"We demand a floating market premium"

At the beginning of April, the Federal Council presented how it intends to revise the Energy Act. In an interview with the newspaper CH Media, Axpo CEO and Chairman of the Board Thomas Sieber takes a critical view of the Federal Council's funding plans and calls for a floating market premium. According to Sieber, the framework conditions for investments in renewable plants in Switzerland must be greatly improved. Otherwise, Switzerland would not be able to get on a green path in the politically desired expansion. Read the interview with the political journalists Doris Kleck and Lucien Fluri.

In the middle of the Corona crisis, the news almost went under: The Federal Council has decided how it will achieve the energy turnaround. It will not succeed without the large corporations. However, Thomas Sieber, Chairman of the Board of Directors of Axpo, is sceptical that renewable energies can be expanded to the necessary extent. Sieber is currently running Axpo from his home office, and video conferences are the daily bread.

How is the corona crisis impacting the electricity market?

At the outset, we had sharply declining prices. In the meantime, the situation has recovered somewhat. The development of prices will be strongly dependent on how long we have to deal with the corona crisis.

We’re in a recession. What does that mean for the expansion of renewable energies?

The expansion of renewable energies is a long-term project that will take 15 to 25 years. The recession will hopefully only last a few quarters at most.

The Federal Council wants to provide more incentives to support renewable energies. Will these proposals be sufficient?

The new Energy Act includes some good elements. However, with investment contributions the Federal Council is proposing an instrument that only stood the test for small plants in the past. A large increase in renewable energies is needed. We must accelerate expansion and this requires different funding instruments.

Why don't investment contributions work?

The initial investment is not the problem for large-scale plants. Producers and investors can handle these projects. The problem is the investment period beyond 15, 20, or 25 years. Power price distortions involve risks that no one has been prepared to bear so far.

What do you suggest?

Many areas of the power industry call for a model with a floating market premium. With this model, the state, the investor and the producer share the risk.

So you want to pass the risk of declining prices on to the government?

No, we want to diversify the risk. The government proposes auctions for large-scale plants. Whoever wants to be awarded the contract will have to offer an attractive price. The government would only step in when the wholesale price falls below this offered price.

What risk does the power producer carry using this model?

Auctions introduce a competitive element that forces investors to enter into economically reasonable risks with a bid that is as low as possible. The idea is to diversify the risk between the state, the producer and the investor rather than a complete take-over. Only plants that are market-oriented will be directly supported with government funds. That is efficient and effective.

So far, Axpo preferred to invest in French solar energy and German wind farms rather than renewable energy in Switzerland. Will that change with the Federal Council's proposals?

Every year we invest a sum in the three-digit million range in our power plants and the expansion of our grids in Switzerland. But it's true: Other countries, such as Germany or France, are much more attractive for investments in renewable energies. Although it's not the only factor, this is because floating market premiums are available in these countries

So in plain language: If the Federal Council and the Parliament stick to investment contributions it will be difficult to reach the expansion targets for renewable energies in Switzerland.

Yes, that's my assumption. Switzerland must massively accelerate the expansion of renewable energies. That cannot be achieved with investment contributions. Of course, we hope the proposed instruments will be adapted accordingly after the consultation process to make it attractive for investors and producers to invest in renewable energies in Switzerland.

The biggest concern in Switzerland is hydropower. The Federal Council wants to double contributions for hydropower. Good news?

Doubling contributions is intended for new plants. But we all know, the potential for new hydropower plants has largely been exhausted.

So you reject this additional funding?

No. But the government must ensure that owners invest in existing plants, which amounts to CHF 500 million every year. If not, our hydropower will lose substance and an enormously important pillar for domestic security of supply will begin to crumble.

The government sees potential in expanding hydropower. Do you think that's illusory?

There are certainly some possibilities. But we all know how difficult mitigation for landscape protection is. I don't think that at this point you will find power producers who want to get involved in large-scale projects.

Will the imminent power shortage be resolved with the Federal Council's measures?

Winter is precisely the time when there are more and more situations where we are unable to cover demand on our own in Switzerland. This dependency on imports will become more acute in upcoming years. Now during the corona crisis we can already see how quickly a container shipment can be held back. If all the European countries demand additional power during a cold week in winter, no one will want to export.

For your part, what would be a solution?

It's very simple: Auctions for floating market premiums on all the renewable energies. Market premiums offer the advantage that the government could offer higher compensation during the winter than the summer. This would support winter power.

When the Energy Strategy 2050 was defined, certain subsidies were time limited in order to avoid establishing a subsidised economy. But now precisely these subsidies will be extended or increased. Is that really necessary?

In terms of regulatory policy I would prefer an incentive system. This would lead to a market order in which renewables would be profitable. But this model had no chance in Parliament. This is why we are advocating a subsidy model that is as market-oriented as possible. We can see that funding is necessary when looking at other countries. However, I don't want to say subsidies would be needed indefinitely.

Nevertheless, you are building a giant photovoltaic plant on the Muttsee dam.

We won't make any money with this plant. But we want to gain experience on how such plants can be realised in alpine regions – for ourselves and for Switzerland. Unfortunately the project has revealed the lack of framework conditions. Fitting the dam with solar panels has many advantages. For example, the plant will produce the same amount of power in winter as in summer. For a comparable plant in the Midlands the ratio is 20 to 80.

Your previous statements do not indicate that Axpo will decommission the Beznau nuclear power plant any time soon.

As long as the expansion of renewable energies continues at a slow pace we will need the nuclear power plants. Along with hydropower, they contribute to Switzerland's nearly CO2-neutral power production. Apart from that, over the last three years the Swiss population voted against a fixed exit deadline in two referendums. As long as the nuclear power plants can be operated safely, it is our duty to do so.

The grid surcharge will now be extended up to 2035, but not increased. Is this money sufficient for the expansion of renewable energies?

That depends on how quickly the renewable energies have to be developed. If one wants to develop larger capacities, it will require more money. However, it is not the industry that must assess this. Policy-makers have to take this decision.

So we could say: The Federal Council is doing a lot for smaller producers, but nothing for the larger ones?

The question is: What are the expansion targets of policy-makers and how can these be achieved? It would be possible to achieve a certain increase in capacity with smaller plants, but never in the range that would be needed to compensate increasing power consumption and the elimination of nuclear energy.

The Europe dossier has been set aside. A possible electricity agreement with the EU is far away. What does that mean for Axpo and for Switzerland in general?

We do not know the details of the negotiated EU electricity agreement. But the fact that Switzerland is not a part of it is a clear disadvantage, especially in short-term trading. We are being increasingly left behind by Europe. Switzerland and particularly the grid operator Swissgrid no longer have seats on the committees that make the decisions. This is detrimental to Switzerland. An example...

... yes please.

Our Linth-Limmern pumped storage plant would offer us an excellent option to balance out power fluctuations, not only in Switzerland, but also across borders, for example, in Southern Germany. The lack of an electricity agreement prevents this.

So the issue of Europe should go forward at a faster pace?

We would welcome it if the electricity agreement was concluded as quickly as possible. We are in the middle of Europe and we are an electricity hub. Switzerland needs a good connection to the EU. We must be able to participate on the committees. Anything else is a disadvantage for us.

Since last summer, you have been managing the Group in a dual mandate as the CEO and Chairman. Are you glad it will be over soon?

I never sought this. From the perspective of the Board it was the best solution in the transition. I was happy to do it and to get to know Axpo and the different people and teams from another side. I'm happy that Christoph Brand will be our new CEO as of May.

Will it be difficult for you to retreat from the operative business?

Luckily this is not the first time I've had to do this. I am entirely capable of giving up the stage to our new CEO. And get back to fully concentrating on my duty as the Chairman of the Board.

The interview was made available to Axpo by CH Media and appeared on Monday, 20 April under the title " We will need the nuclear power plants".