Latest developments in energy regulation in Switzerland

November 2016  |  SPECIAL REPORT: ENERGY & NATURAL RESOURCES

Financier Worldwide Magazine

November 2016 Issue

In the aftermath of Fukushima, Switzerland launched a full review of its energy strategy for the four next decades (Energy Strategy 2050), which was initially based on the assumption that its five existing nuclear reactors were to be decommissioned in the near future. In September 2013, the government issued a revised project of the Federal Act on Energy and submitted it to parliament for discussion and adoption. The project incurred a number of amendments over the past two years and was finally adopted on 30 September 2016. The new Federal Act on Energy (FAE) is expected to enter into force in January 2018.

In 2015, nuclear electricity production accounted for 33.5 percent of the national production (down from 38 percent in 2014). Hydroelectric plants provided 59.9 percent of the national production, non-nuclear thermic plants 2.4 percent. The portion attributable to renewables (solar, wind, geothermal energy, biogas, biomass and waste) amounted to 4.2 percent, which is about 2800 GWh. While still low, this figure more than doubled in the past five years. The leap was almost exclusively due to the solar industry.

The FAE bans the construction of new nuclear plants. Existing plants may, however, continue to be operated as long as they are safe, keeping in mind that they were built between 1969 and 1984. But this may not be enough. A large portion of the population remains opposed to nuclear plants; a vote will take place on 27 November 2016, whereby Swiss citizens will decide whether or not nuclear plants should be decommissioned. That said, one should expect that the output of Swiss nuclear plants will continue to decline whatever the outcome of the vote, as the price of electricity is not sufficient to cover the operating costs. BKV, the operator of the Mühleberg nuclear plant, has announced that it plans to voluntarily close this nuclear plant in 2019 for financial reasons.

The FAE sets ambitious targets in terms of renewable energy: by 2035, electricity production from renewables should reach 11,400 GWh. This increase is roughly equivalent to the output of a large nuclear plant. The production of renewable electricity will need to be quadrupled.

The question is whether this goal can be achieved without or with limited subsidies.

Aid in the renewables sector

Federal aid has been in effect since 2009 in the form of feed-in tariffs designed to guarantee producers a price that matches the production cost. The federal funds available were, however, too limited to satisfy all the projects and most renewable energy projects were placed on a waiting list.

The system will change as of 2018. Feed-in tariffs will still exist, but the aid will take the form of tariffs which take supply and demand into consideration. The aid will amount to the difference between the production costs of ‘best in class’ producers and the average market rate over a defined (short) period (e.g., day rate vs. night rate). Thus, producers that will be able to inject electricity into the grid when demand is high will receive more aid. This change is expected to bolster innovation in the energy storage field.

As a matter of principle, grid operators will have the obligation to purchase electricity from renewable electricity producers (provided that the capacity of the installation or the electricity generated does not exceed 3 MW and 5000 MWh), if such producers cannot or do not want to sell it on the regular market. The purchase price will correspond to the standard rate that grid operator pays. However, this safe haven does not apply to producers that participate in the feed-in tariff system. Those producers must sell their output on the regular market, thus running a higher risk regarding the price received for production. The conclusion of power purchase agreements (PPA) will need to be taken into consideration at the earlier stages of such development projects. It should also be noted that electricity producers will retain the right to use or sell part of the electricity production to the extent that it is used on the production site.

For smaller photovoltaic plants (less than 30 kW), the possibility has existed since 2014 to benefit from a one-off investment, which may reach up to 30 percent of construction costs. This option will be extended to biomass. Producers that fall under this system may force grid operators to purchase their output.

In any case, Federal aid is subject to sufficient funds being available. The Federal fund for renewables is financed by consumers, who are paying an additional CHF 1.5 ct./kWh on top of their electricity bills. This tax will be raised to 2.3 ct./kWh in 2018. One should assume that a waiting list will still exist, but that it will be reduced despite the likely increase of projects in the coming years.

Federal aid is limited in time. Feed-in tariffs will only be available for projects approved before 2024. For these approved projects, the aid is not unlimited in time; its duration is yet to be defined by the Federal Council.

One-off investments will only be available until 2031.

Renewables as a national interest

A difficulty with which developers were traditionally confronted with respect to power plant projects in Switzerland, was the ability to obtain a construction permit, especially in the hydro and wind sectors. Switzerland is adamant when it comes to the protection of its landscape and many projects have been dismissed because of this prevailing public interest.

Fortunately, it will be easier to obtain the required construction permits in the future. The cantons will have the obligation to identify the portions of their territories which are more prone to being used for renewable energy production.

In addition, the FAE expressly specifies that the development and the use of renewables are of national interest; that is, renewables are as important as any other national interest. In other words, a much larger portion of the Swiss territory will become available for renewables, especially for larger scale projects, and such projects might even be conducted in areas protected by Federal law.

Furthermore, the recognised importance of renewables will mean that the use of eminent domain proceedings will be more readily available, when necessary.

Finally, one should expect that it will be faster to obtain enforceable construction permits. The cantons have the obligation to put in place fast-track procedures for renewables power plants and the possibility to appeal against such construction permits will be limited.

One can safely conclude that the various changes brought by the FAE will create great opportunities in the renewable energy industry in Switzerland.

 

Mathieu Simona is an attorney-at-law at BCCC Attorneys-at-law LLC. He can be contacted on +41 227 043 600 or by email: simona@bccc.ch.

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Mathieu Simona

BCCC Attorneys-at-law LLC

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