ANNUAL REPORT - HSE

ANNUAL REPORT HSE | BUSINESS REPORT
52
Continental Europe
Characteristic of the year 2008 were extremely quickly
growing prices of oil and other energy products in the
first half of the year. The price of oil in July reached
$145 per barrel. Consequently, the prices of electricity
and CO 2
coupons followed the upward trend.
In 2008 the transmission capacities between Slovenia
and Italy were leased at extremely favourable
conditions at the annual level. During the year, HSE
also successfully participated in monthly auctions to
secure transmission paths from the same direction,
but was less successful in acquiring transmission capacities
at other Italian borders, as the prices were
extremely high. In December, trading on the French-
Italian border opened.
In 2008 a significant novelty in Continental Europe was
the foundation of a branch office in Slovakia. The main
purpose of this foundation was to fill the gap between
the Czech Republic and Hungary, thus enabling energy
flow from the Czech Republic, which will remain a net
exporter of electricity for a number of years, through
Slovakia and Hungary to SE Europe, which is already a
net importer of electricity.
Towards the end of 2008 it turned out that the decision
to establish the HSE Bratislava Branch Office was the
right one, as HSE exploited a number of trading opportunities.
In 2008 trading on the Czech market was more moderate
on account of an unfavourable relationship
between the Czech and German electricity prices.
In February, the company became a member of the
Prague power exchange PXE, thus gaining mainly the
possibility to purchase and sell electricity for a longer
period. The downside of the said exchange is the still
relatively poor liquidity. However, the power exchange
provided for the possibility of trading in the Slovakian
market, which will become interesting once Slovakia
cancels the export fee hindering a greater expansion
of trading on this market.
SE Europe
In the past year both the prices of short-term and longterm
electricity supply grew in SE Europe. Coinciding
with the closure of two reactors at a Bulgarian nuclear
plant at the end of 2006, Bulgaria cut electricity exports
and in early 2008 prohibited the export of electricity to
the region, despite sufficient surplus production capacities,
in order to maintain low prices in the domestic
market. The ban on export lasted for two months, but
introduced uncertainty about the source of cheap energy
from Bulgaria, which was reflected in a rapid price
increase of supply in other countries of the region.
In the past year HSE took part in auctions for crossborder
transmission capacities in most SE European
countries, which contributed to greater trading volume
in those markets. The exception was Bosnia and
Herzegovina, where a registered licensed company is
now required for participation in auctions. This condition
did not exist before. Trading in SE Europe in 2008
was influenced by the events in the Hungarian market.
Trading in this market became more transparent and
liquidity is rising, also due to the providers of trading
via portals. The Hungarian market was still very important
for HSE, however, trading volumes were below
last year's level as a result of the inability to create a
long-term electricity portfolio, restrictions on the sale
of electricity placed by the Hungarian Energy Agency
(MVM), and the introduction of an export fee in the
amount of approximately €17/MWh.
The rise in trading volumes in this area at the start of
2008 was still impeded by various costs and restrictions
of electricity transit, which were, contrary to the
European practice, imposed by transmission network
system operators on electricity traders. In mid 2007,
most SE European countries signed the ITC mechanism,
which abolished the majority of transit duties.
Certain countries have maintained some of the duties,
but have done so under different names and to
a smaller extent. The trend to close the markets and
restrict trading by means of duties and other instruments
escalated further in the second half of 2008.
Owing to high economic growth in the region, far higher
than in western Europe, consumption also grew faster
in this area. The relatively old and poorly maintained
production facilities, in which hydro production accounts
for a large share, heighten the volatility of supply
prices in this area. Accompanied by poor hydrology,
the prices of long-term contracts in the SE markets
last year substantially exceeded those in Continental
Europe and in the Italian market in spite of the fact that
some producers in this part of Europe are not involved
in the CO 2
trading scheme (only producers with their
own production units in EU member states participate
in the scheme).