"We must not let the network become the poor relation of the system."

At the beginning of September, Romande Energie presented sharply declining figures for the first half of 2024. While its operating result (EBIT) fell 72% year-on-year to 20 million francs, its net profit was almost halved to 66.4 million. As for turnover, it contracted by 13% to 425.5 million. Even if the comparison with the exceptionally high results reached in 2023 is disproportionate, this decline is inevitably striking.

Regulatory concerns, an excess supply of solar energy, the issue of the average price or political pressures to lower the WACC rate... the challenges are piling up for Romande Energie. They represent an excellent opportunity to take stock with Christian Petit, the group's CEO since 2019.

The Price Surveillance Delegate harshly criticizes network managers, accusing them of unduly collecting 400 million francs. Your reaction?

This is not the first time we have been in the sights of Mr. Price, Stefan Meierhans. He has been advocating for years for a revision of the formula used to calculate the WACC (Weighted Average Cost of Capital). He knows how to make himself heard: a consultation is currently underway in Bern to call for a revision of this particularly complex formula as it requires forecasting a remuneration for equity and one for debt. Generally, when one invests, one uses both.

That brings us to the current WACC rate, which is around 4% (with some variations depending on the period); this rate is published each year, on March 31, by DETEC (Federal Department of the Environment, Transport, Energy and Communications) for the following year.

What we and the whole industry say is that if we are indeed operating in a monopoly activity with relatively low risks in Switzerland on the network side, the search for financing for this activity takes place on the capital markets, which are completely open to competing investments. To raise funds, we must finance ourselves by taking on debt. If investments in the network are not remunerated at a rate that allows us to meet our obligations, we will no longer find the capital to finance the development and maintenance of the network.

A change to this formula could therefore force us to invest differently. Because we do not invest only in the electrical network, but also in production capacities. If returns in production assets were to become sustainably more profitable than those in networks, we might be inclined to favor those investments, with the risk of under-investing in networks. A dangerous trade-off for Switzerland's security.

It is therefore important to properly remunerate investment in network infrastructure. We are sounding the alarm: let us not make a short-term bet to simply ease our customers' bills a little by reducing fundamental investments for the future!

What would you consider the correct level for the WACC rate?

It is debatable, because it must evolve according to market prices. However, it is essential that it remains at a level that preserves the attractiveness of investments in the network. We are at a pivotal moment where all the statistics converge toward the same conclusions: investments will have to be increased to develop and adapt the Swiss electrical network.

Because of the massive arrival of solar energy, we are turning the network upside down. This reality requires adapting to a logic different from that established at the time of its creation (high voltage, medium voltage, low voltage with progressively thinner cables down to the consumer's home).

Today, consumers are becoming producers, forcing us to absorb phenomenal quantities of electrons flowing back into the grids. We must therefore reinforce them, while deploying smart meters as provided for by the law. All our studies show that our network-related expenditures will increase. It would therefore be reckless to reduce the remuneration of companies that must keep borrowing more and more.

"We are at a pivotal moment where investments will have to be increased to develop and adapt the Swiss electrical network."

How much are we talking about? 

At Romande Energie, we invest more than 200 million francs in the energy transition, of which 70 to 80 million go into the network each year. Given our financial cash flow, it is impossible for us to generate such amounts without taking on debt. In 2022, Romande Energie issued a first green bond of 150 million. And we have just finalized a second loan of 150 million. These are sums necessary for the energy transition, sums that we will have to repay.

Will these necessary investments have an impact on consumers' electricity bills?

I must nuance my answer a little by reminding that the electricity bill is composed of three elements. It starts with municipal, cantonal and federal taxes, taxes that are naturally not under our control.

Their evolutions are moreover uncertain given the savings projects desired by Bern, and this in a period where climate programs will need to be financed. If federal and cantonal budgets have to be revised downwards, one must fear an increase in these taxes to maintain current levels of subsidies.

On the second part, that of energy, prices are rather falling. This development has allowed us to offset the increase in the share of the transmission stamp.

Remaining is the third element: network costs (the stamp). They are increasing and will continue to increase. And, since we are not the only ones investing, logically the costs of the stamp should increase for all DSOs (network operators).

Important clarification: a distinction must be made between DSOs. I like to be inspired by a La Fontaine fable to explain that our sector is divided between city DSOs and rural DSOs. Take the case of Romande Energie: compared to the municipal utilities of large cities, our service areas include a much larger number of solar installations for a lower density and more kilometers of network. They  therefore require more substantial investments.

And what will happen to the bill for citizens?

The portion of the bill dedicated to paying for the network will increase. It is the price to pay for our shift to decarbonized and decentralized energy. Now, the Swiss should not simply cry out "My God, my electricity bill is rising again," because they must be aware that by gradually freeing themselves from expenses related to imported fossil fuels (gasoline, fuel oil, heating oil, etc.), the real and overall cost of their energy bill will decrease.

"We are investing for our energy independence; this transition will be reflected in the electricity bill."

In the long run, the 8 billion spent by Switzerland each year to buy gas, gasoline and other fossil fuels from countries that are often "complicated" and sometimes unreliable will be history. We are investing for our energy independence; this transition will be reflected in the electricity bill.

In Switzerland, private individuals and companies are strongly encouraged to invest in renewable solar energy production but rhetoric suggests that feed-in tariffs are too high. How to manage this probable disappointment among our fellow citizens?

To be perfectly transparent, I fear a difficult situation to manage in the years to come. In any case, I have been trying for months to warn about this upcoming drop in feed-in prices. The truth is that they must fall. Swiss owners of photovoltaic panels must be aware that it is not possible to sustainably offer a system that completely disconnects the producer from the market in which they operate.

Even for individuals, when they start producing energy, they put on the producer's hat and thus enter a market influenced by day-to-day prices.

The problem is that by offering guaranteed feed-in prices year after year, we artificially isolate small producers from market realities. This tariff system is unsustainable. With the current obligation to purchase imposed on DSOs, we are indirectly forced to subsidize the energy transition. If the cantons and the Confederation want to increase subsidies, they are free to do so, but it is not up to us, the electricity companies, to finance them and absorb the losses on feed-in prices.

The new Electricity Act shouldn't it change this system? 

It should improve the situation. It proposes a change of method consisting of remunerating owners of solar cells according to a quarterly price communicated by the Federal Office of Energy (OFEN), accompanied by a guaranteed minimum price. It will be based on the average observation of spot prices on the markets over the last three months. This method should logically lead to quarters slightly better remunerated in winter than in summer.

Currently, a minimum price of about 5 cents is being discussed, which could be a little higher in winter. But we are currently awaiting the publication of the ordinances on these prices. This takes time because there are still diverging opinions between installers and customers who want to maintain high prices and buyers like Romande Energie who want prices closer to the markets to avoid generating too many losses.

With around 5 cents guaranteed, if supply is not extraordinary, it is not so bad. The method mainly represents strong protection for buyers who currently must buy excess electrons at high prices and are forced to resell them at sometimes negative prices down to -20 cents/kWh. It currently happens that we have to buy solar at 17 cents and then pay 20 to get rid of it. The calculation is simple: we end up with 37 cents total loss per kWh. Result: the current formula costs us millions of francs.

If the new law will protect us against deficits of such magnitude, it will not be enough to bring us back into the black. And we will therefore continue to subsidize this transition, which remains problematic. Our concern is with the coming years when solar will continue to explode in volume. Currently we are at 6 TWh while Switzerland's target is to reach 35 TWh. Our losses will therefore continue to widen. In the long term, the system is not viable.

"It currently happens that we have to buy solar at 17 cents and then pay 20 to get rid of it. The calculation is simple: we end up with 37 cents total loss per kWh."

Switzerland will need to invest more in energy storage, not just in hydropower but also in synthetic fuels. Is the regulatory framework adequate?

Our financial results in 2024 show that we are suffering greatly from regulation that is not adapted. Take the rule on the average price. Responsible for mixing portfolios, it has cost us millions each year by pushing us out of the free market and has made us lose many customers. This average price rule, which I do not hesitate to call unfair, created distortions of competition. Fortunately, it will disappear with the new Electricity Act which should improve the situation for Romande Energie.

In the future, we will again be able to strictly separate portfolios, which will allow us to manage the supply of our captive customers over several years and, in parallel, offer the best possible responsiveness to our customers on the free market.

So the situation is improving…

Our fight is far from over. Another major problem is emerging for the sector: the explosion in quantities and prices of balancing energy. Even with the best weather forecasts, it is increasingly difficult to predict precisely the amount of energy coming from solar. As a result, we find ourselves having to buy or sell so-called balancing energy at exorbitant prices charged by Swissgrid.

To give you an idea of the magnitude, in 2024 we reached 15,000 francs per MW, which represents a price 15 times higher than that reached during the peak of the energy crisis linked to Russia's invasion of Ukraine. Under current regulation, these balancing energy purchases will be passed on in future energy tariffs to captive customers, while the resales of balancing energy, which are almost always made at a loss, are deducted from our margin. Resales of energy, which are essential for us to balance our needs, are nevertheless part of our ordinary hedging operations.

In short, current regulation leads us to make structural losses on a monopolistic activity. This is unacceptable. When a company performs a public service task in a monopoly situation, its profit must be reasonable and controlled by an external authority. But it cannot become a loss.

We are therefore eagerly awaiting the ordinances to know whether our requests will be taken into account and whether the Law will finally state in black and white that all purchase and resale costs will be chargeable to regulated tariffs.

Could you increase your storage capacities?

On the question of storage, such as grid batteries that could spare us the surcharges generated by balancing prices and offer more flexibility, ElCom (the independent federal regulatory authority in the field of electricity) is putting obstacles in our way here as well. The regulator refuses that the necessary expenses to install these batteries be passed on to the price of the stamp.

Its argument is that the batteries would be used for commercial purposes to generate revenues on the market. A DSO is therefore not incentivized to invest in batteries. Romande Energie can only do so wearing its producer and private investor hat, accepting the financial risks linked to strong variations in energy prices on the market.

We are therefore in a situation where regulatory adaptation is improving but still remains unsuited to the ongoing transition.

Mario Paolone advocates for a decentralized electrical system, based on local citizen networks; what do you think?

I have great confidence in Mario Paolone's technical expertise, which is far superior to mine. My question is whether in this kind of analysis and vision all total energy-related costs are really taken into account. Today, we know that green energies have become the cheapest. Except we forget to add the costs related to balancing elements, storage as well as the costs of adapting electrical networks.

I consider the network to be an element of pooling. As such, it allows costs to be pooled. Studies have shown that if all houses became energy self-sufficient, this solution would be far more expensive for Switzerland than having a network distributing electrons according to needs. The network is a vector for cost reduction compared to an autarkic system.

A hydropower park similar to the L'Hongrin dam is equivalent to the power of a million Tesla batteries. A precise calculation would be needed, but it is very likely that its ecological footprint would be much smaller than all those batteries.

"Studies have shown that if all houses became energy self-sufficient, this solution would be far more expensive for Switzerland than having a network distributing electrons according to needs."

Are your efforts to train young people or retrain professionals in the installation of solar panels or heat pumps paying off?

When a company takes the climate issue to heart and seriously, it develops a strong employer brand and remains very attractive in the job market. For the new generation, criteria of meaning and impact have become the key to engagement. That said, given Switzerland's targets in its climate strategy, we will lack workforce.

In the near future, politicians will need to pay attention to a topic currently lost in a blind spot: that of professional retraining. Programs of assistance for this retraining will need to be put in place to allow people working in declining industries to reorient themselves into our sectors with an income guarantee during training.

What about retirees and apprenticeships, should Switzerland act on these two potential labor sources?

These are two recruitment avenues. The fact remains that we are in a country that struggles to maintain sufficient numbers in vocational training. Parents prefer to steer their children toward more intellectual professions. Without a revaluation of apprenticeships and field trades, Switzerland is structurally heading toward a difficult period to maintain its ambitions in the energy transition.

We will clearly lack blue-collar workers who aspire to leave before the official retirement age. But there are retirees who do not want to cut connections with working life overnight. There is also a reservoir of workforce, know-how and transmission to the new generations to be tapped into.

Can we imagine a process of consolidation of distribution networks in French-speaking Switzerland, for example a rapprochement between Groupe E and you?

History weighs heavily in your question. It should be recalled that the energy system was forged locally by municipalities that invested in a first turbine, then a network, etc. This past still carries all its weight today. As with water, energy is considered a public service activity. Municipalities remain attached to this proximity (and this explains the large number of DSOs in Switzerland, more than 630).

That said, the changes ahead are considerable. Think of the digitalization of networks; it requires totally new and complex competencies to implement for a small operator with 2 or 3 employees. The critical size of certain actors will become an issue. We are already observing successful movements of small DSOs grouping together to pool their costs and the creation of new services.

Nowadays, it also happens that large actors like Romande Energie are open to establishing collaborations with other, smaller groups. In the field of geothermal energy, for example, we collaborate with the company EnergéÔ, with SEFA (Aubonne), SI Nyon and SEIC (Gland).

While we can expect some marginal movements, I do not expect to see two major national players merge.

Regarding wind power, what initial assessment do you make of the operation of your first installations?

From a technical point of view, it is rather good, especially during the winter season. Our experience with wind power in France allowed us to start our activities in Switzerland with confidence. The advantage of the Sainte-Croix park is mainly that it helps dispel many misconceptions circulating about this energy source. No more synthetic images: visitors can now see what a wind turbine is and form a concrete idea by visiting the park, particularly on very sensitive issues such as noise.

Switzerland will need a minimum number of wind turbines. The roughly fifty currently in the country is an insufficient number. A few hundred, at most a thousand, will be needed to produce the 4 to 5 TWh sought mainly during winter.

Compared with other countries such as Germany (38,000 rotors) or Austria (1,500 rotors), Switzerland is clearly behind in the deployment of this energy source. I find that the Swiss electricity sector is reasonable in its ambitions around wind power. My only certainty is that a strategy focused solely on solar would be dangerous to replace nuclear because of its profile which is far too summer-oriented and diurnal. We will need a good mix of hydropower, solar and therefore wind.

"Switzerland will need a minimum number of wind turbines. The roughly fifty currently in the country is an insufficient number."

There has been talk in recent weeks of a revival of nuclear in Switzerland. What do you think? 

These discussions do not surprise me. It was certain that this type of debate would return in Switzerland, as is also the case in other European countries. So, should nuclear be relaunched?

Since the decision taken by the people in 2017 to turn the page on nuclear, it must be understood that the entire Swiss nuclear sector has been dismantled. Admittedly, we have reactors in operation, but in terms of research or training, everything is at a standstill. Simply extending the life of our current plants already represents a colossal challenge, given the state of the Swiss nuclear sector.

In any case, nuclear does not represent a miracle solution that could save Switzerland's energy system. It will arrive too late for the 2050 milestone.

You also invest abroad. What is the goal and what lessons do you draw? Is it more profitable than in Switzerland?

If we started investing abroad, it was because investment projects were blocked in Switzerland. Having capital available, we had to invest them somewhere.

With our subsidiary Romande Energie France or indirectly through EOS, we have helped support the European energy transition. By obtaining guaranteed feed-in prices during the first years of a park's life, our European investments do indeed provide an interesting profitability.

For the second half of life of our installations, since prices will no longer be guaranteed, we will have to adapt the business model to maintain the attractiveness of these investments by signing, for example, PPAs (Power Purchase Agreements) with industrial players.

The advantage of our opening to Europe is that it represents a financial insurance allowing us to have a producer profile and not just a distributor. Between our gains in production and our current losses in distribution mentioned earlier, we need both to maintain a fair financial balance of our activities.

Now, if the framework conditions for investing in Switzerland become more favorable, with, for example, a reduction in construction and opposition times, we would be inclined to carry out almost all of our investments here. We would prefer to invest in Switzerland, but with construction times that can be 2 to 3 times longer here than in neighboring countries, the current situation is untenable.

Does Romande Energie have a strategy for hydrogen? Would a rapprochement with gas companies not be desirable even though they are competitors?

We believe that this energy vector will have a role to play in the future. Provided storage issues are resolved, it represents a good balancing system between production and consumption. We are awaiting the FOEN strategy promised later this year, a strategy that does not yet exist at this stage, compared with our neighbors who are far ahead of Switzerland on this issue.

Local hydrogen will likely have a place in the coming years. We will start producing our first molecules with an industrial partner based in Aigle and we have other projects underway. But hydrogen remains a very risky bet due to lack of visibility, but also because of demand. Switzerland is not currently associated with the European hydrogen transport network that is being built, so we could have difficulties importing enough, which could jeopardize the development of this energy vector.

How do you manage tensions between private shareholders, who want dividends, and public shareholders (cities and cantons), whose main concern is the stability of electricity tariffs?

It is a complicated balancing act. When I go to Zurich to see our private shareholders, they think I care too much about public issues, and when I speak to municipal and cantonal authorities, they consider that we do not do enough for the community and the social good. We walk a tightrope, certainly, but with the advantage that it forces us not to leave any dimension aside. All our actions therefore take into account the three pillars of sustainability: the economy, society and the environment.

Take alpine solar parks: despite interesting subsidies, Romande Energie chose not to invest in these projects, considering that such investment would run counter to the social and environmental pillars. We considered that placing parks in pristine locations with a large land footprint, despite the economic opportunity, was not appropriate. It is very likely that this decision did not please some private shareholders in Zurich.

"I do not believe that a free and unlimited generative AI model is sustainable ecologically in the long term."

If you had a single recommendation to make to Albert Rösti, what would it be?

He is an excellent Energy Minister, so what to recommend? I would once again emphasize the importance of the centrality of electrical networks in the energy transition. The network must not become the poor relation of the system.

In a previous interview given to SwissPowerShift, you mentioned that to succeed in the energy transition, Switzerland should eventually reduce its consumption. But with the electrification of mobility and the boom of AI, one would expect needs to increase…

In electricity, yes, but not in energy. Switzerland currently consumes, roughly, 250 TWh of energy, of which 60 TWh is for its electrical system. By 2050, we expect to fall to 110 TWh of energy, of which 90 TWh for electricity. So yes, our electricity consumption will increase, but at the same time we will greatly reduce our total energy consumption, which is still largely fossil and imported today. Take heat pumps: they are 3 to 4 times more efficient than an oil boiler. The same goes for an electric car: it is 3 times more efficient than a petrol car.

Now, it is fair to mention that technologies evolve. The democratization of generative AIs is a genuine source of concern given the amounts of energy, but also water, they involve. I do not believe that a free and unlimited generative AI model is sustainable ecologically in the long term. Should we reduce our access to this type of technology? It is a question our society will have to ask itself in the near future.

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