28.10.2019 | The international competitiveness of Swiss hydropower

High taxes penalise Swiss Producers

Electricity generated from hydropower in Switzerland is burdened by high fixed costs. In the European comparison, there "is no place where fees are even close to the level of Switzerland" states the Swiss Water Management Association (SWV) in a study. That puts Swiss hydropower at a disadvantage and results in a loss of competitiveness.

Swiss energy law and the Federal Energy Strategy, currently being reviewed by the Swiss Federal Office of Energy, foresee a further expansion of hydropower in Switzerland by 2030 and 2050 respectively. In addition, the Electricity Supply Act (StromVG) now under revision intends to strengthen the competitiveness of the Swiss power business.

However, a new study by the SWV indicates that public taxes independent of revenues clearly represent a heavy burden on Swiss hydropower. "Since producers such as Axpo (editorial assumption) have to compete in an international market, this correlation is of major importance. In comparison with our neighbour, Austria, the difference is huge, resulting in a substantial competitive disadvantage," writes the SWV.

Find the details of the SWV study here.

Rüchlig hydro power plant
Security of supply endangered?

Disadvantaging Swiss hydropower directly impacts producers' willingness to invest, and, hence, affects the security of supply in Switzerland for the medium and long term.

The taxes - water rates that have been raised twice in the last decades are by far the largest chunk in Switzerland - are not merely high, they represent a fixed cost factor for the companies. We have a liberalised market with volatile prices and fluctuating revenues on one side and a high fixed cost factor on the other. When market prices are high these fixed costs are tenable. However, in years with low revenues they result in losses as has been the case in past years. This leads to uncertainties in producers' strategic planning because they have fewer financial resources available to invest in the maintenance and expansion of hydropower.

Negative economics

For the SWV it's clear: Policy-makers' lack of willingness to reform the tax structure undermines the competitiveness of Swiss hydropower. It contradicts the article of purpose in the Electricity Supply Act and endangers the sustainability and expansion of hydropower as foreseen by the Energy Strategy 2050. 

The lack of reform will also have long-term negative impacts on the Swiss economy because it is dependent on reliable, inexpensive power supply. The Swiss Water Management Association stipulates: "Relief in terms of taxes is the most important issue to resolve in order to strengthen Swiss hydropower in the international comparison."

This is the only way hydropower producers like Axpo can make a competitive, system-relevant contribution to the reliable, efficient supply of environmentally-compatible, renewable electricity.

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