Electricity prices are rising across Europe. And currently, only large customers with a consumption of more than 100’000 kilowatt hours are able to choose their electricity partner in Switzerland.
This situation is set to change however, according to the planned “Federal Act on a Secure Power Supply with Renewable Energies,” and both private households as well as small businesses in Switzerland will soon be eligible to change suppliers. So with change on the horizon, it will certainly pay for private consumers to understand how energy is sourced and created in Switzerland – and why there has been such a sharp rise recently.
Switzerland announced its goal to reach net zero carbon by 2050. In order to achieve this, large-scale investments in renewable energy and clean technologies are planned. This includes tripling output from non-hydro renewable sources such as wind and solar power by 2035. Some key related facts:
- In 2021, more than 680 hydroelectric plants generated 61.5% of the electricity consumed in Switzerland.
- The country’s four nuclear plants generated another 28.5% of the electricity consumed, but also exported approximately half of their total production. These are to be closed latest by 2034.
- Currently the overall energy consumption in Switzerland is split between:
- Petroleum products 43%
- Electric power 26%
- Natural gas 15%
- Wood and coal 6%.
The above means that Switzerland is currently almost self-sufficient in electricity – but Switzerland plans to decommission its nuclear power plants no later than 2034, in accordance with a national referendum held in 2011. And with currently nearly 30% of electricity produced in Switzerland coming from nuclear power plants, the planned renewable sources will need to be functioning well before the 2034 deadline.
Electricity Distribution, Control and European Network
- Swissgrid is the company with distributes electricity in Switzerland and it is responsible for operating, maintaining, modernising and expanding the 6’700 km of high voltage grid.
- It is important to know that Swissgrid does not generate electricity, but transports the energy produced by the power plants to the consumption centres.
- The power plant operators in Switzerland help Swissgrid ensure grid stability by providing “control energy“. This is the reserve that Swissgrid uses in the event of an imbalance between production and consumption.
- The above would be used for instance when electricity consumption increases. Swissgrid then has the power plan operators feed more energy into the grid. When it falls, less energy is fed in.
Europe’s national power grids are interconnected by cross-border lines and Switzerland plays an important role in the integrated European interconnected grid, as a major energy storage facility.
The European Interconnected Grid is a physical structure that enables electricity to be traded across borders (and will ultimately lead to prices converging across Europe). This is a form of “networking” and used as international cooperation to overcome electricity bottlenecks caused in the winter months for example.
Q: How does the Swiss electricity market actually work?
- With the exception of the Swiss Federal Railway, no consumers can be directly connected to the transmission grid. However, private consumers play a key role in ensuring the stability of the grid. If there is a threat of an imbalance, Swissgrid asks large electricity customers, to cut down their energy consumption.
- Since the 1990s, electricity suppliers and network operators have gradually been privatised. But in 90% of cases, the main shareholders are still the public authorities.
- The Swiss electricity market was partially liberalised in 2009, with companies consuming more than 100,000 kWh per year able to choose their supplier. However, these represent only 0.8% of all grid users.
- The rest of the market is represented by private households and smaller companies and are referred to as “captive customers.” These are forced to consume electricity from their local supplier
- This means that prices can vary greatly from one municipality to another: For instance in 2022, the inhabitants of the city of Basel paid 28 cents per kWh, while the population of the municipality of Simplon in Valais paid only 11 cents for the same level.
Q: Who are the main electricity players in Switzerland and are tariffs set?
- There are around 630 distribution network operators in Switzerland, 70% of which do not produce electricity.
- These are often municipalities, which have to guarantee supply in a clearly defined area.
- A handful of companies have expanded on a national – and even an international level.
- The Swiss government has identified three systemically important electricity suppliers whose failure could affect the supply of the entire country: Axpo, Alpiq and BKW.
- For “captive customers” the electricity tariff is a combination of the energy price, the transmission price and various taxes and charges.
- The bill varies from one municipality to another because of the amount of taxes levied locally, but also because of the supply strategy of the local supplier.
- Some companies produce a large proportion of their electricity themselves, while others buy it; some have already concluded contracts several years in advance, while others procure electricity on a short-term basis. These strategies have a direct impact on consumers’ bills, depending on market fluctuations. In future this may be a strong consideration for people when deciding to live somewhere in Switzerland.
The current law guarantees captive customers access to the network, the desired quantity of energy and “fair tariffs”. In 2021, the average price in Switzerland was 18.5 Swiss cents per kWh, while the average in EU countries was 22 euro cents.
Currently “captive customers” in Switzerland do not have the option of switching providers, the companies are entitled to raise prices if the increase is justified. Each year, the 630 network operators must submit their tariffs to the Federal Electricity Commission (ElCom). The commission can prohibit unjustified price increases or reduce excessive amounts retroactively.
Q: What are consequences and examples in Switzerland of the international rise in electricity prices?
- The country’s production, mainly from hydroelectric power stations, more than covers its requirements during the summer months.
- In winter, however, Switzerland has to import around 40% of its electricity. Suppliers have to buy energy on the European market, where prices are at record levels. As a result, Swiss consumers will see their bills rise in 2023. ElCom expects an average increase of 27%.
- Romande Energie, which only produces 40% of the electricity in its network, will raise tariffs from 21.2 cents in 2022 to 32.2 cents in 2023.
- The energy crisis is also affecting large electricity suppliers such as Axpo and Alpiq, which are struggling to find the cash needed to pay for guarantees for their future contracts.
- Axpo asked the Swiss government for support and obtained a loan of CHF4 billion.
The same approach is being taken throughout Europe: Germany, Austria and the Scandinavian countries have just released several billion francs to provide liquidity to their energy companies.
Q: Why is the Swiss market not fully liberalised?
The Swiss government wanted to follow the European trend but was stopped by the people in 2002: 52.6% of voters refused to liberalise the Swiss market. In 2017, however, the electorate approved a new energy law that provides for the gradual closure of all nuclear power plants in the country.
European market developments and Switzerland’s desire to phase out nuclear power have prompted the government to draft a new electricity supply law. This law provides for the complete liberalisation of the market and the rapid development of renewable energies in Switzerland. This text will soon be examined by parliament. The debate is likely to be particularly impassioned in the current context.
In summary: Electricity has now taken centre stage for many private and commercial users across Europe, including Switzerland. A European infrastructure and commercial network of partners has been developed with the aim of regulating the supply of electricity in times of increased demand. Combine this with the fragmented (and monopolistic) way electricity is still supplied in Switzerland for private users (aka “captive customers”) and an unclear picture emerges for the end-consumer going forward. In future – finding the right location to work and bring up a family, could soon be linked to the availability and choice of electricity suppliers and their pricing policies.
Accurity GmbH is a professional employer organisation (PEO) based in Zurich. We are SECO licensed with a 20+ year enviable reputation as a trustworthy, reliable and transparent partner for companies of all sizes including SMEs, contractors and recruitment agents. Our core services include EOR and ANobAG for contractors and clients wishing to engage contractors. We are based in Switzerland and have excellent local knowledge and connections. Contact our team for a non-binding consultation on email@example.com to see how we can help you.