Last tender for the winter hydropower reserve before the obligation
Published: Sunday, Aug 25th 2024, 10:30
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Switzerland is conducting the last tender for the winter hydropower reserve this summer. The Electricity Supply Act, which was approved at the ballot box on June 9, will come into force at the beginning of 2025. It now requires storage power plant operators to build up a winter reserve - much to the displeasure of the industry.
In early summer, the Swiss Federal Electricity Commission (Elcom) launched a new round of tenders for operators. The national grid company Swissgrid has between July and the end of September to form the 2024/2025 reserve.
Two initial tranches have already been awarded for the coming winter. They have a volume of 145 gigawatt hours (GWh) and cost CHF 8.5 million. The final target is 300 GWh with a tolerance margin of +/- 100 GWh.
In order to achieve this goal, Elcom is planning another auction for partial quantities in the near future. The date has not yet been announced, Elcom spokeswoman Antonia Adam told the Keystone-SDA news agency. By proceeding in several tranches, the federal government is protecting itself against price fluctuations on the electricity market.
The operators of the storage power plants participating in the winter reserve receive compensation. According to Elcom, this amounted to CHF 281 million for the winter of 2022/2023 and CHF 52 million for the winter of 2023/2024.
Consumers must pay
These costs are charged to all electricity consumers in Switzerland - private individuals or companies - via a consumption-based surcharge on the tariff for grid usage. The water reserve will continue to be paid for by end consumers in the future.
If competition had not worked, the Swiss Federal Office of Energy could have obliged the power plant operators to form a reserve in return for a tariff set by the authorities. The new Electricity Supply Act introduces such a flat-rate compensation.
For the Association of Swiss Electricity Companies (VSE), however, tenders remain "the most efficient means of building up the reserve from a macroeconomic perspective", said Valérie Bourdin, spokesperson for the Association of Swiss Electricity Companies (VSE) in Western Switzerland. The storage power plant operators would be prepared to continue contributing to the winter reserve in auctions.
Big price difference
The Electricity Association justifies the high costs for the 2022/2023 winter reserve with the extraordinary market situation during the 2022 energy crisis. On the other hand, the late tender would also have driven up prices.
Prices were significantly lower in the winter of 2023/2024, said Bourdin. This shows that auctions work and lead to cheaper offers if the tenders are issued early on.
Even before the start of the Russian invasion of Ukraine, the Federal Council initiated the formation of a hydropower reserve in February 2022 in view of the risk of a blackout. The basis for this - the ordinance on a winter reserve - expires at the end of 2026.
Industry sees property guarantee violated
From 2025, the hydropower reserve will be enshrined in law as an obligation, which the industry opposes. The VSE complained that this is a significant encroachment on the right of ownership guaranteed by the Federal Constitution and the economic freedom of the electricity companies.
The expected income from the plants would also be reduced by the winter reserve obligation, explained VSE spokesperson Bourdin. However, the electricity producers would need this income to amortize the sometimes very high investments.
The costs and lost profits resulting from the obligation to retain water in the dams must therefore be fully compensated in accordance with the Federal Constitution.
Axpo, Switzerland's largest electricity company, added that Elcom's powers to dispose of the reserve must be limited in such a way that the necessity and proportionality of its use is justified and that the reserve corresponds to actual needs.
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