Inefficiencies in the New Efficiency Obligation System

The electricity law that came into force on January 1, 2025, includes an obligation for electricity suppliers to implement energy efficiency measures for Swiss customers. More electricity efficiency is generally welcome, and electricity suppliers will do their best to implement the new regulation effectively and efficiently. But how effective and cost-efficient will the new system be? Doubts are justified.

The electricity law aims to strengthen security of supply not only by accelerating the expansion of renewable energy but also by reducing electricity consumption or increasing the efficiency of electricity use. Therefore, an obligation system for electricity suppliers to enhance energy efficiency has been included in the law. The concept: The federal government sets a savings target for electricity suppliers as a percentage of their supplied electricity volume. Based on this target, they must implement energy efficiency measures for their end customers or incentivize such measures financially. The implementation of these measures is documented through savings protocols, which can, in principle, be traded. The costs of implementing these measures are borne by consumers through higher electricity prices; in basic supply, they can be partially included in tariffs, while in the free market, they become part of the contracts.

Conceptual Problems at the Legislative Level

Efficiency obligation systems are already known from various EU countries. However, a crucial element has been altered in the Swiss implementation. In the EU, the focus is on overall energy efficiency. This means efficiency potential can be unlocked through electrification, such as replacing an oil heating system with a heat pump. Such efficiency gains are often substantial since using electricity is significantly more energy-efficient than using fossil fuels. In contrast, the Swiss system is limited solely to electricity and electricity efficiency. As a result, the potential for savings is significantly smaller or more expensive to achieve. Furthermore, the costs of the obligation system could disproportionately increase electricity prices compared to other energy sources, making electrification less attractive and thereby weakening overall energy efficiency and climate protection.

The second conceptual weakness of the system is that electricity suppliers are being forced into activities that ultimately fall outside their primary role — namely, the production and supply of electricity. They are now also required to engage in matters such as replacing refrigerators or other appliances.

Third, the system applies not only to small consumers in basic supply but also to large consumers in the free market. In the free market, the currently unpredictable costs of energy efficiency measures must be incorporated into long-term electricity supply contracts, which could lead to risk premiums and market distortions.

Question Marks at the Regulatory Level

With the ordinance package accompanying the electricity law, the Swiss Federal Council has now defined further details of the efficiency obligation system. On the positive side, the obligation will be introduced gradually; the savings requirement will start in 2026 at 1% of the annual electricity sales of suppliers and increase to 2% by 2028. However, various uncertainties in implementation and remaining conceptual issues are problematic. Two aspects stand out.

The first question mark arises concerning the catalogue of eligible efficiency measures. According to the implementation documents, standard measures are very limited. Many measures already fall under competing national and cantonal electricity-saving programs and are therefore not eligible. Additionally, behaviour-influencing measures, such as CKW’s energy tracker app, are excluded. This is puzzling, as these measures have a clear connection to the core activities of electricity suppliers. The corresponding savings results could also be objectively verified. Given all these restrictions, the primary standard measures left are replacing lighting and appliances such as refrigerators. Achieving substantial savings relative to total Swiss electricity consumption through these means will be difficult and potentially expensive.

A second major question mark concerns the trading of savings protocols. A liquid market for savings protocols is essential for a cost-efficient implementation of the new requirement. For a product (in this case, a certificate) to be tradable, it must be as standardized and certified as possible—only then can a liquid market develop, with sufficient suppliers and buyers and low transaction costs. However, in the planned system, trading is based on savings protocols that are self-reported by market participants. Buyers are therefore faced with a high degree of uncertainty about whether these will ultimately pass the Federal Office of Energy’s review and hold any actual value.

The Way Forward – Or better, a Step Back?

The Swiss Parliament has introduced the efficiency obligation system by law — albeit very late in the legislative process. The Federal Council and the industry are therefore obligated to implement the system. However, the existing ordinances provide an inadequate foundation for the industry to take on its role efficiently. Substantial refinements to the framework will be necessary.

A first step would be to address the issues mentioned above: On one hand, the catalogue of measures should be expanded to increase the feasible potential, particularly by including behaviour-influencing measures. On the other hand, an effective trade in savings protocols requires the establishment of an official platform to certify savings protocols and enable simple electronic transactions. The so-called guarantee of origin system provides an existing model for this.

However, it might be worth considering more fundamentally whether the experiment of an efficiency obligation system should really be pursued at all — or whether the system should be completely reformed or abolished. The phased introduction leaves some time for such a decision. However, this decision would need to be made at the political level. The Federal Council will not be able to eliminate the conceptual problems at the regulatory level. Regardless of the system’s design, high administrative costs are to be expected, and the risk of rising electricity prices due to expensive and inefficient measures is imminent. Furthermore, electricity suppliers would prefer to focus on electricity production and delivery rather than filling out, trading, and submitting savings protocols.