Swiss hydropower is undergoing a transformation as ownership transitions towards local municipalities and cantons, aiming to enhance regional control over energy resources. While consumer electricity bills may remain stable due to market dynamics, local governments seek to retain financial benefits from hydropower, which currently generates over 550 million Swiss francs annually in water rents. However, municipalities face risks tied to fluctuating electricity prices, which could impact profitability and operational stability of these newly acquired assets.
The Evolution of the Swiss Electricity Market
The Swiss electricity landscape is experiencing a significant transformation as many concessions for hydropower plants approach their expiration dates in the coming years. The concept of “homefall” is gaining traction among mountain regions, which aspire to reclaim control over their energy resources. This shift aims to empower cantons and municipalities to become the primary stakeholders, replacing traditional electricity companies.
Economic Implications of Changed Ownership Structures
What do these new ownership dynamics signify for the economy? Will consumers notice a difference with essential production facilities changing hands?
For the majority of consumers, the transition in ownership of hydropower plants is unlikely to impact their electricity bills. Most of the approximately 600 electricity suppliers in Switzerland do not operate their own production facilities; instead, they acquire electricity from the wholesale market at prevailing rates, which they then pass on to their customers. Consequently, the ownership of hydropower plants does not directly affect the costs consumers incur.
However, for basic suppliers that generate their own electricity, the homefall could influence customer tariffs. For instance, if Zurich’s electricity company (EWZ) loses production capacity from its hydropower assets, it may need to procure additional energy from the market, potentially altering the pricing structure for customers. Whether this results in higher or lower electricity bills hinges on the procurement strategies employed by these companies.
According to insights from the Federal Electricity Commission (Elcom), it is challenging to forecast a general trend, as electricity prices are subject to various uncertainties.
Many mountain cantons are already reaping the rewards of hydropower. Local governments seek to retain the financial benefits generated by these resources. As Graubünden’s government councilor Carmelia Maissen states, “By increasing our stake in power plant companies, we aim to ensure that a greater share of value creation stays in Graubünden.”
Currently, mountain regions receive substantial annual water rents from electricity companies, providing a steady income stream. Nationwide, these rents exceed 550 million Swiss francs annually, with some municipalities in Graubünden earning more from water rents than from taxes.
Moreover, certain concession agreements allow local energy suppliers to purchase electricity from larger producers at reduced rates, contributing to some of the most affordable electricity rates found in regions like Valais and Graubünden.
However, if a municipality fully acquires a hydropower plant, it risks forfeiting these advantages. The profits generated will remain within the local community rather than being distributed to a central electricity company. Nevertheless, the anticipated financial gains from owning hydropower assets are not guaranteed.
On the expenditure side, hydropower production tends to have stable costs for maintenance and operation, barring any major renovations. In contrast, revenue from hydropower can fluctuate significantly. While recent years have seen favorable market prices, just a few years ago, low electricity prices made hydropower generation nearly unprofitable. Concerns about the viability of Swiss hydropower were echoed in a 2018 report by the Federal Office of Energy, highlighting uncertainties regarding profitability.
With the introduction of the homefall, municipalities and cantons will now face these economic uncertainties directly. Axpo CEO Christoph Brand notes, “The municipalities and cantons have opportunities through the homefall – but there are also numerous risks, primarily tied to market electricity prices. Low prices can rapidly lead to significant losses.”
As for Axpo, the future might involve partnership models for many facilities. For example, at the Salanfe power plant, majority ownership will transition to seven participating municipalities and the canton, while the previous concessionaire, Alpiq, retains a 40 percent minority stake, allowing them to continue providing operational expertise.
Nonetheless, with ownership structures becoming increasingly fragmented, the role of electricity companies will inevitably shift. Currently, Axpo operates around sixty hydropower plants, but this number could dwindle significantly after concession negotiations conclude. Additionally, if Axpo’s nuclear power plants are decommissioned during this period, the largest electricity producer in Switzerland may find itself with a greatly reduced domestic portfolio, necessitating a reliance on foreign markets for revenue.