits. One of the main pillars of the expansion is the company ESCO, which aims to supply tailor made energy solutions to small, mid-sized, and major companies such as those seeking to set up their own local decentralized power sources.

After launching in the Czech Republic, ČEZ is now looking to expand the concept to next door Poland and its will also in the near future test the markets in Romania and Bulgaria, where the Czech company is already present with other energy activities. And ČEZ is also looking to push the ESCO concept in Western Europe as well where it believes it has a head start on other companies who might be mulling a move into the same field.

08-11-2016