The energy transition in Switzerland
Can the energy transition be successful?
Scroll & experience
Net zero CO2 emissions by 2050
Switzerland has set itself the goal of reducing CO2 emissions to ‘net zero’. To achieve this target, the proportion of domestic renewable energy must be increased significantly in line with the Energy Strategy 2050. Switzerland’s electricity mix is currently dominated by hydro (60%) and nuclear power (30%).
Better general conditions for the energy transition
The revision of the Energy Act and the Electricity Supply Act could represent a big opportunity for the energy transition. With the dispatch adopted in July 2021, the Federal Council wants to create the necessary conditions for ensuring a secure electricity supply with renewable energies.
What exactly is the energy transition? The energy transition is a process of change for ensuring that the rising demand for electricity can continue to be met at all times – with electricity from renewable sources. This presents some major challenges, especially in the winter months. As things currently stand, Switzerland is not moving quickly enough.
Acting quickly to close the looming winter gap
The expansion of renewable energies needs to be stepped up significantly. The technology needed for the scale-up is available. But to finally start making some serious headway, better general conditions for investments are urgently needed, as Switzerland already produces less electricity in winter than it consumes. The winter energy gap, as it is referred to, will become even wider once Switzerland’s nuclear power plants are switched off.
There is an urgent need for action. The Swiss Federal Office of Civil Protection (FOCP) has described a potential electricity shortage as the biggest threat facing Switzerland – even greater than a pandemic.
Consumption up until 2050
To increase the rate of decarbonisation (i.e. the reduction of CO2 emissions), large parts of the building industry (heat pumps) and the mobility sector (battery- or hydrogen-powered vehicles), for example, are switching from fossil fuel to power from renewable sources. Together with digitalisation, this is increasing the demand for electricity. The savings from using more efficient equipment and processes will do little to slow this rise.
Production up to 2050
A lot is also set to change on the production side. Switzerland is phasing out nuclear energy and needs to replace around 24 TWh. This will present some major challenges, especially during the cold and dark winter months. Hydropower will continue to make a valuable contribution. It is, however, in a state of decline: due to the implementation of the residual water requirements alone, production is set to fall by around 10% (around 3.7 TWh) between now and 2050.
86.3
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TWh
will be consumed by Switzerland in 2050
24
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TWh
from nuclear power plants must be substituted
3.7
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TWh
from hydropower production could be lost by 2050
50.6
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TWh
is needed from renewable energy sources
Switzerland is too slow
Problem 1
More than half of all electricity produced in Switzerland currently comes from hydropower. The Federal Council wants to increase the proportion of energy from this source even further. But hydropower production is being hampered by poor general conditions at present.
Problem 2
Switzerland is not moving quickly enough with the urgently needed expansion of renewable energies such as photovoltaics, wind power and biomass. With a proportion of just 7%, renewables still only make up a very small part of the electricity mix.
What could an electricity mix for a secure power supply with renewable energies look like?
Axpo makes its knowledge available to you in an online tool. With the "Power Switcher" you can put together your own mix of different energy sources. You can see directly whether it could supply Switzerland. And you can find out what mix Axpo, the Swiss Federal Office of Energy or leading environmental politicians would create.
Let us first look at hydropower – the backbone of the Swiss energy supply. High levies and a constant increase in environmental regulation are causing great uncertainty and making investments unattractive. Production is expected to fall by 10% between now and 2050.
Hydropower costs and levies
Around 60% of all electricity that is currently produced in Switzerland comes from hydropower – more than in any other European country. Axpo is the main producer. But hydropower plants are now almost impossible to operate profitably. Adding to the burden of increasing environmental regulation, public levies are the highest in Europe. In particular, the rigid water usage levy from the monopoly era is no longer fit for today’s volatile and open markets.
Scaling up hydropower
To ensure that hydropower can continue to make a significant contribution to a sustainable electricity supply in the future, Switzerland needs a modern water levy system, moderate implementation of ecological requirements, rapid approval procedures and compensation for the contribution to security of supply.
Wind und Photovoltaik kommen kaum voran
It is clear that the future of hydropower is at risk. But the situation is even more difficult for energy production from wind and photovoltaics.
The potential of wind power in Switzerland is limited due to the country’s topography. Nevertheless, the Energy Strategy 2050 is aiming for significant growth in this area. New projects, however, often face fierce resistance and can be held up for years.
Photovoltaics has the most potential. But the biggest investment incentives tend to be for smaller plants with a high proportion of self-consumption. Although this means an increasing number of smaller systems are being built on rooftops, large-scale plants are more essential to the energy transition.
How could the incentive system be improved?
Subsidising growth
The revision of the Energy Act is intended to create reliable general conditions for scaling up the production of electricity from renewable energy sources, as there is currently a lack of investment, particularly in large-scale plants. The reason for this is that expected market returns are associated with a high degree of uncertainty.
But because investments in new power plants have to be made over several decades, there are hardly any investors who are willing to take on the commercial risk unless they are entitled to high subsidies.
The Federal Council has proposed using funding instruments to reduce uncertainty. It believes that this will help make projects profitable despite high risk premiums for investors. However, the floating market premium is better suited as an investment incentive, as the risk is borne by both the investor and the government.
The internationally tested solution
Investment contributions can stimulate growth – but only if they are high enough. If electricity producers benefit from such a one-off contribution, they have to bear the risk of lower prices themselves for decades to come. That is why investors charge a risk premium to compensate for taking on the risk. They demand higher amounts, which means more subsidisation funds are needed.
With the bid-based floating market premium, investors specify the price that they would have to receive in order to protect themselves against low-price phases.
This minimum price is guaranteed by the government for a specific number of years. If the electricity price falls below this minimum, the investor receives the floating market premium. If it is above, no subsidies are provided. Competition between bidders means that the most efficient projects in particular are subsidised. This prevents overfunding.
Tried and tested internationally
Based on its own experiences at international level, Axpo sees the floating market premium as a good funding instrument for facilitating the rapid, significant expansion of renewable energy. The bid-based floating market premium system has already been tested successfully in France and Germany, for example, whereas there is only little empirical evidence for a bid-based system for investment contributions.
The role of Axpo
Axpo is making a relevant contribution to the energy transition. At 79 g per kilowatt hour, it emits three times less CO2 than the European average from all its energy production activities. At the same time, Axpo helps numerous corporate customers in 40 markets to cut CO2 emissions by offering them tailored power purchase agreements for renewable energies.
Axpo’s strategy includes some very ambitious growth targets for renewables abroad. In the area of solar power, for example, it is aiming to increase the portfolio by 10 GW between now and 2030 – around 20 times more than its current level.
Profitable investments only possible abroad
Axpo would like to apply its extensive international expertise in Switzerland and make more investments. However, the company operates on the free market and must not expose its owners (i.e. the cantons and their residents) to potentially huge losses by investing in unprofitable projects. The prevailing general conditions in Switzerland are making the economical construction and operation of large-scale plants significantly more difficult.
Who is responsible for electricity generation?
Up until 2009, producers such as Axpo were responsible for the production in specific areas. This was a period dominated by monopolies, regulated prices and safe returns. Since the partial liberalisation of the energy market in 2009, companies like Axpo have been generating their income in a volatile and open market.
Electricity is a public good and a secure supply benefits all consumers. But this security comes at a price – and a public debate on how to finance it is long overdue.
Set the right course now!
The legislation passed by the Federal Council is currently being debated in Parliament. It is now down to the policymakers to set the right course for the energy transition by:
- Not neglecting existing hydropower
- Creating better investment incentives for scaling up renewable energy
- Tackling the problem of lengthy complaints and appeals procedures (this discussion is not part of the legal reform, but it is one that still needs to be had as a matter of urgency)
Axpo will continue to contribute its expertise as the largest Swiss producer of renewable energy and its experience from over 30 countries in a constructive way.
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