Swiss long-term power import contracts threatened by EU integration

The long-term contracts that Swiss utilities have for importing nuclear power from the French company EDF face an uncertain future as Switzerland aims to integrate its electricity market with that of the EU.

The contracts have been a cornerstone of the business models of Swiss utilities for decades as they enable to import relatively cheap off-peak power from France, which can be stored in hydro storage plants and later exported to Germany and Italy for higher prices during daytime.

However, the priority transmission capacity access that these contracts provide is not in line with the EU’s energy market rules, which foresee transmission capacity to be allocated at auctions.

“This is one point at the negotiations,” said a spokeswoman for the Swiss federal office of energy BFE, referring to talks that Switzerland is holding with the European Commission about concluding an energy cooperation agreement.

Switzerland aims to have a clear framework for the future of these contracts, she stressed. Otherwise Swiss utilities would face uncertainties since EDF could challenge the validity of those contracts if Switzerland integrates its power market with that of the EU.

Axpo is one of the Swiss utilities that have long-term contracts with EDF. It has two direct contracts and more contracts via three joint ventures CNP, AKEB and ENAG. The first direct contract was concluded in 1994 for 25 years and the other one in 2000 for 25 years, said a spokesman for Axpo. Both contracts could be extended for 15 years more.

A spokesman for the Swiss utility CKW said that they have contracts with EDF through CNP. The third party of this joint venture is Alpiq, he added.

The shareholders of ENAG and AKEB include also Repower and some other companies.

There are few details available about the long-term contracts, which have been in play since the 1970s. According to BFE, the fist of such contracts expired a few years ago and the last one is due to expire in 2040.

Neither Axpo, CKW or Alpiq commented in detail on their view on the future of the contracts considering Switzerland’s plans to integrate with the EU electricity market.

“The negotiations take part on a political level,” said a spokesman for BKW. “They are between the Swiss government and the European Commission.”

The contracts have lost some of their attractiveness recently and Axpo said in September that it downgraded their value on its balance sheet.

“The French capacities are significant and provide an important baseload to Swiss utilities. However, their importance decreased with decreasing energy prices in Europe and particularly with decreasing base-peak spreads between night and day periods,” explained Roman Waespe, Senior Consultant at the international consulting and engineering company Poyry.

In case the prices laid out in the contracts are higher than what is currently available on the market, the Swiss utilities could even have an interest to end the contracts early, commented a portfolio manager who asked to not be named. However, with the contractual prices not public, it is hard to say if this is the case.

The portfolio manager said that Switzerland and the EU were likely to find a compromise on the issue.

“The EU threatens Swiss utilities due to these long-term contracts that they cannot take part in the EU market anymore. Of course no Swiss company wants this because they are active abroad, even if it is only to hedge,” he said.

“Invalidity of the contracts before the expiry date is highly dependent on political decisions, and therefore no general statement can be made,” said Waespe, implying that it is difficult to say how likely the revocation of the contracts is before their expiry dates.

Axpo, Alpiq and BKW stressed that in the longer-term, the integration with the EU electricity market is important for Switzerland, so that Swiss companies could compete in the EU on equal terms with their EU counterparts.

“It’s also important not to have any kind of agreement with the EU, but to have a good contract,” said Axpo’s spokesman.

Despite lengthy negotiations, no agreement has been reached on the EU-Swiss energy cooperation yet. The main disagreement relates to who should solve the disputes that possibility arise about the bilateral agreements of Switzerland and the EU, explained the BFE’s spokeswoman. In the view of the European Commission, such disputes should be referred to the European Court of Justice. However, this option is not acceptable to some Swiss citizens, whose approval at a referendum would be needed for the energy integration agreement to come into force. Laura Raus