A new role for Axpo in hydropower

Axpo is currently the largest producer of hydropower in Switzerland. This will change in the coming decades, as the Swiss mountain cantons and communes want to take hydropower into their own hands. The Pintrun power plant in Graubünden illustrates the role Axpo can play in hydropower in the future.

Hydropower has been used to generate electricity in Switzerland for more than 100 years. Many hydropower plants were built between 1945 and 1970, especially in the years immediately after the Second World War. A large number of these plants were located in the mountain cantons, where the steep gradient could be exploited. Axpo, or more precisely its predecessor company, constructed many of these facilities and still operates them today. The local cantons and communes granted licences to energy companies for the use of water and received a water rate in return. 

Reversion strategy of the mountain cantons

These licences, between 40 and 80 years old, will expire over the coming years and decades, and in some localities that process has already begun. When a licence expires there are basically two options: the cantons and communes where they are located can renew the licence or they can exercise the right of reversion, by which ownership of the power plants is transferred to them. Major hydropower cantons such as Valais, Ticino and Graubünden have adopted this reversion strategy. But even in this case, existing operators such as Axpo can continue to play an important role as potential partners of the cantons and municipalities. This is because operating a hydropower plant comes with various entrepreneurial risks. These include the capital required for the necessary maintenance and modernisation work, the marketing of the electricity generated and, above all, the market risk. Low electricity prices - seen as recently as around 2016 - can lead to significant losses. Comprehensive risk management and the ability to successfully market the electricity produced on the wholesale market are therefore of crucial importance. Throughout the decades, operators such as Axpo have acquired a high level of expertise in this area.

A small hydropower plant shows the way

The Pintrun hydropower plant in Graubünden shows how Axpo can continue to apply these skills for the benefit of everyone involved. At the end of its 80-year term, the power plant’s licence was due to expire. Although Graubünden canton has a reversion policy, however, it did not wish to lose Axpo’s experience and knowhow.  An agreement was therefore reached with Axpo stipulating that the commune and canton would refrain from taking this step and allowing the company to retain its stake in the plant for the next 60 years. When the licence expired, the facility was transferred to a new company which is co-owned by the commune (70%), the canton (10%) and Axpo (20%).

This solution delivers a number of benefits. Axpo remains an experienced and reliable partner for the commune, ensuring the continued operation of the power plant and marketing of the electricity it generates. Closer collaboration with the commune will see that local considerations are taken even further into account in future. And there is now greater clarity for the plant’s employees, who will continue to operate the power plant in the best interests of all its stakeholders. 

Strategic challenge for Axpo remains unchanged

Despite this success story, the reversion strategy of the cantons and communes represents a strategic challenge for Axpo as the largest producer of hydropower in Switzerland. The company will continue to apply for every commercially viable licence, and new partnerships with cantons and communes do offer opportunities for Axpo to continue to contribute its expertise as a power plant operator and energy marketer. But these new models will only be able to replace a small amount of the company’s lost income.  Under such conditions, it is therefore sadly inevitable that hydropower, long one of Axpo’s defining activities in Switzerland, will separate from the rest of Axpo’s business over the next few years.  

Axpo’s three-pillar corporate strategy is therefore of significant importance in guiding the company as it continues to identify exciting growth opportunities, particularly in the expansion of renewable energies in Europe and Switzerland and our developing international customer and trading businesses. Thanks to these growth areas, Axpo will be able to maintain and further increase both the value of the company and its earnings and investment potential into the future.