ČEZ tries to see bright side as profits tumble for fifth year in row

ČEZ’s annual profits continued their recent slide for 2014 with a further drop expected for this year as well. The upturn is hard to see amid continued weak power prices.

Photo: Archive of Radio Prague

If Czech state owner energy giant ČEZ were a person then he/she would have the following characteristics: asset rich but with a modest mortgage still needing servicing; lots of loan possibilities from the bank in spite of seeing earnings and available cash seriously eroded over recent years, and future prospects very difficult to predict.

The 2014 company results put out this week by the near 70% state owned electricity producer showed a drop in annual profits for the fifth year in a row. In the Monty Python and PR savvy mode of looking on the bright side, ČEZ stressed the fact that the final net profit figure of 29.5 billion crowns came in a bit higher than expected. The bad news is that 2015’s net profit is expected to be another fall, this time to around 27 billion crowns.

That’s hardly surprising since it’s difficult for the company to escape from the basic fact that electricity prices have more than halved since they were around 80 euros/MWh back in the heady days of 2008. The rewards for producing low polluting power in the form of carbon earnings also down.

Whichever and which way ČEZ turns with cost cuts, expansion into localized power plants for big industrial users and new customer services such as mobile phones, the plummeting power price is inescapable.

And while company bosses had hoped last year that the turnaround could come in 2016, partly thanks to higher carbon emissions prices, the prices for pre-sold electricity hardly bears this out. ČEZ sells a large part of its expected production several years ahead, a practice which has usually served to land it higher prices than those currently in force.

But the Czech power producer’s own prices for pre-sold power show the average price slipping from Euros 35.5/MWh in 2016 to Euros 34.5/MWh in 2017 before picking up to Euros 37/MWh in 2018 and Euros 40/MWh in 2019. The volumes of the firm’s pre-sold electricity decline from around 70% of next year’s production to a third in 2017 and descends steeply from then on. Even the most confident traders not that keen to risk their crystal ball predictions more than three years out into the future. That means that the average prices still have plenty of time to be pushed up or down.

Of the two factors pushing prices down and keeping them there, low demand due to economic recession and the ever increasing amount of electricity produced from renewable sources, only the former shows signs of improving. Renewables energy production is destined to develop for decades to come under EU plans and so far the main effect has been to undercut every other power source on the market. And if you think it’s bad for ČEZ, which maintains it has some of the lowest electricity generation costs in Europe, spare a thought for its rivals.

So the bright side might take some finding when the date for the annual results comes round this time next year.