Czech 2009 power prices rise above German levels

...trading on the Prague Energy Exchange (PXE), re-inforcing the outlook for a rise in prices in central Europe.

The PXE's 2008-2009 compound future contract showing the market price of baseload power for delivery in 2009 jumped as high as 56.99 euros per megawatt hour (MWh) in continual trading, two euros above German levels .

The price marks a steep 29.5 percent rise over the 2007 baseload price reached in last year's wholesale auction.

"It is very risky for traders to buy at these prices. It is a pure speculative play," said Petr Paukner, head of Coal Energy, which trades on the new bourse.

"The 2009 price is above Germany and one has to take into account that one can import as much power as they want since there are no obstacles to cross-border transmission," he added.

The futures price shot up to 58.86 euros per MWh at the morning's auction stage from the initial price of 56.06 euros set by the exchange's officials.

In the following continual trading, the price fell to 55.50 euros at open before rising to the day's high of 56.99. By 1300 GMT, it was at 56.05 euros, with contracts worth 103 million euros ($142.2 million) for 1.93 million MWh changing hands.

The compound future is based on a freely priced baseload 2009 power delivery and a 2008 element with a fixed price of 50.42 euros, set before trading started as an average of German prices minus the costs of transmission to Germany and Austria.

"The 2008 fix is undervalued versus Germany, which is causing the compound contract to rise above German prices to offset the gap," said Petr Havlicek, executive at Czech-Karbon.

A month from now, this contract will be split up into standard 2008 and 2009 futures, which will both trade freely. Traders then expect the 2008 price to head towards 54 euros.

The Czech Republic is a power exporter, a rare position given growing power shortage across Europe. This had kept Czech prices relatively low, but lately they have converged with neighbouring Germany.

State-owned utility CEZ , a PXE market-maker aiming to sell the bulk of its free power through the new exchange, had previously been selling power through auctions.

Shares in CEZ rose 1.5 percent to 1,115 crowns by 1245 GMT, leading gainers on the Prague equity market.

Last August, CEZ sold 2007 baseload price in its auction at 44 euros, while German prices were already at 56 euros.

Prices in eastern Europe and the Balkans have since jumped due to fast economic growth but also forced shutdowns of nuclear power plants in Slovakia and Bulgaria, under agreements with the European Union.

A Slovak auction in late June sent the price of 2008 baseload power to 62 euros, up by over a quarter from 2007.