Switzerland: Global Legal Insight: Energy - 4th Edition, 2015

Last Updated: 3 December 2015
Article by Phyllis Scholl and Kirsten Johanna Schmidt

Most Read Contributor in Switzerland, April 2019

Overview of the current energy mix, and the place in the market of different energy sources

The Swiss energy mix (consumption) is a stable mix dominated by fuel products (52%). The share of electricity is 24%, gas contributes 14%, and 10% are other energy sources such as wood, district heating, waste, etc.

In general it should be noted that Swiss energy policy focuses on electricity, rather than fuel products and gas. This may be explained by the fact that fuel products and gas are only imported (no production in Switzerland); in contrast, electricity is produced and also exported.

Almost 58% of the electricity consumed in Switzerland comes from hydropower plants; nuclear power accounts for 37%. The share of new renewable energies is 2%, and other sources of electricity, e.g. fossil fuel power plants, make up 3%. In 2014, Switzerland consumed almost 62,000 GWh of electricity and produced a net total of 67,300 GWh. However, as electricity production is below demand during the winter period, this surplus is not distributed evenly over the course of the year. The resulting supply shortfall is covered by imports from abroad. In 2014, 37,400 GWh were imported, and 42,900 GWh were exported. Switzerland is a transit country for electricity.

Switzerland has the long-term goal of increasing its renewable energy sources. The chosen main instrument to promote electricity production from renewable energy sources is a feed-in tariff (cf. also below in section, "Changes in the energy situation during the last 12 months which are likely to have an impact on future direction or policyˮ). A feed-in tariff is available for hydropower with an output up to 10 MW, photovoltaics, wind energy, geothermal energy, biomass and biological waste. The tariffs have been specified on the basis of reference power plants for each technology and output category. Remuneration is applicable for 20 to 25 years, depending on the technology, and is only available for new production facilities that are put into operation and are registered with the national transmission system operator, i.e. Swissgrid AG. Presently, there is a waiting list for the registration of new production facilities. In addition, the remuneration rates are subject to a gradual downward curve in view of the anticipated technological progress and the increasing degree of market maturity of new technologies.

Since 1 July 2014, photovoltaic systems with an output up to 10 kW have received a one-off grant rather than a feed-in remuneration. Operators of photovoltaic systems with an output of between 10 kW and 30 kW can choose between feed-in remuneration and the one-off grant. There are no contingents for systems receiving the one-off grant.

Changes in the energy situation in the last 12 months which are likely to have an impact on future direction or policy

Hydropower

As set out above, more than half of Switzerland's electricity production comes from hydroelectric power generation. This situation is unlikely to alter regardless of changes in the energy policy. On the contrary: in order to facilitate the planned phase-out of nuclear power, the Swiss Government plans to expand hydropower within the context of its forwardlooking policy process, known as "Energy Strategy 2050ˮ. However, it must be noted that the available potential for hydropower is rather limited, and even in the best-case scenario it will not be more than 3.2 TWh or around 10% of the current hydropower generation. One third of this increase is supposed to come from the upgrading of existing power stations, and one third each from the construction of new small and new large hydroelectric power stations.

Hydropower is not only a central pillar of the Swiss electricity supply, it is also an important economic factor, particularly in the mountainous cantons. Owners of the resource "waterˮ are the cantons and their communities. They lease the raw-material water to the electricity companies for an agreed period, usually 80 years, for use by the electricity companies. In return they receive concession fees, water rates and tax revenues.

Hydropower is coming under increasing pressure from two sides, namely: (i) externally, i.e. outside of Swiss borders: the feed-in tariff systems, in particular the German system, bring about substantially lower market prices, in particular during times of the day when in the past Swiss hydropower was well-placed to sell at high prices; and (ii) internally: the cantons and communities are not willing to renew the water concessions and wish to take over the direct generation of the electricity themselves. At the same time, federal legislation has caused a rapid increase in the burden placed on hydropower through duties and taxes. The latest examples are the progressive increase in the water rates as well as the introduction of a 'renaturation tax' aiming at river protection measures.

The restructuring of the electricity supply infrastructure, with increasingly irregular and distributed sources of supply, is leading to a European-wide increase in the requirement for storage. Pumped storage power stations allow spontaneous compensation for the overproduction or under-production from wind and solar energy sources and, if necessary, permit the temporary storage of electricity for days or weeks. Crucial to the flexibility of these power stations is the size of the available storage. Switzerland provides a substantial number of pumped storage power stations and at present, a number of pumped storage power stations are under construction in Switzerland. It must be noted, however, that the total Swiss storage capacity can only meet a fraction of the European-wide requirement for storage.

Feed-in tariff

Per 1 January 2015, the feed-in tariff for renewables and river protection measures (renaturation tax) was increased to 1.1 cents (Swiss francs) per kWh. The Swiss Government has determined this in a revision of the Energy Ordinance (Energieverordnung, SR 730.01) in order to guarantee the continued liquidity of the grid surcharge fund, increasing the grid surcharge by 0.6 cents/kWh to 1.1 cents/kWh.

The grid surcharge (feed-in tariff) imposed on electricity consumers flows into the grid surcharge fund. With this fund, the compensatory feed-in remuneration, the one-time remuneration for small photovoltaic systems, the competitive tenders for electricity efficiency, the reimbursements to large-scale consumers, the risk guarantees for geothermal projects, the enforcement costs as well as the renaturation tax are being financed. The Energy Act (Energiegesetz, SR 730.0) defines a maximum grid surcharge of 1.5 cents/kWh (0.1 cents/kWh thereof for river protection measures). An increase of the maximum grid surcharge to 2.3 cents/kWh is currently being discussed in the Parliament.

Within the scope of this maximum, the Swiss Government determines the exact amount of the grid surcharge, taking into account the economic efficiency and the potential of the technologies. If the imposed grid surcharge no longer suffices for the financing of the above purposes, the Swiss Government may increase the grid surcharge.

The financial burden caused by the grid surcharge for a four-person household with an average yearly consumption of 5,000 kWh therefore increases by CHF 25 to CHF 55 per year (2014: CHF 30). If one day the maximum grid surcharge of 1.5 centimes/kWh is imposed, it will increase to CHF 75 per year.

In the Energy Act revised as per 1 January 2014, the reimbursement of the grid surcharge for large-scale consumers was extended. Therewith, those companies are relieved by roughly CHF 55m to 70m. Due to a revision of the Energy Ordinance, large-scale consumers may request the reimbursement of the grid surcharge to be carried out monthly as of 1 June 2015, instead of annually. For small and medium-sized firms without entitlement to such reimbursements, the increase of the grid surcharge means a noticeable increase in electricity costs.

The one-off grants for photovoltaic systems with an output under 30 kW paid since 1 July 2014 amount to a maximum of 30% of the investment costs of reference systems. As there are no contingents for photovoltaic systems receiving one-off grants, the one-off grants are disbursed within a few months after initial operation of the respective photovoltaic system and signing up with the national transmission system operator, i.e. Swissgrid AG. For operators of photovoltaic systems with an output of between 10 kW and 30 kW who can choose between feed-in remuneration and the one-off grant, this is an advantage over the feed-in tariff which is disbursed only after registration, and where the time on the waiting list for registration is not compensated.

Developments in government policy/strategy/approach

General

In 2011, in the aftermath of the Fukushima nuclear accident, the Swiss Government and Parliament decided that Switzerland is to withdraw from the use of nuclear energy on a step-by-step basis. The existing five nuclear power plants are to be decommissioned when they reach the end of their safe service life, and will not be replaced by new ones. As a result of this decision and various other profound changes that have been observed for a number of years, in particular in the international energy arena, the Swiss energy system will require successive restructuring in the period up to 2050. In view of this, the Swiss Government has, in the context of the Energy Strategy 2050, developed a long-term energy policy based on the revised energy perspectives. And at the same time, it has produced an initial package of measures aimed at securing the country's energy supply over the long term.

In the initial stage, the Government's new strategy will focus on the consistent exploitation of the existing energy efficiency potential, and on the balanced utilisation of the potential of hydropower (cf. above) and new renewable energy sources. At a later stage, the Government wants to replace the existing promotion system with a steering mechanism.

In a first step to lead over to such a system, the Government has submitted for consultation a legal basis for steering fees which should be implemented in the Swiss Constitution, as well as transitional provisions which will regulate the step-by-step reduction of the existing promotion system and lead to a system based on steering mechanisms. The consultation ended on 12 June 2015.

Network infrastructure

As an essential link between production and consumption, the networks are of central importance for the electricity and gas supply. Alongside the Energy Strategy 2050 the Swiss Government also produced a network strategy, which focuses mainly on the electricity grid. The strategy sets out the prerequisites for network development. The objective of the strategy is to make sure that the networks are developed in line with the requirements and without delay so that the energy supply can be secured at all times – the right network at the right time. The network strategy addresses the following issues:

(i) Criteria for determining the requirements for the expansion and modification of Swiss electricity networks.

(ii) Technical criteria and requirements for taking the decision whether to install underground cables or overhead lines.

(iii) Optimisation of licensing procedures for transmission line projects.

(iv) Improvement of approval process and transparency of transmission line projects.

The Swiss Government adopted the detailed concept for the electricity networks strategy, and the consultation procedure carried out by the Federal Department of the Environment, Transport, Energy and Communications (DETEC) ended in March 2015.

Gas industry

With regard to the gas industry, the following two topics are noteworthy: (i) in order to increase investment security, the industry has requested the authorities to draw up a gas regulation act which will, inter alia, also lay out the principles of calculation for third party grid tariffs; and (ii) it is planned to merge the regional pipelines into one company and thereby establish a ownership-unbundled pipeline company.

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Previously published by Global Legal Group Ltd, London

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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