Does the new Electricity Act provide a suitable framework for the integration of solar energy?

With the clear approval of the new Electricity Act on 9 June 2024, the Swiss electorate spoke out in favour of an ambitious expansion of renewable energy. However, the massive, expected expansion of fluctuating electricity production, particularly solar energy, will be a huge challenge with regard to system and grid stability. Does the new Electricity Act provide the necessary framework conditions for the integration of solar energy? Some key tools have been established, but others are still needed. An overview.

The new Electricity Act approved in June envisions expanding the annual production  for renewable energy (excluding hydropower) to 35 TWh by 2035. To achieve this annual volume using solar power plants, one would have to install a solar capacity of roughly 35 GW (assumption: 1,000 full-load hours), or 3.5 million small solar power plants with an output of 10 kW. If all these power plants were to feed in at full power on a sunny summer day at the same time, this would put a major strain on the electricity grid. The peak would be over three times the size of the current maximum consumption peak of around 10 GW. This electricity would need to be transported at short notice and appropriate buyers would need to be found.

The high future feed-in peaks and the additional fluctuations in the system would both present a challenge for grid operation. Already this year, the transmission system operator Swissgrid has had to intervene at times with reserves of almost 1.4 GW, known as balancing power, to maintain grid stability. This is a tremendous amount and increases the costs for the consumer – an issue that will only get bigger with the rapid expansion of solar energy. One solution would be to create a more balanced production profile with the use of various different technologies, especially wind energy, instead of just building more small solar installations. However, better use of production and consumption flexibility is also needed to deal with peaks and to respond to short-term fluctuations. The new Electricity Act creates the framework for utilising such flexibility options.

What would help

The new Electricity Act gives distribution grid operators the right to limit the feed-in of production plants at the grid connection point to a ‘specified proportion’, i.e. to only accept a certain part of the maximum possible production output. Solar power plants only produce at full power for very few hours per year, but they can severely burden the grid during these hours. This ‘peak shaving’ allows distribution grid operators to prevent high peak loads in the grid. The ordinance expected to be passed by the Federal Council in November will ultimately define precisely what is meant by the legally stipulated ‘specified proportion’. According to the ordinance’s consultation draft, it should be possible to curtail a maximum of 3% of annual production, which roughly corresponds to a constant restriction of solar power plants to 70% of their maximum output. The associated revenue losses would be less than 3%, since the restriction comes into effect in the summer, when market prices are low.

The new Electricity Act generally introduces a clearer provision regarding the use of flexibility – the ability to specifically regulate production or consumption as required. The key element here is that the respective end consumers, production plants and storage systems own their flexibility themselves. They can pass on their flexibility to distribution grid operators and other players, who must obtain it through appropriate contracts. For example, charging electric cars can be offered via what are known as poolers as a flexibility service for the transmission grid. Deviating from this principle, distribution grid operators are entitled to certain guaranteed flexibility uses, such as the aforementioned peak shaving.

The new Electricity Act also provides the basis for the broader application of dynamic grid tariffs. Interestingly, this can be attributed to the change of a single word in the Electricity Supply Act: according to Article 14, grid usage tariffs no longer have to be ‘simple’, but merely ‘understandable’. On this basis, the revised Electricity Supply Ordinance is expected to explicitly include dynamic grid usage tariffs as a possible standard tariff. Distribution grid operators will have more flexibility through the increased use of what are known as performance tariffs, which rise with consumption peaks and thus provide incentives to decrease maximum consumption.

What might help

Certain voices also foresee a better integration of flexibility with the local electricity communities (LEC) introduced by the new Electricity Act. With LECs, consumers and producers can now exchange electricity among themselves using the public grid and receive a discount on the grid usage fee for the internally exchanged electricity. LECs could provide certain incentives to better coordinate the times of consumption and production. However, some scepticism is fair regarding whether the exchange of electricity in the LECs without flanking measures could ultimately reduce the need for grid expansion. For example, on the sunny summer day we described earlier, the LECs could still feed into the grid at full production capacity. The LECs would then not reduce the need for grid expansion but would primarily shift the grid costs to all other consumers through the grid usage fee discount. A similar issue also arises with what are known as virtual mergers for self-consumption, which the Federal Council can now permit under the new Electricity Act (in contrast to existing associations for self-consumption, these may also share the connection lines).

What would hurt

Regarding grid stability, it is essential that the short-term price signals reach all producers. In this context, the (minimum) return tariff harmonised across Switzerland for renewable energy introduced by the new Electricity Act could have a negative effect. A minimum return tariff may offer small producers more investment security, but it also means that feeding electricity into the grid is still worthwhile even in the event of an oversupply on the market with negative electricity prices. Typically, this is when the electricity grid is under the most strain. These false incentives will increasingly become a problem as the number of small-scale power plants grows.

What is missing

The integration of renewable energy also requires additional flexibility on the consumer side. However, the new Electricity Act has missed the opportunity to finally open up the electricity market to all consumers. As a result, small-scale consumers are still tied to the regulated electricity tariffs of their local supplier. They therefore cannot, for example, access the dynamic electricity products of other providers with which they would benefit from low market prices by controlling their consumption times. According to the new law, the standard tariffs for basic supply should be fixed on an annual basis and thus (to a certain extent) involve the same false incentives as a minimum return tariff faced on the production side.

A complete opening of the market would also increase the incentives for electricity suppliers to improve their forecasts connected to solar production. If suppliers (or balancing parties) have insufficient or excessive electricity in the short term, they have to pay Swissgrid this electricity and a penalty for this imbalance. In the regulated field of basic supply, they can now simply pass on these often very high costs to the tied-in customers.

The way forward

Overall, it can be said that the new Electricity Act primarily sets out clearer regulations regarding the use of flexibility and certain key tools for the distribution grid operators. The challenge for the distribution grid operators in terms of implementation will be using these tools across the board and in a practical way for all consumers. Regarding peak shaving, there will likely be no way to avoid a fixed power curtailment at the grid connection point for the time being, especially since the countless small-scale solar power plants cannot be dynamically regulated. It is down to the Federal Council to define a practical implementation in the ordinance. There are also some hurdles that stand in the way of implementing highly dynamic grid tariffs. An appropriate measurement infrastructure including simple user interfaces is needed, as well as ultimately and primarily the acceptance of consumers, who are facing additional complexity in their electricity bills.

However, there is still a lot of work ahead with regard to the behaviour of small-scale consumers and producers. By refusing to open up the market and by introducing a minimum return tariff, politicians have decided to give priority to the matters of investment security and price stability. On the other hand, this means that no real-time market price signals will reach small-scale consumers and producers. Solutions that manage this balancing act between price stability and price signals are not easy to find. It would be conceivable, for example, to provide stable prices and return tariffs only for a certain amount of electricity, while using dynamic prices for the remaining purchase or production quantities, thereby allowing market signals to be effective.

Considering the ongoing expansion of solar energy, it will ultimately become crucial for all smaller players to also be given an incentive to adapt their behaviour in the interests of the overall system. The additional fluctuations in the system are not only a challenge for grid stability, but also an opportunity for producers and consumers. Solutions such as fully opening up the market would also enable households to use their flexibility to their advantage. In other words, who would not want a future where they can charge their electric car for free at lunchtime while doing a little good at the same time.