10.05.2022 | Hydropower is crucial to the energy transition

Four reasons why hydropower is having a hard time in Switzerland

Hydropower is clean, renewable, reliable and the backbone of Switzerland’s electricity supply. It has given rise to some of Switzerland’s most impressive architectural structures and is due to be further expanded. However, at present, things are looking anything but rosy for the future of hydropower. Here are four reasons why operators are no longer able to invest in expanding this superb energy generation technology.

1. Building new power stations is always a challenge

This pretty much applies to all types of energy generation technology, from wind farms to large solar farms and hydropower. This is because someone will always have some kind of objection to a large new power plant and Swiss environmental organisations, as one instance of this, are capable of delaying projects for many decades. One example is the Waldemme hydroelectric power plant to be built by Axpo subsidiary CKW, which is finally going ahead after 17 years of planning, objections and adjustments – an epic.

2. Switzerland has the highest hydropower levies in Europe

The power from Axpo’s 56 hydroelectric power plants costs about 6.5 centimes per kilowatt hour to produce. This is relatively expensive compared to other energy generation technologies. This could imply that hydropower is simply very inefficient, which couldn’t be further from the truth. It’s just a result of the fees levied on hydropower in Switzerland, which are higher than for any other energy production technology. Over a third of the production costs (35%) are taxes and water usage levies. Hydroelectric power plant operators pay cantons and municipal authorities around half a billion Swiss francs in water usage levies a year – irrespective of the electricity price.

3. Environmental requirements curb production

Hydroelectric power plants have to obtain licenses from local authorities in order to be permitted to use water to generate energy. These licenses are valid for a specified period, usually around 60 to 80 years. Once expired, they have to be reapplied for. However, requirements for a renewed license are far stricter than today’s in terms of residual water requirements. And under these new requirements, hydroelectric power plants need to use less water to produce electricity. This means they are not able to produce the same amount of electricity. The Swiss water management association anticipates that hydropower generation will drop by around 10 per cent by 2050, while costs stay the same.

4. There are so many unresolved questions about reversions

When a hydroelectric power plant’s license expires, the local authority has to decide whether to grant it a new one or demand the reversion (return) of the object involved and take ownership of the power plant itself. Many of the Swiss cantons have already announced their decisions. The cantons of Valais, Grisons and Ticino, for example, have decided to implement reversions. This will have a huge impact on the plant’s current operators, who will be unlikely to make any major investments in these power plants (such as increasing the height of the dams, the cost of which would have to be amortised over a number of decades) in view of the potential reversions for as long as the terms are unclear.

So, what now?

A strong hydropower sector is absolutely crucial to the energy transition in Switzerland. At 60 per cent of total production, hydropower is already the backbone of Switzerland’s energy supply and, under the Federal Energy Strategy 2050, is set to remain that way.

As far as Axpo is concerned, this will only be possible subject to four things:

1. Faster approval procedures

2. An updated water levy system

3. Modest implementation of the ecological requirements

4. Agreement about any potential reversion compensation

For more information on the key factors involved in a successful ‘made in Switzerland’ energy transition, take a look here.

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