"Without an agreement, the security of the network would deteriorate further"

In Bern, the debate is becoming electric. For several weeks, notably since the presentation of the clauses of the electricity agreement envisaged between Switzerland and the European Union, criticism has been pouring in against a text manifestly more controversial than expected.

At the heart of the current discord: market liberalization. As the parties begin to tear each other apart over the issue, it was the ideal opportunity to probe the sector through a series of interviews with leading figures. We close this series with the remarks of Michael Frank, CEO of the Association of Swiss Electricity Companies (AES).

First, what is your position on this agreement? Do you still consider it as essential for Switzerland's energy future?

Yes, this agreement remains fundamental to guarantee security of supply, grid stability and control of electricity costs. Without it, Switzerland remains excluded from cooperation on the grid and access to the European market, which leads to several consequences: unplanned electricity flows across the country, the use of precious hydroelectric resources to stabilize the grid, limited import possibilities and the absence of a say regarding European decisions. All this generates significant costs that we ultimately have to bear collectively through electricity tariffs.

One of the sources of discord concerns market liberalization, which would represent a major obstacle to basic supply... But is this basic supply really a financially attractive option for DSOs?

Basic supply is highly regulated and aims solely to cover costs. However, the strengthening of regulatory requirements is making its effective implementation increasingly complicated. Some contradictory provisions even force distribution system operators (DSOs) to operate at a loss.

Adjustments are therefore indispensable, even within the current system. In the event of market opening, DSOs will face competition. It is therefore all the more crucial that they can fulfill their mission efficiently and with a customer-oriented approach.

It is also essential that this market opening be accompanied by a reduction of unnecessary and costly regulations — a lever that can be activated at the national level. It also offers the possibility of developing new business models beyond the classical basic supply. Suppliers could thus offer alternative products better adapted to the needs of their customers.

The electricity agreement in no way calls into question the promotion and development of renewable energies.

What is your reaction to the multiple interventions by Pierre-Yves Maillard denouncing the agreement — interventions in which he speaks of a risk of underinvestment in future electricity production capacities in Switzerland, but also excessive speculation, or even of an agreement that would hinder "the fight against climate change"?

The remarks made by Pierre-Yves Maillard are one-sided and are not based on any concrete facts. If the risks he mentions of underinvestment or speculative excesses were founded, we would already have observed their effects in other European countries. This is not the case.

The electricity agreement in no way calls into question the promotion and development of renewable energies. On the contrary, it establishes a common — admittedly non-binding, but ambitious — objective in terms of expanding renewable production capacities.

The market remains regulated: suppliers compete and must procure efficiently and prudently to remain competitive. Customers will also benefit from greater freedom of choice, which further strengthens competitive dynamics. Companies will also remain obliged to ensure a regulated basic supply, as is already the case today.

Finally, market activities and speculative behaviors do not depend on the agreement. Companies can already offer commercial services on the market — and those that wish to speculate already have the possibility to do so. In this respect, the agreement changes nothing of the current situation.

Doesn't this market opening risk leading to an accelerated consolidation of the sector, notably for small or medium-sized DSOs?

A certain consolidation of the market has already taken place and cannot be ruled out in the future. It is therefore essential that small distribution system operators (DSOs) benefit from fair conditions in an open market. This implies a coherent implementation of the market framework into national legislation, accompanied by lighter regulation.

The Confederation should create stable framework conditions and put in place appropriate support instruments to encourage investments in electricity production and network infrastructure.

Should the Confederation commit to supporting the sector to maintain investments in the network and more specifically in renewable energies?

The Confederation should create stable framework conditions and put in place appropriate support instruments to encourage investments in electricity production and network infrastructure. These investments, whether they concern transformation or expansion, are particularly capital-intensive and are long-term, even as market developments remain uncertain over that period. Targeted support is therefore necessary.

The instruments put in place must encourage operators to produce according to real needs, while avoiding windfall gains. This support is financed by all end consumers, notably through a network surcharge of 2.3 ct./kWh.

Network expansion must also be carried out efficiently. This requires adequate framework conditions, including accelerated procedures, tariff freedoms, fair remuneration of invested capital, etc. All of this is also financed by end consumers via the network usage tariff.

Is the argument that this agreement would be necessary in the event of a new energy crisis in Europe — like in 2022 — truly defensible? Because in the case of a major shortage, isn't the risk that each state would prioritize its own interests above all, regardless of existing agreements?

Yes, an agreement creates trust and commitment, by setting out clear rules for cooperation and coordination — particularly in times of crisis. Switzerland is an integral part of the interconnected European grid. Its electrical system does not operate autonomously, but only in close interaction with those of its neighbors.

Even if, in a crisis, national interests may temporarily prevail, an agreement constitutes a solid basis for effective cooperation and offers the possibility of stabilizing the electrical system together or of helping one another.

How do you envision the future in the event of a no-deal scenario for the future of the Swiss electricity grid?

The security of supply and the stability of the Swiss grid would deteriorate further, which would require the establishment of additional reserve capacities, notably gas-based, within Switzerland. Under such conditions, the costs of maintaining a stable supply would continue to rise for consumers, the economy, industry and the tertiary sector.

Furthermore, it should be recalled that Switzerland is now considered a third country under constantly evolving European regulations. This situation entails risks: cooperation could be reduced in other areas, such as the emissions trading system for CO₂, or even relegated to the background for emerging topics like hydrogen.

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