Switzerland

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  • Date: 8/6/2014

“Fukushima completely transformed the situation” 

Interview with Michael Frank, Director of the Association of Swiss Electricity Companies (VSE)

As Director of the VSE, you have been campaigning for more than three years to optimize conditions in the electricity industry and ensure a secure power supply. Which do you feel have been the most major changes in terms of power production?

Fukushima completely transformed the situation in March 2011: The federal government decided to phase out nuclear power plants in the foreseeable future. We then came up with three scenarios, “Different Paths to the New Future of Electricity”, which illustrate how we can successfully achieve our goal of transforming our energy system. Decisions always need to be made with caution and a focus on all three central factors: production, grid expansion and storage. In every scenario we came up with, renewable hydropower generated right here in Switzerland continued to play a key role in this transforming. Yet Switzerland’s most vital, environmentally friendly technology, which accounts for around 60 percent of the power generated in this country, is where we’ve recently been seeing the situation deteriorate even further. The general conditions need to improve. Swiss hydropower needs to be put back on equal footing with other renewable energies and we can’t let it be relegated to a second-class source of renewable energy. After all, the greater the share of irregular power production, the more important it is to have controllable hydropower to compensate for these fluctuations.

What has changed with regard to electricity trading?

Several different global developments triggered strong deterioration in electricity prices: large-scale shale gas extraction in North America and a low coal price in Europe, extremely low prices for CO2, substantial subsidies for renewable energies, particularly in Germany, as well as the general economic environment which is curbing demand. These have given rise to unintentional side effects such as increased CO2 emissions as well as the major problems currently facing unsubsidized power plants. When restructuring the energy system, imports and exports will continue to play a vital, possibly even greater, role as means of balancing out fluctuations in supply and demand. Here it is important that Switzerland remains capable of fully participating in market coupling which the EU will introduce in 2015.

Which are the key changes that have taken place in terms of power sales?

Since the first step toward market liberalization was taken at the start of 2009, the number of major customers choosing to switch to the free market has been rising steadily. Meanwhile, 25 percent of Switzerland’s electricity requirements are now satisfied via the free market. Competition has intensified. The complete market liberalization called for by law also presents power utilities with huge challenges including the issue of how to efficiently process customer switches.

What do you think of developments regarding feed-in remuneration at cost?

The current interpretation of the policy leads to distortions of the market and, in the end, inefficient power production investment decisions. Effective measures to promote the production of power using renewable sources of energy need to involve incentives for behavior in line with the market while also letting market players choose the best technology and time to invest. Now that start-up funding has been arranged, what has to happen is that stochastically producing renewable energies need to be integrated into the overall system of an undistorted energy market. Today’s feed-in remuneration at cost policy is still too far removed from the market and it is imperative that it factors in price signals.

Energy efficiency is a vital part of the federal government’s Energy Strategy 2050. What contribution can power plants make?

The vast majority of electricity companies is either actively contributing already or planning additional measures – voluntarily despite the fact that these efforts are not yet economically viable. The industry’s contributions also include collaborating on projects together with the Swiss Energy Agency for Industry (EnAW), submitting a proposal to the federal government on an alternative to the “white certificates” currently being discussed as well as this year’s launch of a new course of study culminating in a degree as a “qualified energy and efficiency advisor”. Graduates will ensure the practical implementation of the Energy Strategy 2050 and play a vital role in boosting efficiency across the board. There’s one aspect that is frequently forgotten when discussing efficiency: It’s about overall energy efficiency, not just in terms of electricity. Electricity isn’t the problem, it’s part of the solution. In most cases, electricity-based applications offer increased efficiency. Here I’m thinking of heat pumps that replace oil-fired heating systems, for instance.

The Federal Council and Parliament want to phase out nuclear power. Would this make Switzerland dependent on its neighboring countries?

The country’s announced phasing-out of nuclear power will increase the percentage of power that we import. We will have to replace 40 percent of the electricity currently produced. That presents a huge challenge. There’s one thing we have to keep in mind, however: Switzerland is not an island when it comes to electricity and it never will be. Cross-border exchanges are already extremely important. Eleven percent of the power traded throughout Europe passes through Switzerland’s transmission grids. Switzerland’s location at the heart of Europe makes it a key trading partner. Not only that, but the importance of pumped-storage plants in the Swiss Alps will grow as stochastic production expands across Europe.

Which do you feel are the biggest challenges in terms of security of supply?

We’ve been working hard for some time now to eliminate shortages by expanding our transmission grid. Increasingly decentralized, irregular production of power is also placing greater demands on the power grid. That’s why it’s important for the grid strategy announced by the Federal Council to become reality soon and provide security for the required investments. The new infrastructure construction and expansion process, in particular, needs to become shorter and significantly more efficient. Plus I should stress once more that we need to improve the general conditions for hydropower again to create investment incentives. Continued investments in hydropower projects are needed in order to secure the power supply of tomorrow.

What is your take on the negotiations currently underway with the EU? Where are they at and what are they all about?

Negotiations have been on hold since 9 February and the approval of the mass immigration initiative. According to the Federal Department of the Environment, Transport, Energy and Communications, some cautiously positive signs have come from Brussels recently. Apparently they have already nearly reached a consensus on the technical aspects. The electricity agreement still hinges on answers to some as yet unanswered institutional questions, however. All in all, we remain optimistic that the electricity agreement will still be approved. We would welcome that because it’s hugely important for the industry and the economy. Economic centers on both sides of the Alps and the Rhine are also well aware of the overwhelming advantages offered by an open, pan-European energy market and support this effort.

What is your perspective on market developments in Switzerland? Will it be possible to liberalize the domestic market in the foreseeable future?

The example I mentioned earlier shows that the open market is starting to function. And that’s good. Federal Councillor Doris Leuthard is planning on complete market liberalization as of 2018. From that point onward, private individuals and small businesses with consumption levels under 100 MWh will be free to choose their electric company. While the chance of a popular referendum cannot be excluded, we anticipate that complete market liberalization – as Bern has now announced through its draft bill – will become a reality. The industry will need an adequate amount of time to ensure that these changes are implemented efficiently. Preparations are currently underway.

 

Which direction is development at power companies taking in Switzerland?

 

The environment is changing constantly, not just at the global level but in Switzerland, too, and this calls for the undivided attention of our members. We are facing numerous complex challenges, all at the same time: strategic realignments, preparations for full market liberalization, implementation of the first set of measures for the Energy Strategy 2050, progress in ICT convergence, the question of how to deal with the general economic situation, internal cost-cutting programs as well as increased efficiency on the grids. As you see, the industry is undergoing major restructuring and radical changes. These are opening up new opportunities which we also intend to seize.

 

What will Switzerland’s electricity market look like in the next 20 years?

 

Right now the situation surrounding the electric power industry is extremely exciting and dynamic. We’re observing a few trends that indicate how the electricity market will develop between now and 2035: ICT will have a bigger impact on energy, the power grids will converge even more, power companies’ business models and understanding of what role they play will undergo a huge transformation. The portion of power stemming from renewable sources of energy, which is currently at 60 percent in Switzerland, will continue to rise and as it does, so will the prevalence of decentralized production. Electricity imports are also extremely likely to grow at the same time. The greatest uncertainty lies in the political/regulatory environment – both at the European and national level. That’s where we would advocate reversing the trend: less microregulation and more space for market solutions so that price signals can take effect and create investment incentives.

 

About Michael Frank

Michael Frank has served as the Director of the Association of Swiss Electricity Companies since 2011. He is responsible for representing and coordinating the interests of the various stakeholder groups and members as well as heading up the executive board. Michael Frank has extensive experience in the areas of market liberalization, grid infrastructures, regulation in the electricity industry, telecommunications and public affairs. He launched his career at the Federal Office of Communications and then went on to Swisscom and Axpo where he had a variety of different management positions and duties. Michael Frank was born in Biel, Switzerland, in 1963. He holds a law degree from the University of Bern and passed the State Examination for Advocates. He is also a board member of the Swiss Energy Agency for Industry (EnAW).

 

Michael Frank

Michael Frank
Director of the Association of Swiss Electricity Companies (VSE)