The plan will be submitted to the ministry later this month, with trading expected to begin in July.

Exact details of the BCCP's new Commodity Exchange have not been released, but analysts do not expect the exchange to become a regional competitor with the large and well-established energy exchanges in Germany and Austria. Indeed, the exchange may simply prepare the Czech market — and the country's dominant and government-owned energy utility, ČEZ — for eventual competition on these exchanges over the next decade.

The government's primary motivations for establishing the exchange are a desire to make transparent the market forces that influence the price of electricity, and the need to allow ČEZ and other suppliers to trade their production continually, ministry spokesman Tomáš Bartovský said.

"The current method [used by ČEZ] of auctioning electricity seemed to quicken the growth of electricity prices in the last few years," he said. "We cannot guarantee that the new system will make electricity cheaper, but it may slow down the fast growth of recent years."

Household electricity prices are expected to be 7.9 percent higher this year than in 2006, held down by government regulations. The wholesale price of electricity is expected to increase 16 percent on average.

The exchange would replace an awkward auction system that has been in place for the past two years.

ČEZ held annual auctions of 400 megawatts of its electricity supply, a condition imposed by the Anti-Monopoly Office on the company's purchase of distributor Severočeská energetika. Mostly local and foreign traders, distributors and individual corporate customers attended the auction.

"The auction was similar to trading on an exchange, but only once a year," ČEZ spokesman Ladislav Kříž said.

The price paid by the winning bidders was then used to set the rest of the company's electricity prices. The small portion of supply offered by ČEZ in the auction created a distortion, however. Last year, demand exceeded the capacity offered by an order of five. As a pricing system, the auctions were a failure. A new strategy was needed.

A coming convergence

The Czech Republic's European Union-mandated liberalizations of the past several years allow electricity capacity to be traded on the domestic market. Energy producers must be separate legal entities from distributors, who now have equal access to the entirety of the country's electrical grid, operated by a government-controlled agency. These distributors bid against each other for electricity contracts and consumers, down to individual households, can opt to choose among distributors, allowing for competition.

In a country like Austria, each province's distributor is separately owned, which makes for natural competition, said Rudolf Schneider, co-chair of Energy Exchange Austria. This is unlike the Czech Republic, where ČEZ owns 75 percent of distributors, though they are now separate legal entities. Ideally, these companies will compete against each other for electricity contracts when the Commodity Exchange opens.

Tibor Bokor, an analyst at Wood & Company, while impressed with the BCPP's openness to new stock issues, wonders if the exchange will be able to foster the competition it needs.

"Whether the exchange will be effective depends on if you attract enough brokers and traders," he said. "From the point of view of brokers, I'm skeptical."

David Marek, an analyst for Patria, feels the BCPP is taking steps in the right direction, and expects the electricity exchange to draw "two or three large suppliers in the region," he said.

ČEZ and the power distributor E.ON, which controls a minority of the distribution market, are enthusiastic supporters of the exchange, which will allow them to illustrate why prices will continue to rise if no additional power plants are built, Bartovský said.

With no plants due to come online in the next few years and increased regional energy demands that will come from Slovakia after its nuclear power plant at Jaslovské Bohunice is closed, Czech energy prices should rise to match Austrian and German prices, said Jiří Gavor, an industry analyst at ENA Limited. Last year already, electricity was cheaper for industrial customers in Austria than in the Czech Republic.

Electricity can be traded between Germany and Austria without any additional obligations, said Schneider, of Energy Exchange Austria. There is enough capacity to go around and a well-integrated grid that allows electricity to travel large distances. Schneider expects the Czech Republic, which currently restricts energy exports, to be integrated into this supranational energy market.

"The EU wants to develop regional markets, which means restrictions should be released as far as possible," he said. "This will be an issue in the near future."

Gavor said he expects that the Austrian and German exchanges will be the primary influencers of energy prices in the region, with the BCPP's energy exchange eventually merging with a larger player.

"The BCPP's energy exchange will help establish proper pricing mechanisms for the country," he said. "But, in five years, I can imagine it losing importance."