It will be the traders at the auction for the "Virtual Power Plant" themselves who will determine the development of electricity prices in 2007

The interest in CEZ´s electricity corresponds to the power situation on the open European power market, where available production capacities are running low although the demand for electricity is still growing. Owing to a strong economic growth, we anticipate that the demand for electricity in the Czech and SlovakRepublic will increase by another 10 TWh by the year 2012. The demand recorded a 3.3 % year-on-year increase adjuster for weather influences. Due to that we can expect even more distinct increase by 2012, stated Alan Svoboda, CEZ sales manager.

Falling number of power plants and growing demand for electricity in the region

The current and estimated growth in demand for electricity is produced by an influx of foreign capital investments and generally positive development of Central-European economies, not excepting the CzechRepublic. On the other hand, a few thousand megawatts of installed capacity in the region will have to be closed over the next years, due to the end of their life span or their non-compliance with the EU ecological regulations. In Slovakia alone, the Novaky and Vojany thermal power plants will have to be partially closed and two units in JE Jaslovske Bohunice will have to be shut down. That will bring a 16 % decrease in the installed capacity in the country already next year. Slovakia will be forced to import the missing electricity. In the following years, Polish market will face a decrease of up to 5,000 MW in the installed capacity of the power plants that do not comply with the ecological regulations. Hungary is strongly dependent on electricity imports, does not have enough own sources and is not planning to expand its own production capacities in the next few years.

The decrease within Centrel countries (Czech Republic, Slovakia, Poland and Hungary) by 2020 is estimated at 20,000 MW (almost 30 per cent) of the installed capacities. That will require not only massive investments into sources renewal, but also, and mainly, into the construction of new capacities to ensure covering the demand for electricity in Central Europe.

On this account, CEZ Group has commenced its project of sources renewal under which it has already introduced the renewal of the Tusimice or Prunerov power plants, or the renewal of new coal sources in the localities of the present power plants Ledvice and Pocerady. CEZ was able to start this programme a few years ahead of the time that would be neccessary because of the natural end of sources´ life span and on much larger scale due to the fact that modern technologies to be installed are much moreeffective and consequently consume less coal and produce less CO2. The saved CO2 allowances will help finance these investments and make these projects economically returnable. CEZ Group´s experts are looking on other possibilities of electricity production from bituminous coal, gas, nucleus and renewable sources in the CzechRepublic. It is evident already now that full renewal or replacement of the present soft-coal portfolio will not be possible owing to limited fuel reserves, even in case of changed mining limits.

Price development in the neighbouring countries: prices higher and further nearly by 20 %

Electricity price on the German wholesale market has been growing steadily in the last years. It is influenced mainly by growing oil prices, CO2 allowances price and a growing lack of electricity affecting the whole region. Consequently, spot prices reach giddy heights in critical periods, and so do the demands on the transmission grid stability control.

It is anticipated that the growing demand at the time when electricity availability is decreasing will result in the need to use and operate more expensive backup sources as a substitute for the shut-down cheap sources, and so in an increasing pressure on electricity prices. While in 2006 the base load wholesale electricity price on the German power exchange EEX reached the amount of 47.5 euro per MWh, the deals for 2007 for the same electricity are closed at 58.8 euro.

The probable increase in wholesale electricity prices for 2007 has been backed up by the first wholesale electricity auctions and the deals closed at the exchange or e-broker systems in the Central-European region. The trend of growing electricity price was also proved by the result of the wholesale electrical power auction for 2007 which was held by the most important Slovak power producer, Slovenske elektrarne, in June this year. There were total 400 MW in 10 MW units to be sold, and 18 prospective buyers submitted valid bids for total 1,960 MW.

Unexpectedly high demand reflects the significantly growing electricity consumption and production capacities decrease in Slovakia and the Czech Republic, i. e. in the countries that create virtually one power market. The resulting auction price for the sold 400 MW reached 42.8 euro per MWh, while the highest offer was at 44.6 euro. The price level for this year in Slovakia was similar to the level in the CzechRepublic, after conversion at the topical exchange rate ca 36 euro per MWh. The prices in Slovakia will thus be at least by 16 % up on this year.

The prices for the 2007 annual band on the Hungarian wholesale market amounted to 47.55euro per MWh. Compared to the situation in Slovakia the main reason of the higher price level in Hungary is even higher shortage of electricity covered by electricity imports.

The costs of so called strong electricity alone make up ca one third of the resulting price for households. The remaining part consists of taxes and fees for distribution, transmission, system services, support of renewable resources, etc. These fees will be fixed by ERU at the end of this year; their amount is influenced, for instance, by inflation, rising renewable resource benefits and distribution assets which are rising due to the grid development. The fees also reflect costs of so called unbundling, which is a separation of electricity supply and distribution, as required by the EU guidelines.

Eva Novakova, Press Officer CEZ, a. s.

CEZ called the auction Virtual Power Plant according to the decision of the Antitrust Office, which allows CEZ to keep its majority share in SeveroÄŤeska energetika, and which orders CEZ to allow access to its electricity production capacity in the total amount of 400 MW for independent subjects in 2006-2007 under a decision of the Antitrust Office. The amount is reduced to 240 MW in summer months (June, July and August). The virtual power plant is offered by auction by units in the amount of 50 MW, res. 30 MW in summer months.

The auction was called on May 31 this year, the registration expires on July 26 at 3 p.m. The first round takes place on August 2. The auction, which can be attended only by power traders who are financially and personally independent of CEZ, is organized by the independent auction office Fin-servis, a. s. It takes place on August 2, 2006 in the premises of the Ceskomoravska komoditni burza Kladno (Bohemian and Moravian commodities exchange Kladno), nam. Sitna 3105.

25. 7. 2006