Electricity market regulation 2024 – interim summary

The first half of 2024 was marked by the vote on the new electricity law and its implementation at ordinance level. Numerous other bills were also pushed forward or initiated. An overview and assessment of the key developments.

On 9 June, the public approved the new electricity law with 68.7% in favour, showing clear support for the expansion of renewable energies. Following the approval of this law, however, many details still need to be regulated at ordinance level before it enters into force on 1 January 2025. The Federal Council submitted its proposals in a comprehensive package of ordinance revisions (even before the vote) for consultation from February to the end of May.

Axpo and the electricity industry have provided detailed commentary on the ordinance package (see response from Axpo). It is clear that there are still numerous uncertainties and many points still need to be adjusted. In particular, a more consistent focus is needed on the ambitious expansion targets of the new electricity law, e.g. sufficient investment security for project engineers. It is now up to the Federal Council to implement the required improvements before the final version of the ordinances is established (likely in late November).

Acceleration bill – adequate consideration of the electricity grid

In June, the Council of States’ Energy Committee discussed the bill for the acceleration of approval procedures for electricity production plants. This was initially discussed in the National Council in December last year and is now due to come before the Council of States in autumn. The bill aims to enable quicker approvals for large production plants, including through a cantonal planning approval process. 

In early June, the Federal Council also began the consultation on an additional bill for the acceleration of approval procedures for electricity grids. The aim is for legal adjustments to accelerate, in particular, the expansion and transformation of the transmission grid. Further proposals for improvements at ordinance level will follow in autumn.

The strategic direction of these bills is a welcome sight. As things stand, the approval of production plants and electricity grids can take 15 years or more. In view of the future security of supply, this is simply too slow. However, the National Council has already somewhat slowed down the bill for the acceleration of production plants by introducing approval from the municipalities (in what is actually a cantonal procedure). Both bills have so far disregarded the grid connection of production plants and distribution grids. Both are key elements for the expansion of renewable energies.  The bills urgently need to be simplified before they can be approved.

Reserve power plants – challenging framework conditions

In early March, the Federal Council referred a bill to Parliament that adds (fossil) reserve capacities to the new electricity law. To avoid bottlenecks in exceptional situations, a proper, long-term legal basis is to be provided for the temporary reserve capacities established via ordinance during the energy crisis (i.e. reserve power plants, emergency power generators and combined heat and power plants). The bill is currently being discussed by the National Council’s Energy Committee.

In late May, the Federal Office of Energy announced that the tender for new reserve power plants for the period after 2026, which had been running since the middle of last year, had been cancelled. The reason cited was that the federal government considered the costs to be too high; the framework conditions needed to be examined and direct negotiations would need to be initiated.

Whether these (initially) fossil reserves, which are essentially at a standstill as insurance but would emit CO₂ in the rare event that they were used, will be politically accepted remains to be seen. Options for reducing CO₂ during use (e.g. filters, future switch to renewable energy sources) exist but come with all the associated expense. Such requirements are also cost drivers in the cancelled tender.

Regulation of wholesale markets – follow-up with limited effect

In June, the National Council discussed a new Federal Act on the Oversight and Transparency of Wholesale Energy Markets (BATE) for the first time. The bill is a follow-up to the European legislation which already regulates Swiss electricity companies with international trading operations such as Axpo, which means its requirements are already met. The introduction of the BATE Act in Switzerland must, in particular, be harmonised with EU requirements, and a Swiss finish with additional market barriers must be avoided. The bill is geared towards market integrity and is not related to the issue of security of supply.

Requirements for electricity companies with “systemic importance” – preventing expansion obstacles

The consultation on a draft that would impose new standards on electricity companies with “systemic importance” ran from March until mid-June. The Federal Council presented it as a consequence of a mandate from Parliament in connection with the energy crisis. According to the draft, eight major electricity producers must meet additional organisational and risk management standards and possess sufficient liquidity and equity at all times for all relevant scenarios. The Federal Government and the Federal Electricity Commission establish requirements and conduct audits.

The provisions intended by the Federal Government are internationally unparalleled, which implies competitive disadvantages for Swiss companies. While a focus on liquidity as a concept itself is an understandable measure, equity requirements are not productive. Liquidity and equity requirements carry the risk in any case that funds will need to be set aside instead of being invested in expanding renewable energy. A more detailed assessment of this complex issue can be found in the Axpo magazine article.

Capital interest on electricity grids – the wrong time for experiments

In mid-June, the Federal Council began a consultation on adapting the method for the regulatory interest rate (WACC) on the capital invested in the grids. There is political pressure for the WACC to be lowered in a targeted manner by reducing the risk remuneration (or market risk premium) for grid operators and thus also their profit. Lower limits are also being removed in the method, meaning the WACC would fall more sharply in periods of low interest rates. Since the same method is also used to calculate support for renewable energies, the adaptation would also have a negative impact on funding during periods of low interest rates.

Adapting the long-established method leads to uncertainty for investors and creates a barrier for the necessary grid expansion, which is further raised by the ambitious goals of the new electricity law. Introducing an experimental method at this stage reduces investment security. The negative consequences are disproportionate to the minor effect on electricity tariffs.

Conclusion – focus on bigger steps within core issues

This long list shows that momentum will remain strong in the field of ​​electricity market regulation in 2024. In addition to the core issues for security of supply, i.e. the new electricity law, acceleration bills and reserve power plants, side issues have arisen with other matters such as requirements for electricity companies with “systematic importance” and the adaptation of the WACC method.

Authorities and politicians should focus on taking bigger steps forward with the core issues. Further improvements to the framework conditions for the expansion of renewable energies are needed. That being said, negative effects on investment security must also be prevented through parallel developments. There’s still plenty to do.