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Czech utility CEZ takes Q2 hit from hedged electricity, emissions sales

Prague — Czech utility CEZ's second quarter revenues and profit dropped sharply in spite of increased electricity production compared with the same period a year earlier as it was hit by increases in wholesale electricity and emissions prices after forward selling production at lower levels, it reported Tuesday.

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Electricity production rose to 14.6 TWh compared with 14.4 TWh between April and June 2017.

Most of the increased production came from CEZ's nuclear power plants, Temelin and Dukovany, with Q2 nuclear production rising to 7.8 TWh while coal-fired production dropped to 6.9 TWh.

CEZ said it had better optimized generation at the nuclear plants which have now shown a 7% increase in overall production for the first half of the year at 14.9 TWh. Coal-fired production is down in the first six months by 11% at 13.5 TWh. That translates into an overall 3% half year drop in generation from CEZ's so called traditional energy segment with gas fired generation also down.

CEZ expects a rebound in the second half of the year for its coal-fired capacity with generation rising to 15.3 TWh, pointing to commercial operation of its new Ledvice-4 unit and shorter outages at its Tusimice-4 unit. Production from its Melnik at hard coal Detmarovice units will be lower though, it added.

Generation from its nuclear plants will stay on course though the second half of the year with another 14.9 TWh expected in output.

Electricity generation from CEZ's new energy assets, mostly renewable, dropped in the second quarter to 0.4 TWh compared to the 0.6 TWh in the first three months. Most of that fall was due to lower production from its Romanian wind farms. CEZ expects full year generation from its renewable portfolio to fall to 1.9 TWh in 2018 from the 2.0 TWh in 2017 due to continued low production from the wind farms and in spite of new wind farm capacity added in Germany.

CEZ second quarter revenues dropped to Koruna 40.9 billion, compared with Koruna 48.1 billion (Eur1.88 billion) in the same period in 2017. And net profit for the quarter dropped sharply to Koruna 0.5 billion taking half year net profit to Koruna 7.7 billion, down 54% compared with the first half of 2017.

CEZ said a large part of the fall was caused by it having hedged its electricity sales at lower levels while wholesale electricity prices climbed by around 20% in the first half of the year. The power company said the hedges for electricity and carbon emissions.hit its EBITDA by Koruna 3.2 billion, This would drop to Koruna 1.6 billion after further adjustments with electricity eventually to be delivered at higher prices than stipulated in hedging contracts, it added.

Sales of gas and electricity were hit by lower margins as a result of having to pay for more expensive purchased power, CEZ added, pointing to a Koruna 700 million drop in profit from its Czech sales division as a result. Distribution earnings rose though thanks to higher allowed regulated revenues.

CEZ said the hit from its hedging operations should largely disappear in the second half of the year and it would be better positioned to profit from the higher wholesale electricity prices. It maintained its full year profit forecast at between Koruna 12 billion and 14 billion. Risks for the rest of the year included availability of generation capacity, no further details were given, and possible new acquisitions of energy service and renewable assets.

CEZ said said it had forward sold, or hedged, 77% of its 2019 electricity production at an average price of euros 32.8/MWh by the end of July. Some 48% of 2020 production has been forward sold at an average price of Eur36.1/MWh and 19% of 2021 generation at an average of Eur35.6/MWh.

-- Andreas Franke, andreas.franke@spglobal.com

-- Chris Johnstone, newsdesk@spglobal.com

-- Edited by Maurice Geller, maurice.geller@spglobal.com