ČEZ first quarter results increase questions over company strategy

Photo: Filip Jandourek

One result does not make a summer, or a winter, but it can easily dent fragile optimism. And ČEZ’s first quarter results released Tuesday probably achieved that as well as putting a brighter spotlight on the power company’s future strategy.

Photo: Filip Jandourek
Things had been looking up for state-controlled power company ČEZ in recent weeks.

The share price has been firming over recent days and bobbing around the 600 crown mark following the euphoria over the cancellation of the Temelín nuclear expansion project.

But the good news stopped dead in its tracks on Tuesday. First quarter profits fell short of most expectations with net profit down 44 percent at 9.9 billion crowns compared with the first three months a year earlier.

A mild winter, depressing demand for electricity and heat at one of the company’s peak earning periods and electricity prices, in spite of sporadic signs of recovery, still down in the dumps.

And the tap of bad news out of the Balkans was turned on again. ČEZ, like its fellow Czech distribution company in Bulgaria Energo-Pro and Austria’s EVN, are facing renewed pressure from the Bulgarian energy regulator that they abused their dominant market position by overcharging consumers. The companies have 30 days to appeal or face the fines that the local competition watchdog will hand down.

Perhaps none of the above are big surprises, though they took most analysts off guard. The Balkans have been looking like a bad news story for some time with even ČEZ’s massive wind power investments in Romania turning sour after the government dramatically cut back earnings for the so-called green certificates for renewable energy.

The problem for ČEZ managers is that the cancellation of the Temelín has left them somewhat adrift with no major policy to anchor them. All the former renewables investments, for example, were in the past justified as handsome earners that would tide the company over as it pushed ahead with the big nuclear expansion. One Czech project, the massive gas fired Počerady, gas fired power plant that is almost ready to go, now looks like a stranded investment with the 840 MW capacity plant expected to produce just 100 MW of electric power this year by the company because it is simply just uneconomic to run.

ČEZ indeed has some business as usual scenarios, the customary cost cutting here and there, the expansion in some new sectors such as mobile phones, gas, customer services, and the expansion into small power generation technology for hospitals, industrial plants etc. But ČEZ, like the rest of the European energy sector, still appears in the strategic doldrums, without direction and going nowhere fast. You can hardly be surprised that finance minister Andrej Babiš is mentally already allocating the windfall from a full dividend payout from last year’s profits if he can achieve that.

That strategic deficit is not likely to change until the end of the year when the new European climate change targets are set and companies will know a bit better what power sources will pay to be into. Even then, there is a short of shadow hanging over the big European power companies and impression that their best years might already be over with only a few of the nimbler firms able to survive.