Electricity agreement: a small step for Switzerland, a giant step for its energy security

There is the Star Wars saga and, in Switzerland, that of the electricity market. For more than twenty years, two camps have clashed over how to manage “the electric force”: those wishing to leave it to the market’s supposedly dark power and those convinced of the innate benevolence of the public sphere.

A new episode has just begun with the conclusion of the electricity agreement between Switzerland and the European Union. And as in Star Wars, non-initiates can quickly lose track of the story. It is therefore useful to shed light on the central issues of this debate. The main one: the long-term maintenance of security of supply in Switzerland.

A market already largely open 

Is Switzerland the last European country resisting the electricity market?
On the surface, yes — but only on the surface. The people had rejected full market opening in 2002 and the Federal Council's attempts to relaunch the file all failed. Nevertheless, the market is already largely open.

All customers whose consumption exceeds a certain threshold (100 MWh) can already freely choose their supplier. Two thirds of them have opted for this freedom, representing a total of 80% of the electricity consumed by this category of customers as indicated by Elcom's report for 2023.

The roughly 600 electricity distributors in Switzerland — all publicly owned — have clearly managed this partial opening without losses or drama. Moreover, they themselves buy the bulk of their electricity on the market, since only one third of them produce it directly. In short: only small consumers do not have a choice, and remain captive to their local distributor.

The average price rose from 21 cents per kilowatt-hour in 2020 to 29 cents currently, placing Switzerland among the most expensive countries in Europe.

Poorly protected captive customers

The scare of a price increase for small consumers is regularly brandished by opponents of a full market opening. Yet, captive customers in Switzerland saw their bills jump after Russia's aggression against Ukraine. The average price rose from 21 cents per kilowatt-hour in 2020 to 29 cents currently, placing Switzerland among the most expensive countries in Europe. The absence of a market clearly did not protect them.

Let us recall that electrons — in other words, the energy market itself — represent only about a third of the bill. The rest corresponds to transmission costs and taxes, two components that have risen sharply in recent years, both in Switzerland and in Europe.

In reality, small consumers risk nothing from a market opening. Quite simply because they will always have the choice between staying in their local supplier's basic supply, on controlled terms, or freely opting for another provider.

The agreement negotiated with Europe provides for this and many EU countries already apply this model. A dose of competition would clearly benefit customers, as it would encourage suppliers to improve their service, develop their offerings and curb the temptation to inflate prices for their captive customers.

Switzerland is located at the heart of the European electricity system… without really being part of it. This paradox risks costing us more and more.

The risk of staying outside the European market

Our European neighbours chose to interconnect their power grids via a common market — not out of love for liberalism, but to strengthen the security of supply for everyone. This choice proves more than judicious as a war rages on Europe's doorstep and international insecurity is growing dangerously. Some hoped the market would not survive the 2022 energy crisis. The opposite happened, with an adjustment of its rules to make it more robust.

Switzerland is located at the heart of the European electricity system… without really being part of it. This paradox risks costing us more and more. The managers of the Swiss grid, as well as electricity producers, are now practically excluded from the steering of the European grid. This situation disrupts the operation of our own grid and requires costly interventions to maintain its balance.

Staying apart will also increase the cost and complicate the imports we desperately need in winter. Indeed, from this year our neighbours are giving priority to their own exchanges on their networks. Furthermore, our producers cannot fully monetise their production on the European market.

In this context, it is not surprising that the sector's players — AES and Swissgrid foremost among them — are calling for full participation in the European electricity system. All things considered, this would require only minimal and perfectly manageable regulatory adjustments. It would be a small step for Switzerland… but a giant step for its security of supply.

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