"We'll have to be creative to allow DSOs to invest in good conditions"

The Swiss energy sector continues its transformation. Although the topic is less at the forefront of concerns now that the 2022 crisis is behind us, the challenges remain enormous. This year, the political news was particularly busy, notably with the famous electricity agreement with Europe. A source of division from the first days, it is now its implementation proposed by Bern that is raising strong objections.

Added to this are the economic challenges faced by many DSOs. Several are going through a delicate financial phase. Yet projects are multiplying across the sector and require significant investments. Accelerated deployment of renewable energies, network modernization, tariff adaptation, the upcoming arrival of local energy communities (LECs) or debates about nuclear power — the country’s entire energy landscape is being reshaped. We discuss this with Cédric Christmann, CEO of Primeo Energie.

Going through your 2024 results, it appears your French activities subsidize your Swiss activities? Other market players of roughly similar size also posted poor results in 2024. What should we conclude?

In 2016, we asked ourselves whether we would still be able to make money with the basic tariff. Even then, we suspected that profitability on the "energy" part would become difficult. To anticipate this development, we decided to enter the Swiss open market, but also to strengthen our activities in France, a market with which we have a long history since our ties date back to 1906. After selling our stake in Direct Energie to TotalEnergies, we decided to retain a structure there, which has now become Primeo Energie France.

Our analysis at the time — that profitability on energy supply within the basic tariff would gradually decline — unfortunately proved correct starting in 2021. Balancing costs exploded after a regulatory change in 2022, severely penalizing distribution system operators. The observation is that now, we do not make our living from energy sales, nor really from the network fee or network management.

Today, 70% of our results come from abroad, while 70% of our investments are made in our historic service territory in Switzerland, proof that our diversification is not accidental but a necessity. What was once perhaps a historical accident has become a deliberate choice: by diversifying our revenue sources, we give ourselves the means to finance the energy transition. Many DSOs, having remained focused on their local activities, do not necessarily have the same room for maneuver and are now struggling to keep pace with the transition.

The head of the AES recently denounced a disconnect between the rules imposed on tariffs and the economic reality on the ground…

The real problem is not so much profitability as the lack of liquidity necessary to finance the investments indispensable for modernization and adaptation of infrastructures. I like to compare our financial situation to that of a pension fund that only has insureds or beneficiaries aged 65 and over and therefore only pays out pensions each month, without having the chance to invest the money for 40 years, as if that same fund had insureds all aged 25.

Yet our networks are aging and must not only be reinforced but also adapted to be bidirectional and smart in order to respond to the decentralization of production and new uses such as heat pumps or electric vehicles. We are facing a profound transformation of the system, much more than a simple transition. 

For lack of liquidity, we must slow down our investments: instead of the 70 million francs invested over the past three/four years, we are now closer to 20 to 35 million, as in 2021. We therefore know that we will not go as fast as planned and that the targets set by the 2050 energy strategy are likely not to be met on time — a question that, unfortunately, few people seem to be concerned about.

Will this financial pressure lead to a concentration in the number of DSOs?

That seems obvious to me, given the increase in complexity the sector must face. But this concentration is currently taking a particular form in the shape of service contracts rather than asset buyouts. This model allows DSOs to remain independent and retain control over their tariffs, for example. We believe it is preferable for municipalities to keep ownership of their infrastructures to preserve their autonomy and the political dimension of energy management.

At the same time, we provide technical management, deployment of smart meters, IT maintenance and digitization of processes. This model of cooperation between large and small DSOs is developing more and more: it is an intelligent and gradual way to consolidate the market without resorting to mergers, while collectively strengthening the energy transition.

We therefore know that we will not go as fast as planned and that the targets set by the 2050 energy strategy are likely not to be met on time.

Why are relations between DSOs and ElCom so strained? And are similar tensions found in France with their own regulatory authority?

It is normal that the regulator does not have the same stance as us. The real question, in our view, is whether decisions should favor short-term objectives, which can limit DSOs’ margins and investment capacities, or aim for the long term, by enabling financing of the energy transition.

It is on these points that our views with ElCom in Switzerland — but also the CRE in France — can diverge. They remain, in our opinion, still too anchored in a crisis management logic inherited from 2021–2022, while that period is largely behind us. We must now move to a strategic logic focused on the future, namely system stability and security of supply. DSOs are also guarantors of this security, alongside producers and Swissgrid. Rather than continuing to restrict network operators’ margins, it is important to allow them to invest to ensure the stability and modernization of the electricity grid. 

We must now be imaginative and constructive, find ways to allow DSOs to invest under good conditions. If we do not have this freedom of action, the energy transition will be slowed, customers may become frustrated, and some stakeholders may wrongly blame DSOs as being the brakes. Yet we do everything we can to move forward, despite ever-stronger constraints and a framework that does not make our task easy.

Current tensions notably concern the mandatory feed-in prices for solar energy in Switzerland. How could this issue be resolved?

It could be resolved by creating a single purchasing center for all of Switzerland responsible for buying solar electricity. It is no longer possible to operate in isolation: DSOs neither have the financial means nor the appropriate structure to buy this energy independently. Those in rural areas with extensive and perhaps aging networks suffer much more than those in cities, which already have more adapted infrastructures and a lower solar density. This territorial inequality makes the coherence of the whole system even more difficult. 

We consider it relevant that a national body plays this role. This purchasing center would buy solar at a single, uniform tariff across all of Switzerland, which would make the system much clearer, fairer and more efficient.

In France, does the system also give the impression that you subsidize the development of solar energy?

No, the system is different from that of Switzerland. In France, it is EDF, through its purchase obligation, that buys solar electricity, which centralizes and simplifies the process. This state monopoly prevents local actors from feeling that they are subsidizing the system, unlike the more fragmented Swiss situation.

The other major challenge concerns your costs related to balancing energy…

Indeed, with the massive development of renewables, we face another major challenge: balancing the grid. This so-called "involuntary" energy must be absorbed at the moment it is produced, even if demand is not there, and we do not always have the possibility to store it. This generates very high balancing costs, because we must constantly compensate for unexpected production variations, especially when the weather changes abruptly.

Since July 1, 2022, the situation worsened with the implementation of new rules allowing Switzerland to be euro-compatible. The European systems Picasso and MARI caused an explosion in prices in Switzerland, a market too small to absorb such fluctuations as long as it is not integrated into the European system. Where France or Germany benefit from large energy "basins," Switzerland suffers disproportionate increases in the price per MWh, reaching prohibitive levels.

We denounced this situation in a  " white paper " and proposed to the authorities, for example, to introduce a cap. ElCom ended up setting it at €1,000 per MWh for part of the balancing energy for this year, which allowed us to stabilize our situation in 2025.

Installing solar panels makes sense, but the key is to consume what is produced directly and locally, alone or together. By self-consuming, one completely frees oneself from energy price fluctuations.

You are seeking this tariff flexibility with your "Primeo NetzDynamisch" solution?

Rather than complain about market difficulties, we chose to act by offering our customers — from the beginning of next year — dynamic tariffs for network management. With our system, the price will change according to the expected load on the electricity grid. 

Prices for the next day will be fixed and announced each day before 6 p.m. Each customer's energy management system will then calculate in real time the best decisions: inject into the grid, store the energy, or consume locally depending on prices. It is an intelligent, incentive-based and flexible approach that aims to make customers actors in the energy transition (rather than passive) while improving grid stability.

Although we are still at the early stages of this model, we know it works very well in Nordic countries, where users respond effectively to price signals. The objective is to connect these tariffs to domestic energy management systems — capable of automatically controlling consumption and production between photovoltaic panels, electric cars, heat pumps, batteries and the grid.

Do you think the recent AES recommendation regarding solar energy — notably providing an inverter setting limiting injection to 70% of the panels' nominal power — risks slowing the deployment of this energy source in Switzerland?

We are not really in favor of that and instead support a flexible model that rewards solar producers ready to temporarily disconnect their panels through a compensation system. Rather than prohibiting production, we encourage customers to make their capacity available and actively participate in system stability. It is an approach based on economic incentives or price signals, rather than rigid rules, with the aim of avoiding hindering photovoltaic development in Switzerland.

Is self-consumption within RCPv or future LECs the most suitable model for the growth of solar energy?

We have always defended the principle of self-consumption as the best way to develop photovoltaics. Installing solar panels makes sense, but the key is to consume what is produced directly and locally, alone or in groups. By self-consuming, one completely frees oneself from energy price fluctuations. 

From 2026, the new law will allow the creation of these local energy communities (LECs), where neighbors, districts or even municipalities will be able to share and consume their solar production together. This is a major advance, especially for tenants, who represent nearly 60% of the population and do not have a roof to install their own panels. They will finally be able to access local and affordable solar energy. For us, the future of solar in Switzerland is clearly simple, collective self-consumption at the neighborhood or municipal level.

The main obstacle to the development of renewables in Switzerland concerns wind power. Can we still believe in it, now that two new initiatives filed during the summer and validated at the end of September may further complicate its construction?

At Primeo, we have three essential criteria when we invest: the project must fit our strategy, be profitable, and be accepted by the local population. On paper, wind power meets at least two of the three conditions: it is part of our energy strategy, and it remains economically viable — especially because it produces mostly in winter, when energy is more expensive. Now it very often raises the question of local acceptance. And as a cooperative, we refuse to impose infrastructures against the will of residents.

Our approach is therefore to explain, to dialogue, to show that wind turbines can be integrated into the landscape, that connection costs are reasonable and that they provide valuable winter production. It is not stubbornness, but a work of education and transparency. We respect local decisions, but we believe it is our duty to lead this dialogue to advance the transition.

If we have just relaunched our wind farm project between the municipalities of Roggenburg and Liesberg (abandoned in 2018), it is because we want to invest in Switzerland, out of coherence and conviction: this country is our base, our roots. Whether we will succeed in convincing the Swiss of the relevance of wind power in Switzerland, I do not know, but at least we cannot be accused of not having tried everything.

Today, the country already has 41 interconnections, and we are committing to build a 42nd between Switzerland and France.

What is your view on the debates related to nuclear power in Switzerland?

First, in France we are active in nuclear because we have drawing rights on certain plants. Regarding Switzerland, we believe the debate on nuclear as it is currently conducted is often poorly framed: remaining in a "for or against" cleavage makes no sense. What is needed is to analyze the technical and environmental conditions that would allow, one day, a possible reintroduction of nuclear under conditions acceptable to the greatest number.

For us, the 3rd generation (like EPRs), beyond existing plants, has little chance of gaining the consent of the majority of Swiss people. On the other hand, 4th generation opens credible prospects, because it eliminates the risk of core meltdown, closes the fuel cycle by recycling waste — which reduces its storage duration from 250,000 to about 300 years — and uses air cooling, much better suited to decentralized sites and without water wastage.

In summary, we are not opposed to nuclear, but in favor of leaving the door open, provided it concerns 4th generation technologies capable of solving the limits of current nuclear power.

To finish, the energy agreement with the EU. How crucial is this agreement for Switzerland, and more particularly for a group as interconnected as yours?

We have indeed been interconnected with the European electricity grid for more than a century, particularly with France since 1906. At that time, some French municipalities were supplied by our grid before being officially attached to the French grid from 2012. This shows that we have lived this reality of interconnection for more than a hundred years and that we are not afraid of it.

Unlike gas or oil, electricity is not transported by ship. That is why our neighbors play an essential role for Switzerland’s energy security. We therefore have every interest in strengthening our ties with the European grid. Today, the country already has 41 interconnections, and we are committing to build a 42nd between Switzerland and France, which we would even be ready to finance in order to increase the resilience of the electrical system.

This agreement is essential because it will finally allow Switzerland to fully participate in European discussions on grid regulation. Currently, Swissgrid is excluded from decision-making bodies, which prevents it from influencing choices according to the country’s needs. It is urgent to no longer suffer these decisions, but to take part in them, propose solutions and actively contribute to the energy transition.

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