Central European power prices

Transcription

1 Europe Equity Research Utilities Research Analysts Vincent Gilles vincent.gilles@credit-suisse.com Mulu Sun mulu.sun@credit-suisse.com Zoltan Fekete zoltan.fekete@credit-suisse.com Mark Whitfeld mark.whitfeld@credit-suisse.com Michel Debs michel.debs@credit-suisse.com Stefano Bezzato stefano.bezzato@credit-suisse.com Mark Freshney mark.freshney@credit-suisse.com Central European power prices SECTOR FORECAST Lower CO2 leads to lower power prices We have rebuilt our full carbon model that defines our view on power prices. Our model shows that ETS is broken and that the theoretical value of an allowance is zero; thus, the only value in ETS is the option value. Market prices and model-based prices are similar. We believe that the EU would have to remove 1.4bn+ allowances permanently (or c2% of the total Phase III supply of 6.8bn) to create the conditions for a sustained recovery in the carbon price. At best, it seems that the EU will set aside 1.4bn credits. We now assume a carbon price of 6.9/t (nominal) in 213E and 7.4/t (nominal) from 214E. This, together with the recent weakening of commodity prices, has led us to downgrade our power price estimates. For 215, we now assume close to 5/MWh (nominal) versus 57.6/MWh, owing primarily to lower carbon and commodity prices. This is the third time we have reduced our power price forecast in 212. We cut our power price estimates by 9% on average over E. Our new 211A 15E (nominal) CAGR is a negative.4% (vs. +3% previously). Our 215 price estimate is c18% below our post-fukushima estimate. There has been no evidence that any significant capacity has been removed or will be in sufficient scope to influence power prices. We maintain our view that supply /demand in Central Europe will not balance before 219/2E. Coal is king: The difference in profitability between coal and gas is widening. While we expect Clean Dark (coal) and Brown (lignite) spreads to remain healthy, we estimate that Clean Spark spreads (CSS gas) will continue to be negative until 219E (- 5.6/MWh in 215E). Given most generators in Europe tend to sell their volumes forward, the drop in prices in 212 only has a minor impact on their profitability, while lower carbon helps 213. However, our current estimates provide a negative background for companies such as GDF Suez (Underperform, TP 15.5) with their large gas fleet and favourable to RWE (Neutral, TP 37) which benefits from rising margins on lignite generation. Figure 1: Credit Suisse power price estimate old vs. new Power prices (Nominal) 211A 212E 213E 214E 215E Mar-12 (Old) Jul-12 (New) Change (%) - (6%) (11%) (8%) (13%) Source: Company data, Credit Suisse estimates. DISCLOSURE APPENDIX CONTAINS ANALYST CERTIFICATIONS AND THE STATUS OF NON-US ANALYSTS. U.S. Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION TM Client-Driven Solutions, Insights, and Access

2 Key charts Figure 2: Credit Suisse new vs. old forecasts A Jul-12 Jan-11 Jul-11 Source: Credit Suisse estimates Figure 4: Clean Spark Spreads Figure 3: Credit Suisse forecasts vs. market Jul-12 market forward Market forward 5-June-12 base case YTD (EEX) as of Source: EEX, Credit Suisse estimates Figure 5: Clean Dark Spreads CSS July 212 CSS Apr CDS July 212 CDS Apr 212 Source: Credit Suisse estimates Figure 6: Clean Brown Spreads Source: Credit Suisse estimates Figure 7: Credit Suisse central case carbon assumption /t CBS July 212 CBS Apr 212 Old CS New CS Source: Credit Suisse estimates Figure 8: Capacity to erode very slowly Source: the BLOOMBERG PROFESSIONAL service; Credit Suisse estimates Figure 9: Coal remains dominant 12.% 1.% 8.% 6.% 4.% 2.%.% -2.% -4.% -6.% -8.% -1.% -12.% 21A 211E 212E 213E 214E 215E 216E 217E 218E 219E 22E Central European Clean Dark - Spark Spread 25 2 Coal is cheaper to run Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Gas is cheaper to run RM as a % of NGC Source: Credit Suisse estimates RM with old plant retirement 213 CSE Source: Thomson Reuters; Credit Suisse estimates Central European power prices 2

3 Lower carbon and fuel lead to cut in power price forecast This report provides (a) an update on the carbon pricing situation in Europe and (b) our quarterly update on Central European Power prices. Our conclusions are the following: On carbon According to our new model, while the press (e.g., Bloomberg, PointCarbon) suggests that the EU could set aside 1.2bn to 1.4bn of allowances to get carbon prices back close to mid-teens to early 2s /mt, we believe that only permanent cancellations will work. We believe the current forward price represents a form of option value a similar level that we derive from our model. We use 6.9/t (nominal) in 213E and 7.4/t (nominal) from 214E. We expect the price of carbon to be significantly volatile in the near term. On power prices. We update our Central European power price model: We cut our power price estimates to 215E for Central Europe by an average of 9%. The main driver of this downward revision is the change in our commodities and carbon price assumptions. Our 215 price forecast is 5.3/MWh ( 48.1/MWh in 212 money) vs. a former 57.6/MWh (-13%). Our 211A-15E CAGR is a negative.4% (-1.8%pa real) vs. +3% previously. Credit Suisse estimates are now on average c.5/mwh above the current forward market. The recent downward trend in commodity prices and the weak carbon price outlook should benefit the dirty generators in our analysis: Clean Brown and Clean Dark Spreads have increased further (we estimate 7/MWh and 27/MWh in 215, respectively, see Figure 5 and Figure 6), while Clean Spark Spread remains negative until 219E (- 5.6/MWh in 215E). Current lignite margins, which are on the rise, look attractive. We estimate the Clean Brown Spreads (CBS) will peak at c 28/MWh in 213 and remain above 26/MWh for the foreseeable future unless carbon price recovers from current levels. Figure 1: Changes to Credit Suisse power price forecasts (215E nominal) 7 Mar-12 Load curve adjustment New oil New coal New gas New carbon Jul (1.) (1.4) (8.1) Source: Credit Suisse estimates Central European power prices 3

4 EU ETS: Oversupply unlikely to go We change our view on EU ETS price and abandon our previous assumption that some form of national political intervention will set carbon prices in the next few months. Our new carbon model suggests that 1.4bn allowances have to go permanently to have a durable impact on carbon prices. Press reports (e.g Platts) state the EU will set aside up to 1.4bn of allowances. In our view, this might curb speculation and lift the carbon price temporarily. It would, however, not be sufficient to bring back carbon prices to a level that would encourage coal-to-gas switching (i.e. above 2/mt). In our power price forecast, we use EUA market forwards as of 5 June 212. These are in line with our base case carbon price assumptions, see Figure 13. We believe the price of carbon will be volatile in the near term. ETS is broken The EU ETS is significantly oversupplied due to a design flaw: on the one hand, it relies on an inflexible supply of allowances (combined with a generous recognition of non-eu credits) while, on the other, the demand for those allowances has declined over the past few years as a result of weaker economic activity and increased efficiency in the economy. It could be argued that ETS is a success: carbon emissions in Europe particularly from generators have declined, but probably not because of ETS. The CEO of E.ON said in the course of 211 that the system is bust (source: Bloomberg). He may well be right. We believe EUA should be currently priced at zero given the scope of oversupply. This would be a reflection of the theoretical cost of abating carbon. In our opinion, the spot price of carbon around 6.5/t (as of 5 June 212) represents an option value reflecting an assumption in the market that some form of intervention will come. An overview of the system supply and demand far from balanced Figure 11 shows: The demand side of the EU ETS system: Historical and forecast emissions of CO 2 under the EU ETS. The supply side of the EU ETS system: Allowances/permits distributed for free to companies operating under the EU ETS. Allowances that have been and will be auctioned by countries participating in the EU ETS. From 213, most of the auctioning process will be via a central EU ETS platform. International certificates CERs and ERUs related to the Kyoto system which are exchangeable, with qualitative and quantitative restrictions, for EU ETS allowances. New Entrant Reserves (NERs) auctioned separately by the European Investment Bank. Figure 11 illustrates our view that the combined Phase II and Phase III of EU ETS is oversupplied. We forecast that Phase II, even under a 12% yoy increase in emissions in 212, will end up with an excess supply of c1.87bn allowances. This, we think, will not be absorbed by potential demand throughout Phase III: As shown in Figure 11 and Figure 33 Central European power prices 4

5 in Appendix 2, even under our most optimistic/aggressive emissions forecasts, Phase III would end with a cumulative net demand of only c1.5bn allowances, leaving almost.3bn excess (i.e. unused) allowances in the system. Figure 11: EU ETS components of supply and demand in million tonnes of CO 2 equivalent, unless otherwise stated Surplus of permits: 3, 1.87bn 2,5 2, 3, 2,5 2, 1,5 1, 5 Net demand : 1.49bn 1,5 1, 5 25A 26A 27A 28A 29A 21A 211E 212E 213E 214E 215E 216E 217E 218E 219E 22E Free allowances Auctions CER (CDM) and ERU (JI) NER Emissions Source: European Commission data, Credit Suisse estimates In simple terms, this means that unless the EU Commission intervenes with sufficient strength in Phase III, the carbon price will remain weak. Various news sources (Bloomberg, PointCarbon) have suggested over the past few weeks that the EU Commission was considering setting aside between.5bn and 1.4bn of allowances. There is also a debate as to whether the EU Commission has the mandate to do so. Our understanding is that the EU is able to remove as much as it thinks is required but the political implications are significant given, for instance, the current Polish opposition to any action. Emissions even a strong rebound would not be enough to lift the carbon price Final 211 statistics reveal that carbon emissions have declined yoy and that they have de-coupled from industrial production in EU27. We expect total emissions to grow: Our current base case scenario assumes a re-coupling of positive industrial production growth and carbon emissions. Figure 12 shows three future emissions scenarios which we believe are relevant. An IP (industrial production) tracking scenario which we consider most likely, A scenario with 2% reduction in emissions by 22E: this is broadly in line with the EU s energy efficiency policy, A scenario with 3% reduction in emissions by 22E: although discussed previously on various EU platforms, we consider this possibility as unlikely at present. Central European power prices 5

6 Figure 12: Carbon emission scenarios under EU ETS in million tonnes of CO 2 equivalent, unless otherwise stated 2,4 2,2 2, 1,8 1,6 1,4 2,119 1,873 1,939 1,886 Historical emissions Emissions tracking EU's industrial production 25 emissions level reduced by 2% by emissions level reduced by 3% by 22 28A 29A 21A 211A 212E 213E 214E 215E 216E 217E 218E 219E 22E Source: the BLOOMBERG PROFESSIONAL service, Credit Suisse estimates What happens to the CO 2 price? With no political/regulatory intervention, we see no revival in EUA prices, no matter how optimistic a view we take on CO 2 emissions. Set-aside measures will not suffice, in our view We believe that the measures set aside, almost irrespective of their quantum, would not help. Why? Because this would only be a temporary measure and allowances would find their way back into the market either in one shot or over a period of time. In the meantime, we think operators under the EU ETS would be able to adjust their needs for allowances to the re-entry of credits. Our model shows that a set-aside of at least 2bn allowances would be required to lift prices just temporarily, see Figure 13. (We assume here that.5bn permits p.a. would be retired between 213 and 216 with.5bn allowances returned to the system every year between 217 and 22). Therefore, we see no reason for the theoretical cost of carbon to rise substantially. This is reflected in our base case price scenario, with the EUA, rising from 6.5/t in 212E to 9.5/t by 22E in real terms while maintaining the same option value as it currently has and encapsulating a 5% cost of carry per annum. These price levels are in line with EUA forward contracts as of 5 June 212. Allowances have to be cancelled permanently to achieve a lasting effect Although we see set aside as the EU s most likely move, we believe 1.4bn allowances would have to be cancelled and not just set aside temporarily to drive the carbon price much higher. Figure 13 shows the impact this measure could have on Phase III. Note that it would still take more than a year for the theoretical price to react and start being closer to a theoretical fuel-switching point. We would assume, though, that if evidence of strong intervention in the market was to emerge, the forward curve would move up quickly. Although a more profound, structural change of the EU ETS cancellation of permits or something else remains on the agenda of the DG Clima, we do not see this intervention materialising in the next 1 2 years. Central European power prices 6

7 Figure 13: EUA price scenarios in /t bn permits set aside Status quo (neither set-aside, nor cancellation of permits) 1.4 bn permits cancelled Market forwards Historical EUA prices A 29A 21A 211A 212E 213E 214E 215E 216E 217E 218E 219E 22E Source: the BLOOMBERG PROFESSIONAL service, Credit Suisse estimates Central European power prices 7

8 Fuel and margins Coal is king Our System Marginal Price model suggests that coal will continue to be the dominant fuel as it is significantly cheaper to run than gas in the Central European spot power market. Based on the commodity assumptions used in our model, the trend of cheaper gas is likely to strengthen in the next few months. We expect CDS to remain healthy in the short term but start declining from 213. We expect Lignite margins to rise in the short term and remain stable, close to 27/MWh, thereafter. In our Q2 update Central European power prices, 13 April 212 we highlighted that the cost of producing power using coal was increasingly cheaper compared with gas. This trend has become even more obvious during the past quarter and we expect it to amplify in the next few months based on our updated fuel and carbon cost assumptions described in Figure 29. Figure 14: Coal dominates 25 Central European Clean Dark - Spark Spread 2 Coal is cheaper to run Jan-1 Jul-1 Jan-11 Jul-11 Jan-12 Jul-12 Gas is cheaper to run 213 CSE Source: Company data, Credit Suisse estimates * Assume: 47% coal efficiency, 55% gas efficiency. Gas emission.34t/mwh, coal emission.86t/mwh The cheap coal available in the European market and the low cost of carbon (Figure 29) have led to a divergence in the relative profitability of coal and gas generation in Central Europe. Figure 14 shows the difference in CDS and CSS and our forecast. Interestingly, the current difference between the CDS and CSS suggested by the forward curve is higher than the theoretical level derived from our model we would expect the 213 CDS-CSS difference to narrow by c 3/MWh. What do we assume? Coal ARA (API2): We use physical settlement price for 212, and forward prices for From 215, we use the Credit Suisse commodity team s long-term assumption ($12/t, real), Gas: We use TTF forward price for , and assume a flat price (in real terms) from 218. Central European power prices 8

9 Oil: We use the Credit Suisse commodity team s forecast for , and smooth the curve to reach a long-term real forecast of $9/bbl in 218. The assumptions we use are higher than the current forward curve, but we highlight that the impact of oil is marginal in our Central European model. Carbon: We use the forward curve (as of 5 June 212) for and assume a flat price (in real terms) thereafter. Figure 15: Change in commodity assumptions Commodity prices (Nominal) 217E 218E 219E 22E Coal ( /t) Old CS New CS Change 3 12 (5) (9) (4) Gas () Old CS New CS Change - (2) (2) (2) (2) (2) (2) (2) (2) (2) Oil ($/bbl) Old CS New CS Change CO2 ( /t) Old CS New CS Change - (.2) (.2) (.1) (.1) (.1) (.1) (.1) (.1) (.1) Source: the BLOOMBERG PROFESSIONAL service; Credit Suisse estimates Gas margin (CSS) better but still negative Since our last update Central European power prices, published 13 April 212 the gas price has declined (in line with other commodities) both in the long-term contracts and in the spot market. Distinguishing between generation using long-term oil-based contracts (still the majority in Central Europe) and spot gas-based generation is key. In the current environment of lower gas and carbon prices, spot gas spreads (Clean Spark Spreads) are improving vs. Q2 expectations but remain negative for the foreseeable future. Spot CSS is a better indication of future margins as it is widely expected that long-term oil-based contracts will (if only gradually) eventually disappear. Central European power prices 9

10 Figure 16: TTF price (real) July 12 vs. April 12 Figure 17: CSS (real) July 12 vs. April Old CS New CS CSS July 212 CSS Apr 212 Source: the BLOOMBERG PROFESSIONAL service; Credit Suisse estimates Source: the BLOOMBERG PROFESSIONAL service ;Credit Suisse estimates The spread between spot and the long-term oil-linked gas price turned negative in 29 and has remained so. Our model suggests that long-term spreads are significantly lower than spot spreads (Figure 19) because of the high oil (thus gas) prices we have assumed (see above). Figure 18: Gap between spot TTF and oil-linked contract Figure 19: CSS with oil-linked gas CSS July 212 CSS with oil-linked gas Source: the BLOOMBERG PROFESSIONAL service; Credit Suisse estimates Coal margin (CDS) benefits from low carbon In our model: 1) Hard coal sets the system marginal price for more than 55% of the time (see Figure 2) and, therefore, lower coal prices lead to a low power prices. 2) This negative is partially offset by the lower carbon price. However, we note that given the hedging strategies most utilities adopt, their ability to benefit from a low physical price may be limited. Source: the BLOOMBERG PROFESSIONAL service, Credit Suisse estimates Central European power prices 1

11 Figure 2: Central European Prices Time at Margin by technology 1% 8% 6% 4% 2% % Must Run Hydro Lignite Hard Coal Efficient Coal Other CCGT Nuclear New Nuclear Gas / OCGT Oil Pumped Storage Source: ENTSOE, Credit Suisse estimates Over Q2 212, physical coal prices decreased to $9/mt (from c$115/mt at the beginning of the year), and the forward curve fell by a similar level (see Figure 21). The effect of the lower fuel cost and lower carbon price assumption more than offset the impact of a lower power price and Figure 22 shows our increased CDS forecast. Figure 21: Coal API2 (real) July 12 vs. April 12 Figure 22: CDS (real) July 12 vs. April /t Old CS New CS CDS July 212 CDS Apr 212 Source: the BLOOMBERG PROFESSIONAL service; Credit Suisse estimates Lignite margin (CBS) benefits from low carbon The biggest beneficiary of our power price outlook change is the lignite spreads (Clean Brown Spread). Lignite is largely a fixed cost generation technology with carbon being the main variable fuel cost. On the basis of our expectation of cheaper carbon, we expect CBS to stay above 26/MWh. This is in clear contradiction with the prevailing view of a couple of years ago where it was largely expected that high carbon prices would lead to the gradual extinction of lignite as a fuel. Given the wide green consensus in Germany, does the current profitability of lignite suggest a political risk at some stage? It is fair to say that at this stage, there is no indication that the current German government has any intention of raising a special lignite tax that would hurt RWE, in particular. However, it would not seem impossible to anticipate a scenario whereby this government (or the next one elected in September 213) will try to tax away lignite s current super profits. Source: the BLOOMBERG PROFESSIONAL service Credit Suisse estimates Central European power prices 11

12 Figure 23: Carbon (real) July 12 vs. Apr 12 Figure 24: CBS (real) Jul 12 vs. Apr /t Old CS New CS CBS July 212 CBS Apr 212 Source: the BLOOMBERG PROFESSIONAL service; Credit Suisse estimates Source: the BLOOMBERG PROFESSIONAL service Credit Suisse estimates Central European power prices 12

13 Sensitivity analysis In the following tables, we highlight the main sensitivities of our model to a change in various parameters. We approach sensitivity analysis on the basis of all other things being equal, while in reality, it is unlikely that a parameter would move independently of other parameters. We note that since we froze our model in June, the carbon price has increased by c 1.5/t across the curve, which could add c 1.2/MWh to our forecast. On the other hand, we keep our demand forecast unchanged at +.5% growth in 212. So far (January April), demand in Europe has been weaker than we expected (c-2%). If this continues until year end, we would likely see some downward pressure on our numbers. Figure 25: Power price sensitivities (nominal) 212E Chge in % 216E Chge in % +/- 1% demand in 12E +/- 1.5/ MWh +/- 3.2% +/-.8/ MWh +/- 1.6% +/- 1/MWh gas TTF +/-.8/ MWh +/- 1.8% +/-.8/ MWh +/- 1.6% +/- $5/bbl oil Brent +/-.2/ MWh +/-.4% +/-.2/ MWh +/-.3% +/- $5/t coal ARA +/-.6/ MWh +/- 1.4% +/-.7/ MWh +/- 1.3% +/- 1/t CO2 +/-.8/ MWh +/- 1.6% +/-.8/ MWh +/- 1.7% Source: Credit Suisse estimates Figure 26: Spread sensitivities (real) 216E CDS CSS +/- 1% demand in 12E +.7/MWh +.7/MWh +/- 1/MWh gas TTF +.7/MWh - 1.3/MWh +/- $5/bbl oil Brent +.2/MWh +.2/MWh +/- $5/t coal ARA -.7/MWh +.6/MWh +/- 1/t CO2 -.1/MWh +.4/MWh Source: Credit Suisse estimates Central European power prices 13

14 Appendix 1 power price model data Figure 27: Marginal cost assumptions (real) Marginal Cost by technology incl CO2() 212E 213E 214E 215E 216E 217E 218E 219E 22E Must Run Hydro Lignite Hard Coal Efficient Coal Other CCGT Nuclear New Nuclear Gas / OCGT Oil Pumped Storage Source: Credit Suisse estimates Figure 28: Spreads assumptions (real) Implied Spreads () 212E 213E 214E 215E 216E 217E 218E 219E 22E Dirty Spark Spread (4.9) (3.8) (4.4) (2.7) (2.4) (1.8) (1.5) (.5) 5.1 Clean Spark Spread (7.5) (6.6) (7.3) (5.6) (5.3) (4.7) (4.4) (3.4) 2.2 Dirty Dark Spread Clean Dark Spread Dirty Brown Spread Clean Brown Spread Source: Credit Suisse estimates Central European power prices 14

15 Figure 29: Change in commodity assumptions Commodity prices ( Real) 217E 218E 219E 22E Coal ( /t) Old CS New CS Change. (6.3) (5.5) (5.) (6.1) (2.9) (2.9) (2.9) (2.9) (2.9) Gas () Old CS New CS Change. (2.) (2.) (1.9) (2.) (2.) (2.2) (2.2) (2.2) (2.2) Oil ($/bbl) Old CS New CS Change CO 2 ( /t) Old CS New CS Change. (1.6) (6.6) (8.) (9.7) (11.5) (13.2) (15.) (16.7) (18.4) Source: the BLOOMBERG PROFESSIONAL service; Credit Suisse estimates Central European power prices 15

16 Appendix 2 ETS data Figure 3: Fuel-switching CO 2 price marginal cost /t A 29A 21A 211A 212E 213E 214E 215E 216E 217E 218E 219E 22E From coal to CCGT From lignite to coal Source: the BLOOMBERG PROFESSIONAL service; Credit Suisse estimates Figure 31: Fuel-switching CO 2 price newbuild cost /t A 29A 21A 211A 212E 213E 214E 215E 216E 217E 218E 219E 22E Build CCGT instead of coal Build onshore wind instead of coal Source: the BLOOMBERG PROFESSIONAL service; Credit Suisse estimates Figure 32: Emission forecast by sector vs. total free allocation in millions, unless otherwise stated 2,5,, 2,,, 1,5,, 1,,, 5,, 28A 29A 21A 217E 218E 219E 22E Source: EU Commission data, Credit Suisse estimates Power Refineries Coke ovens Metal ore Iron and steel Cement Glass Ceramic Pulp and paper Aviation Other activities Free allocations Central European power prices 16

17 Central European power prices 17 Figure 33: EU ETS summary table in million tonnes of CO2 equivalent, unless otherwise stated Phase II Phase III Phase III Phase II+III m t 28A 29A 21A 211E 212E 213E 214E 215E 216E 217E 218E 219E 22E Cumulative CAGR Cumulative CAGR Emissions 2,119 1,873 1,939 1,886 2,1 2,268 2,279 2,29 2,32 2,313 2,325 2,336 2,348 18,461.5% 28,379.9% Free allowances 1,956 1,967 1,988 2,1 2, , % 16, % Auctions ,178 1,172 1,168 1,164 1,16 1,157 1,155 1,184 9,338.1% 9, % CER (CDM) and ERU (JI) % 1, % NER n.a. 2 n.a. Net position , Average net position / phase Average net position (phase II+III) Source: EU Commission data, Credit Suisse estimates

18 Companies Mentioned (Price as of 6 Jul 12) E.ON (EONGn.DE, Eu16.84, NEUTRAL, TP Eu18.) GDF Suez (GSZ.PA, Eu18.6, UNDERPERFORM, TP Eu15.5) RWE (RWEG.F, Eu32.78, NEUTRAL, TP Eu37.) Disclosure Appendix Important Global Disclosures The analysts identified in this report each certify, with respect to the companies or securities that the individual analyzes, that (1) the views expressed in this report accurately reflect his or her personal views about all of the subject companies and securities and (2) no part of his or her compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report. See the Companies Mentioned section for full company names. 3-Year Price, Target Price and Rating Change History Chart for GSZ.PA GSZ.PA Closing Target 35 Price Price Initiation/ Date (Eu) (Eu) Rating Assumption O 3-Aug Sep O May NC Jan U X 25 NC 24-May N Jun Eu Jan-12 U N Closing Price Target Price Initiation/Assumption Rating O=Outperform; N=Neutral; U=Underperform; R=Restricted; NR=Not Rated; NC=Not Covered 3-Year Price, Target Price and Rating Change History Chart for RWEG.F RWEG.F Closing Target Price Price Initiation/ Date (Eu) (Eu) Rating Assumption 15-Sep Nov May NC 1-Dec O X 12-Apr Jun Aug N 11-Jan Apr Eu NC 55 1-Dec-1 O N Closing Price Target Price Initiation/Assumption Rating O=Outperform; N=Neutral; U=Underperform; R=Restricted; NR=Not Rated; NC=Not Covered The analyst(s) responsible for preparing this research report received compensation that is based upon various factors including Credit Suisse's total revenues, a portion of which are generated by Credit Suisse's investment banking activities. Analysts stock ratings are defined as follows: Outperform (O): The stock s total return is expected to outperform the relevant benchmark* by at least 1-15% (or more, depending on perceived risk) over the next 12 months. Neutral (N): The stock s total return is expected to be in line with the relevant benchmark* (range of ±1-15%) over the next 12 months. Underperform (U): The stock s total return is expected to underperform the relevant benchmark* by 1-15% or more over the next 12 months. *Relevant benchmark by region: As of 29 th May 29, Australia, New Zealand, U.S. and Canadian ratings are based on (1) a stock s absolute total return potential to its current share price and (2) the relative attractiveness of a stock s total return potential within an analyst s coverage universe**, with Outperforms representing the most attractive, Neutrals the less attractive, and Underperforms the least attractive investment opportunities. Some U.S. and Canadian ratings may fall outside the absolute total return ranges defined above, depending on market conditions and industry factors. For Latin American, Japanese, and non-japan Asia stocks, ratings are based on a stock s total return relative to the average total return of the relevant country or regional benchmark; for European stocks, ratings are based on a stock s total return relative to the analyst's coverage Central European power prices 18

19 universe**. For Australian and New Zealand stocks, 12-month rolling yield is incorporated in the absolute total return calculation and a 15% and a 7.5% threshold replace the 1-15% level in the Outperform and Underperform stock rating definitions, respectively. The 15% and 7.5% thresholds replace the +1-15% and -1-15% levels in the Neutral stock rating definition, respectively. **An analyst's coverage universe consists of all companies covered by the analyst within the relevant sector. Restricted (R): In certain circumstances, Credit Suisse policy and/or applicable law and regulations preclude certain types of communications, including an investment recommendation, during the course of Credit Suisse's engagement in an investment banking transaction and in certain other circumstances. 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Price Target: (12 months) for (GSZ.PA) Method: We base our target price on a blend of sector P/E multiples and our dividend discount model. The P/E that we use is the CS comparative sheet P/E for peers. Our target price is rounded to the nearest half-euro, our target price is therefore EUR Risks: Our target price could be at risk should (1) regulation of GDF-Suez's businesses change materially or (2) power markets evolve materially in Europe or (3) oil, gas and other commodities to which GDF-Suez is exposed see their prices move materially or (4) the company departs from its current targets and strategy, or (5) macroeconomic conditions evolve differently from our forecasts or (6) the French sovereign credit rating is downgraded further. Price Target: (12 months) for (RWEG.F) Method: We have valued the company on a sum-of-the-parts basis using divisional discounted cash flow valuations based on differentiated discount rates as well as historical market values for financial assets. Risks: The Target Price is strongly dependent upon the level of power prices in the market. Please refer to the firm's disclosure website at for the definitions of abbreviations typically used in the target price method and risk sections. See the Companies Mentioned section for full company names. The subject company (GSZ.PA, RWEG.F) currently is, or was during the 12-month period preceding the date of distribution of this report, a client of Credit Suisse. Credit Suisse provided investment banking services to the subject company (GSZ.PA, RWEG.F) within the past 12 months. Credit Suisse provided non-investment banking services, which may include Sales and Trading services, to the subject company (GSZ.PA, RWEG.F) within the past 12 months. Credit Suisse has managed or co-managed a public offering of securities for the subject company (RWEG.F) within the past 12 months. Credit Suisse has received investment banking related compensation from the subject company (RWEG.F) within the past 12 months. Credit Suisse expects to receive or intends to seek investment banking related compensation from the subject company (GSZ.PA, RWEG.F) within the next 3 months. Credit Suisse has received compensation for products and services other than investment banking services from the subject company (GSZ.PA, RWEG.F) within the past 12 months. Central European power prices 19

20 Important Regional Disclosures Singapore recipients should contact a Singapore financial adviser for any matters arising from this research report. The analyst(s) involved in the preparation of this report have not visited the material operations of the subject company (GSZ.PA, RWEG.F) within the past 12 months. Restrictions on certain Canadian securities are indicated by the following abbreviations: NVS--Non-Voting shares; RVS--Restricted Voting Shares; SVS--Subordinate Voting Shares. Individuals receiving this report from a Canadian investment dealer that is not affiliated with Credit Suisse should be advised that this report may not contain regulatory disclosures the non-affiliated Canadian investment dealer would be required to make if this were its own report. For Credit Suisse Securities (Canada), Inc.'s policies and procedures regarding the dissemination of equity research, please visit The following disclosed European company/ies have estimates that comply with IFRS: EONGn.DE, GSZ.PA, RWEG.F. As of the date of this report, Credit Suisse acts as a market maker or liquidity provider in the equities securities that are the subject of this report. Principal is not guaranteed in the case of equities because equity prices are variable. Commission is the commission rate or the amount agreed with a customer when setting up an account or at anytime after that. Taiwanese Disclosures: This research report is for reference only. Investors should carefully consider their own investment risk. Investment results are the responsibility of the individual investor. Reports may not be reprinted without permission of CS. Reports written by Taiwan-based analysts on non-taiwan listed companies are not considered recommendations to buy or sell securities under Taiwan Stock Exchange Operational Regulations Governing Securities Firms Recommending Trades in Securities to Customers. To the extent this is a report authored in whole or in part by a non-u.s. analyst and is made available in the U.S., the following are important disclosures regarding any non-u.s. analyst contributors: The non-u.s. research analysts listed below (if any) are not registered/qualified as research analysts with FINRA. The non-u.s. research analysts listed below may not be associated persons of CSSU and therefore may not be subject to the NASD Rule 2711 and NYSE Rule 472 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account. Vincent Gilles, non-u.s. analyst, is a research analyst employed by Credit Suisse Securities (Europe) Limited. Mulu Sun, non-u.s. analyst, is a research analyst employed by Credit Suisse Securities (Europe) Limited. Mark Whitfeld, non-u.s. analyst, is a research analyst employed by Credit Suisse Securities (Europe) Limited. Zoltan Fekete, non-u.s. analyst, is a research analyst employed by Credit Suisse Securities (Europe) Limited. Michel Debs, non-u.s. analyst, is a research analyst employed by Credit Suisse Securities (Europe) Limited. Stefano Bezzato, non-u.s. analyst, is a research analyst employed by Credit Suisse Securities (Europe) Limited. Mark Freshney, non-u.s. analyst, is a research analyst employed by Credit Suisse Securities (Europe) Limited. For Credit Suisse disclosure information on other companies mentioned in this report, please visit the website at or call +1 (877) Disclaimers continue on next page. Central European power prices 2

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