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Energy exchange hoped to up transparency

Power trading platform could also boost prices

By František Bouc
Staff Writer, The Prague Post
July 18th, 2007 issue

The new Prague Energy Exchange (PXE) is expected to make prices more transparent, but it could also push customers’ electricity bills up as much as 10 percent in the next year.
The Prague Stock Exchange (BCPP) opened its new power trading platform July 17. It is the first such market in Central and Eastern Europe to make electricity a subject of trading.
As a result, power prices are expected to rise to higher international levels, driven by supply and demand in the European Union, business analysts say.
In addition, state-controlled ČEZ, the dominant power producer, will face more competition but will also draw more speculative investment, according to analysts.
The exchange will bring more transparency to how domestic power prices are set, said PXE General Secretary David Kučera.
Electricity prices in the Czech Republic and in Poland are currently the lowest in Europe.
More power exports
In the past, wholesale electricity trading was done through auctions staged by ČEZ every six months in which power dealers auctioned off packages of megawatt hours of electricity.
As a result, power prices failed to reflect immediate developments in the power sector.
“Power dealers knew they only had two opportunities a year, and so prices were pushed high,” said BCPP General Secretary Petr Koblic. “The energy exchange should eliminate that practice.”
Prices are unlikely to decrease under the new exchange, though, because foreign traders and investors will most likely engage in speculative trading.
Companies from the Czech Republic, Slovakia, Germany, Switzerland and the United Kingdom are expected to participate in the market. Apart from energy companies, investment banks are anticipated to be involved. Given the still-low power prices here, some companies might buy electricity on the BCPP and export it abroad.
“We can expect some traders will be challenged by advantageous export opportunities,” Koblic said.
The PXE will speed up the process of aligning Czech power prices with those in other countries, said Zdeněk Duba, general director of the Dalkia energy company. Dalkia is expected to be among the main power sellers on the PXE.
PXE officials have created a two-year commodity future contracts package with a preset price cap of 50.42 euros ($69.58/1,429 Kč) per megawatt hour for the first month of trading to lessen possible price shocks brought on by speculators.
Power packages for 2008 and 2009 will be separated after Aug. 25 and the price cap will be removed. From that point, power trading on the PXE will be free of initial regulations.
In addition, power grid operator ČEPS will not announce prices for energy transmission until the fall, Kučera said, which will make it harder for would-be exporters to calculate final costs of possible energy exports.
“This should guarantee that power to be used mostly domestically will be traded on the PXE in its early days,” he said.
Tibor Bokor, a market analyst at Wood & Company, predicts a rise in domestic power prices as a result of the PXE’s launch.
“Power prices are higher all over Europe, so it’s highly likely Czech power prices will rise to meet German levels,” Bokor said.
Current power prices in Germany amount to 55 euros per megawatt hour.
Business analysts predict Czech wholesale power prices    will rise about 14 percent next year.
The rise in wholesale prices is expected to trigger a rise in household power prices. Household electricity prices will be calculated 50 percent based on PXE development and 50 percent on price caps imposed by the national Energy Regulation Office for power transmission fees charged by energy companies and grid operators.
As a result, power prices for households are expected grow some 10 percent next year.

František Bouc can be reached at fbouc@praguepost.com


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