For a reliable power supply and the protection of the domestic electricity production

Integration into the EU power market won’t fix it

by Dr iur. Marianne Wüthrich

In the first quarter of 2020 (i.e. very soon), the Federal Department of the Environment, Transport, Energy and Communications (DETEC) is to submit to the Federal Council a “Consultation paper with key points for a complete opening of the market and further adjustments to the Electricity Supply Act”. With this “consultation paper”, the Federal Council will attempt to rescue its preliminary draft for the revision of the Electricity Supply Act, which it submitted for consultation procedure in October 2018. The revision’s main purpose is the complete opening of the Swiss electricity market as prerequisite for an Electricity Agreement with the EU.

In principle, the preliminary draft provides that each end consumer is free to choose his electricity supplier (complete market liberalisation). In order to appease citizens insisting on a public service guaranteed by the state, households and small businesses are to be entitled to a basic supply of the desired quantity at reasonable tariffs from the local grid operator. The basic supply should consist of “domestic and predominantly or exclusively renewable energy” (Article 5/6).1 Only three lines of the Federal Council’s almost 100-page commentary are devoted to the Electricity Agreement with the EU: negotiations are to continue “in parallel with the negotiations on a Framework Agreement” with the EU (p. 25).

In September 2019, the Federal Council published the results of the consultation procedure. Since the responses of numerous addressees contained a great deal of criticism – including fundamental criticism – the Federal Council commissioned the “consultation paper”. At the end of March we will learn what it says and how the Federal Council intends to interpret it.

First a look at the background.

No sellout of Swiss hydropower without consulting the people

Since the turn of the millennium, the Federal Council and its administrative team have been striving to “open up” the electricity market to the EU, i.e. to liberalise and prepare for the privatisation of the electricity industry – contrary to the real situation in Switzerland: Swiss electricity supply is an integral part of the public service, and the majority of Switzerland’s numerous power plants are owned by the communes and cantons or are organised as cooperatives – from the smallest power plant to Axpo Holding AG (owned by the cantons of north-eastern Switzerland and the cantonal utilities). The fact is: In direct democratic Switzerland, such a radical restructuring of the system is not possible without popular approval. And that is a good thing.

  • On 22 September 2002, 52.6% of the Swiss electorate voted against the Electricity Market Act proposed by the Federal Council and the Parliament to bring the Swiss electricity industry into line with EU requirements. The referendum had been taken by the trade unions and the Green Party.2
  • As early as 2004 (!) the Federal Council submitted a new draft for the liberalisation of the electricity market. On 23 March 2007, the National Council and the Council of States voted against the declared will of the voters to partially open up the electricity market: warranty of nationwide electricity supply for households (public service), possible market access for companies (i.e. electricity from abroad at lower prices) and adjustments to the EU electricity market regulations.3
  • Also in 2007, the Federal Council began negotiations with the EU on a bilateral Electricity Agreement. This was intended to give Switzerland access to the European electricity market.4 There are solid reasons why the agreement has now been on hold for 13 years. Firstly, most citizens in the communes and cantons steadfastly refuse to merge their roughly 800 power stations and power station companies/cooperatives into a few groups and possibly sell them abroad (as has happened with a few large corporations (Alpiq)). On the other hand, according to Brussels, the Electricity Agreement would only be available in conjunction with an institutional Framework Agreement, i.e. Switzerland would have to continuously adopt the rules of the EU internal electricity market and any changes to them. (Current Concerns has repeatedly reported on this).
  • On 17 May 2017, Swiss voters clearly adopted the “Energy Strategy 2050” and thus approved the phasing out of nuclear energy, combined with a massive expansion of renewable energies. It is already becoming obvious that renewables are not developing as desired. Hence the clear call of almost all voices for supply security in the following consultation procedure.

Consultation procedure 2018/2019: Not quite according to the wishes of the Federal Council

After this brief retrospective, we now come to the most important results of the consultation on the preliminary draft revision of the Electricity Supply Act. (As a non-expert in energy issues, I will confine myself to the main legal points; they are revealing enough). By 31 January 2019, 299 comments were received, a considerable number! These include – in addition to cantons, cities, political parties and associations – 98 from power plant owners, often communes.

Wide rejection of an opening of the electricity market

“The consultation procedure has shown that a majority of participants are in favour of this opening.”5 Thus the Federal Council in its media release of 27 September 2019. It therefore stands by its fundamental decision in this regard. According to the motto: Head down and charge?
In reality, the resistance against the privatisation of Swiss hydropower and other domestic energies is enormous. The majority of the cantonal governments and party leaders are in favour of it, and business associations such as economiesuisse, which we are not surprised about. However, there is widespread opposition, which the Federal Council cannot simply ignore:
“Overall, the RKGK [Intergovernmental Conference of the Mountain Cantons]* and some cities and their association are opposed to the opening of the market. The parties Green Party (GP) and Social Democrats (SP) oppose the opening of the electricity market. In the energy industry, a majority of the associations of distribution network operators (and affiliated companies) as well as smaller energy suppliers are opposed to the opening of the market. Environmental associations and organisations also express criticism or rejection. Finally, employee organisations and trade unions have formulated clear rejection.”6 (*Cantons of Uri, Obwalden, Nidwalden, Glarus, Grisons, Ticino and Valais; i.e. those cantons which have the largest share of hydropower in their possession, mw.)

Reasons given against the opening of the market are:

  • “Threat to investments in domestic renewable technologies and thus negative effects on supply security;
  • Fear that the electricity mix of end consumers could shift towards more (CO2-laden) imports;
  • Pressure on margins at energy suppliers and deterioration in working conditions, thus endangering the ‘Service public’”. (Consultation report, p. 9)

These are serious objections: Who wants an open market for energy giants from all over the world who care neither about Swiss hydroelectric power nor about the highest possible supply of renewable energies, nor about a careful treatment of the environment or the preservation of service public and jobs in the energy sector? The Federal Council and its administrative team cannot avoid facing these objections.

Main concern of practically all participants in the consultation procedure: Security of supply

For the vast majority of respondents, even for many fundamental supporters of market liberalisation, the security of supply has priority: The “instrument of storage reserves to protect security of supply in the short-term” is broadly supported, among others by around one third of the cantons, the majority of the parties, the electricity industry, the consumer- and business associations (Consultation report, p. 10).

Accepting a failure of the electricity agreement with the EU in our own interests

From the statement of the Intergovernmental Conference of the Mountain Cantons (RKGK) from 20 December 2018 (Cantons Uri, Obwalden, Nidwalden, Glarus, Grisons, Ticino and Valais)

mw. The Swiss media often talk about the three areas that Swiss politicians and social partners want the EU to clarify when it comes to the framework agreement with Brussels. The RKGK takes up one of these areas, the EU ban on state aid, in connection with the Electricity Supply Act. Specifically, the question is whether we want to abandon the public service guarantee in the electricity sector or whether we are prepared to pull the cord if necessary.

In this sense the RKGK demands, among other things that ”it is imperative that an instrument be included in the revision of the Electricity Supply Act in the sense of a catch-all provision, which guarantees planning and investment security for Swiss hydropower. […]

The Federal Council must make it clear whether it is willing to adhere to fundamental instruments of the Electricity Supply Act revision (conditio sine qua non) even if this means that an electricity agreement with the EU fails.” (RKGK, p. 4)

Requested “catch-all provision” presumably incompatible with EU ban on State aid. 

According to the RKGK, “various instruments proposed in the proposal for revision, as well as the “catch-all provision” which we called for above, are not compatible with EU law [...]”. For this reason, “in the context of further negotiations on an electricity agreement with the EU” Switzerland could be faced with the decision “whether it will adhere strictly (conditio sine qua non) to such support instruments for the promotion of domestic renewable energies, in particular hydropower, even if this does not result in an electricity agreement. The urgently needed planning and investment security would necessarily require such a commitment.”

The RKGK adds: “Here, too, we demand much more clarity in domestic policy. Without this required clarity, an institutional framework agreement will also have to be critically examined.” (RKGK, p. 4f.)

Promotion of hydropower probably incompatible with EU ban on state aid:

Similarly, the EU could judge support for Swiss hydroelectric power with the help of a minimum price as unlawful preferential treatment compared to other energy producers. Translated into Brussels bureaucratic jargon: “From the point of view of energy producers, it is important to note that a review under state aid law could call into question the need for a minimum price per se and its calculation. This is because, according to the practice of the European Commission, if hydropower is subsidised, this could constitute a selective advantage under state aid law in comparison with other (renewable or fossil) energy sources.” (RKGK, p. 5)

We Swiss can be grateful to note that there are fellow citizens in the mountain cantons who are well versed in EU law and who devote their time and attention to bringing to our attention such important facts that we would not otherwise have come to know. It is to be hoped that some other politicians are also becoming interested in it.

(Translation Current Concerns)

The Intergovernmental Conference of the Mountain Cantons (RKGK), whose members apparently grappeled deepened with the draft, points out however that security of supply is not yet guaranteed by a short-term reserve: “The proposed strategic reserve (energy reserve) can therefore only be a selective element to ensure security of supply, which has to be seen in a broader context.7 Accordingly, the RKGK calls for “a catch-all provision which, in the case of prolonged, politically motivated low price phases, can serve as a safety net. This instrument shall be available for times of crisis, and therefore be used only then and only as long as actually needed.” (RKGK, p. 3) Other answers also include the “demand for new measures to ensure the long-term security of supply” (Consultation report, p. 10).

Main objection: Lack of planning and investment security into domestic energies

Hydropower is Switzerland’s most important domestic energy source and in addition very efficient, climate- and environmentally friendly. It covers about 56 % of the Swiss power requirements. Already today the Swiss hydroelectric power plants are exposed to the rough wind in the international electricity market and can partly not cover their prime costs with the low electricity prices. Therefore the participants’ concern about the lack of investment security is perceptible in many statements.

Those who have so far believed that the EU internal market is obligated to free competition with equal opportunities for all market participants have been taught a lesson by the Intergovernmental Conference of the Mountain Cantons (RKGK): The EU-market is “so much distorted and characterised by protectionism, that it can not be spoken of as a real market. The market price is highly determined by subsidised prices and feed-in priority rulings, which are disadvantageous for Swiss hydropower and put (or may put) it excessively under pressure”. Switzerland could “not fulfill the climate and energy policy goals, to which it has committed itself nationally and internationally without an extended electricity production from hydropower” (RKGK, p. 3). Without additional investment incentives for hydroelectric power the Cantons of Jura and Vaud, the Social democrats (SP), the Green Party (GP) and others also generally reject the overall proposal.

Conclusion on the planned revision of the Electricity Supply Act

In view of the fundamental and well-founded opposition of numerous participants in the consultation process it is not advisable at all to surrender our hydropower to a completely opened electricity market respectively to an Electricity Agreement – linked to the framework contract required by Brussels. We will be well prepared in this respect when DETEC presents the “Consultation paper commissioned by the Federal Council in spring with key points for full market liberalisation and further adjustments to the Electricity Supply Act”. Two fundamental statements from a wider perspective are attached here: On the need for the greatest possible independence of Switzerland from electricity imports (report of the Federal Electricity Commission ElCom on Switzerland’s security of supply of May 2018) and on the necessary willingness to refrain from an Electricity Agreement with the EU for reasons of vested interests (Consultation response of the Intergovernmental Conference of the Mountain Cantons RKGK of 20 December 2018).    •

1  Swiss Confederation. Revision of the Electricity Supply Act (complete electricity market opening, storage reserve and modernisation of the grid regulation). Explanatory report on the consultation draft of October 2018, p. 27
2  Raaflaub, Christian. “Elektrizitätsmarktgesetz abgelehnt (Electricity market law rejected)”, swissinfo.ch of 22 September 2002
3  Parliamentary Services (Parlamentsdienste). 04.083 Electricity Supply Act and Electricity Act. Amendment
4  The Swiss electricity infrastructure has long been integrated into the EU system. See: FDFA. Electricity fact sheet of August 2019
5  “Federal Council confirms complete opening of the electricity market”. Press release of the Federal Council of 27 September 2019
6  DETEC. Revision of the Electricity Supply Act (full electricity market opening, storage reserve and modernisation of network regulation). Report on the results of the consultation of September 2019, p. 8
7 Statement of the Intergovernmental Conference of the Mountain Cantons RKGK of 20 December 2018, p. 6

 

ElCom report of May 2018: Electricity Agreement with the EU - no guarantee of improved security of supply for Switzerland

mw. In order to persuade Switzerland and us Swiss to approve an institutional Framework Agreement, the alleged greater legal certainty is being invoked. In order to popularise an Electricity Agreement, the proponents argue in favour of greater security of supply. Both are wrong. The former has often been a topic of discussion in Current Concerns, but on the second agreement an institution that cannot be ignored takes a clear stand: the Federal Electricity Commission ElCom. It is appointed by the Federal Council to monitor the security of electricity supply and can also submit measures to it if it considers the supply to be at risk (Electricity Supply Act, Art. 9 and 22).
ElCom points out that an Electricity Agreement with the EU would at best bring formal improvements, but not more supply security for Switzerland: “From a regulatory perspective, an Electricity Agreement between Switzerland and the EU would help to regulate cross-border issues more systematically. […] On the other hand, however, it is clear that even if an electricity agreement is concluded, there is no guarantee that Switzerland’s interests can be better or even fully asserted in every case.” (ElCom report, p. 4 and 52)

Adoption of EU law

The EU’s precondition that an Electricity Agreement would only be possible if a Framework Agreement had been concluded beforehand is filled with substance by ElCom: “With the 3rd package on the internal energy market in 2009 (and the 4th package now being prepared), the EU intends to bring together and harmonise the electricity markets, which in the past were primarily organised on a national basis, to an even greater extent. The regulations [...] are directly applicable in the member states of the EU and in the EEA area. This means that they do not have to be transposed into national law”. An Electricity and Framework Agreement would also largely remove the Swiss electricity market from national sovereignty (ElCom report, p. 50). No one should claim that an arbitration tribunal could perhaps convince the EU judges to make an exception in the case of Switzerland...

Power supply in Switzerland depends on export capability and -willingness of the neighbouring countries

According to ElCom, since 2004 Switzerland has been “always dependent on electricity imports” during the winter half-year (ElCom report, p. 31). Today’s exporting countries such as Germany or France could, however, have temporary negative power reserves following the decommissioning of nuclear power plants in the winter months, so that Switzerland would have to rely on the willingness of neighbouring countries to export if there was a shortage of its own production. In the winter of 2016/17 it became clear that the willingness to export in the event of bottlenecks could be “a question of price”: more expensive (gas-fired) power plants closed the gap (p.35). In crisis situations, however, the question of the export capability of neighbouring countries also arises: “Since the closure of Mühleberg nuclear power plant is scheduled for the end of 2019 and its electrical energy volume can hardly be substituted by production in Switzerland, it can be assumed that Switzerland will become increasingly dependent on electricity imports in winter over the next few years. Switzerland’s electricity supply therefore depends on the export capability of neighbouring countries”. (ElCom report, p. 37). In other words: If they themselves are short of supply, even an electricity agreement would be of no use.

High security of supply as an important prerequisite for quality of life

“ElCom is of the opinion that the high level of security of supply in Switzerland is an important basic prerequisite for our quality of life and contributes significantly to maintaining Switzerland as an attractive business location. In the long term, this quality must not be based solely on the ‘electricity import’ option, as this is not guaranteed. […]
If Switzerland’s import dependency should change (increase) noticeably in the winter half-years as a result of the decommissioning of nuclear power plants, it must be ensured that a substantial part of the nuclear power plants’ lost winter production continues to be produced domestically in order to guarantee system stability. In this context, the progress of the implementation targets for the expansion of renewable energies must also be observed.” (ElCom report, p. 60)

Source: Security of electricity supply in Switzerland 2018, report of the Federal Electricity Commission ElCom from May 2018

(Translation Current Concerns)

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