Over-hedged

One of Europe's most active players in the carbon market has gone conservative

Welcome to Carbon Risk — helping investors navigate 'The Currency of Decarbonisation'! 🏭

If you haven’t already subscribed please click on the link below, or try a 7-day free trial giving you full access. By subscribing you’ll join more than 3,000 people who already read Carbon Risk. Check out what other subscribers are saying.

You can also follow my posts on LinkedIn. The Carbon Risk referral program means you get rewarded for sharing the articles. Once you’ve read this article be sure to check out the table of contents.

Thanks for reading Carbon Risk and sharing my work! 🔥

---

Estimated reading time ~ 4 mins

Czechia has the most emissions intensive power sector in the EU on a per capita basis, pumping out 3.3 tonnes of CO2 per person, more than twice the EU average. The central European country also has the second highest power sector emissions intensity. With coal accounting for 40% of the country’s electricity generation, the power sector emits ~450 grams CO2 per kWh. Only its more coal dependant northern neighbour, Poland has a higher emissions intensity.

As befits a country so dependant on fossil fuels, the majority state-owned utility CEZ, has historically been very active in the EU carbon market. Their financial statements give some insight into their past EUA hedging strategies their expectations for future generation requirements, and hence likely EUA hedging demand.

It’s latest financial results show that CEZ generated some 51.5 TWh of electricity in 2023, including nuclear (30.6 TWh), renewables (3.6 TWh), and fossil fuels (17.5 TWh). EU ETS covered generation fell by 13% between 2022 and 2023; the decline primarily the result of lower coal-fired electricity generation in Czechia (-10%). Despite the drop in output, it still beat expectations for 2023 by ~5% versus its published forecast twelve months ago.