Original plans
Federal Electricity Supply Act
ALPIQ's sale process
Regulatory reform and negotiations
On May 4 2016 the Federal Council confirmed that it was indefinitely delaying the full liberalisation of the Swiss electricity market. This followed an earlier announcement on March 7 2016 by major hydropower producer ALPIQ of its intention to divest up to 49% of its hydropower portfolio with a total installed capacity of 5.2 gigawatts. The stake for sale represents roughly 8% of the total Swiss hydropower production or 5% of Switzerland's total power production.
Under the original plans, all Swiss-based electricity consumers were to be allowed to choose their electricity suppliers freely as of January 1 2014. However, full market liberalisation was delayed due to more pressing matters related to Switzerland's Energy Strategy 2050, following the decision of the Federal Council and Parliament to phase out nuclear power. Currently, only those consumers with an annual consumption of more than 100,000 kilowatt hours – representing around 53% of all electricity demand in Switzerland – have been granted free access to the market. Under updated plans, households and other small-scale consumers were to be granted freedom to choose their electricity suppliers as of January 1 2018, but these plans have been delayed once again.
Federal Electricity Supply Act
The Federal Electricity Supply Act provides that liberalisation of the electricity market should occur in two stages. Due to the economic and political implications of the second stage (full liberalisation), the Federal Council launched a public consultation process which took place between October 8 2014 and January 22 2015. Following its review of the report on the consultation process and in light of the conflicting views expressed therein, the Federal Council has indicated that full liberalisation will now depend on:
- the evolution of the energy pact with the European Union;
- the progress achieved with Energy Strategy 2050;
- the prevailing market conditions; and
- the revision of the Federal Electricity Supply Act.
The sale process initiated by ALPIQ is a testament to the challenges facing Swiss hydropower producers. As of 2015, hydropower accounted for 61% of total Swiss power production (approximately 100 terawatt hours). Under Energy Strategy 2050, the share of hydropower is expected to be well over 50%. Yet for the time being, hydropower producers are struggling. Wholesale prices remain low and the Swiss franc remains strong. In particular, the profitability of Swiss power plants has come under strain due to:
- high subsidies for new renewable energies (eg, wind and solar power);
- low prices for primary energies (eg, oil, gas and coal);
- the stagnation of the world economy;
- lower carbon dioxide prices; and
- high duties.
Producers like ALPIQ lack access to end consumers in the non-liberalised segment of the Swiss market, while their traditional clients (including power distributors and large-scale consumers that benefit from partial liberalisation) have been buying abroad.
ALPIQ's top priority is to maintain capital market viability. It intends to bundle its equity stakes in 14 power plants (10 storage, one pump storage and three run of river) and in Hydro Exploitation SA, into a separate legal entity in which investors will be invited to invest. ALPIQ will retain the majority of the equity in the new legal entity and divest up to 49% of the equity to investors. The sale of single assets is not envisaged, although the approach could be revisited based on the comments that ALPIQ receives from prospective bidders.
Regulatory reform and negotiations
The revision of the Federal Electricity Supply Act was initiated at the end of 2009. The European Union's Third Energy Package will be factored into the revision. The introduction of incentive regulation is also being considered. Negotiations between the European Union and Switzerland aimed at reaching a comprehensive long-term energy pact have been ongoing since the end of 2007. The primary aim of such a pact would be mutual access to the free energy market. However, negotiations came to a halt following the adoption of a popular initiative against mass immigration on February 9 2014, which has been strongly condemned by the European Union.
The Federal Electricity Commission (ElCom) has been entrusted with supervising the liberalisation of Switzerland's electricity market. As an independent regulatory authority at the federal level, ElCom is responsible for securing the smooth transition from a monopoly situation to an electricity market based on the principles of competition. ElCom's duty is to ensure that market liberalisation does not result in excessive tariff increases, and that the network infrastructure is properly maintained and expanded in order to guarantee an adequate supply of electricity.
Electricity represents approximately 24.1% of Swiss energy consumption, while oil and gas represent about 53.3% and 12.9% respectively. Coal, wood, industrial waste and other renewable energies constitute the remaining 9.7%.
For further information on this topic please contact Georges Racine at Lalive by telephone (+41 22 319 87 00) or email ([email protected]). The Lalive website can be accessed at www.lalive.ch.