Energy storage regulation in Switzerland

Hydropower plays an essential role in the Swiss electricity supply. In fact, over half of the country’s electricity is generated by hydropower. Therefore it is not surprising that electricity has been traditionally stored in pumped storage power plants. In the past, a total of 14, mostly small sized pumped hydro storage plants, were built, the last of which was commissioned in 1990. However, the combined capacity of these plants only amounts to 1380 MW contributing to approximately 4.4% of the total electricity produced in Switzerland. The pumped storage plants are almost entirely owned by state controlled companies.

More recently, ABB together with the Zurich power company EKZ has installed a 1 MW power battery storage solution with a capacity of 250 kWh in Dietikon, located in the canton of Zurich. In 2012, the battery was connected to the grid and it is still the most powerful of its kind in the Swiss distribution network. It consists of 10,368 battery cells, similar to the ones used in electric cars. In 2015, the EWZ, the electric power company of the city of Zurich, installed a lithium-ion battery with a capacity 719 kWh. The pilot project ensures that the locally generated solar energy can be stored and later be used in the same city district.

Furthermore, several other projects using power-to-gas technology have been commissioned in the last few years. For instance, the hybrid power plant Aarmatt in the canton of Solothurn converts renewable energy into gas, which can later be used as fuel or as a heat generator.

In the Swiss Energy Strategy 2050, the government calls for a step-by-step withdrawal from nuclear energy. In the future, energy supply is to be secured through the development of additional hydropower capacity, the use of new renewable forms of energy and the promotion of energy efficiency. The Energy Strategy 2050 forms the political basis for these objectives. One important pillar of this strategy is the further development of electricity storage capacity in Switzerland.

In the next years, three large-scale pumped hydro storage power plants will be connected to the grid. The first, the Limmern pumped storage plant (1 GW), should become operational in 2016. Together with the existing storage plant, the capacity will be increased from around 480 MW to 1480 MW. The second project, the new Veytraux power station, will provide an increase from 240 MW to 480 MW. The commissioning is scheduled for autumn 2016. The final large project, Nant de Drance located in the canton of Valais, is expected to be finished in 2018. This project will have a capacity of 900 MW with an efficiency level of 80%. These projects significantly increase Switzerland’s energy storage capacities, from 1380 MW to 3520 MW.

Electricity storage is not separately defined in the Swiss legislative framework. The biggest obstacle for electricity companies is to obtain a construction permit and a concession for the operation of a pumped storage plant, which is granted for a maximum of 80 years.

Despite the government’s objectives defined in the Energy Strategy 2050, there is currently no direct support via subsidy for pumped storage operators in Switzerland. However, the energy lobby recently demanded financial support due to the low energy prices in Europe and the preference of small producers of solar energy (e.g. households with photovoltaic systems).

As improvement of the electricity storage technology is required for the realisation of the Energy Strategy 2050 goals, research and development of different storage methods is largely funded by the Swiss Government.

Currently, several of the hydropower plants face problems of profitability. A few years ago, several large-scale projects were announced with the aim to become nothing less than the “Battery of Europe”. However, since then unexpected difficulties have arisen, namely:

Revenue uncertainty: A number of projects were announced under the assumption that pumped storage plants will store the surplus energy produced by renewable energy sources in order to stabilise the energy grid and provide electricity in times of high demand. However, subsidised renewable energy sources, especially from wind power plants located in the North Sea, combined with the low price for CO2-certificates, which favour electricity from fossil energy sources, caused a sharp decline of electricity prices in Europe. At the same time, the strong Swiss franc put additional pressure on national electricity producers. Further, the introduction of a cost-covering fee for feed-in to the electricity grid, in order to subsidise new renewable energy sources in Switzerland, disadvantaged traditional hydro electricity producers. As a result, high prices during peak load times dropped, which substantially lowered the revenue stream of pumped storage plants.

In addition, several studies and reports conducted by the Federal Department for the Environment, Transport, Energy and Communications (“DETEC”) show that pumped storage plants can be operated in an economically viable manner only after 2020.

A perfect example of the current conditions is the pumped storage plant “Lago Bianco” in the canton of Grisons. In 2012 an electricity company was granted a concession relating to the construction of “Lago Bianco”, which was planned with a capacity of 1000 MW. The construction was scheduled for 2013 and should cost CHF 2.5b (around EUR 2.226b). However, due to the sharp drop of energy prices in Europe, the electricity company is no longer able to finance this project. It is now put on hold and the construction will start earliest in 2019.

Construction restrictions: The size and therefore also the capacity of pumped storage plants are by nature restricted by geographical preconditions. This substantially limits their expandability. The execution of large-scale projects take at least between eight and ten years. Sometimes project may even take longer depending on the scope of the project and the local situation. In general, a construction project includes the following steps: a feasibility study followed by different permit procedures, i.e. several concessions and construction permit procedures (including environmental impact studies), the building phase and the implementation of compensatory measures. These procedures can also result in various limitations, e.g. relating to the size of a dam, and therefore the capacity of the pumped storage plant.

To date the revenue uncertainties have not been overcome. However, supporting pumped storage through governmental subsidies is currently being intensively discussed in Switzerland.

The Swiss Federal Office of Energy (“SFOE”) is the country's competence centre for all issues relating to energy supply and energy use at the DETEC. The SFOE creates the prerequisites for a sufficient, crisis-proof, broad-based, economic and sustainable energy supply. It largely supports, inter alia, research and development in the field of energy storage.
On the other side, the Swiss Association of Electricity Companies (“SAEC”) represents the interests of the majority of electricity companies on a national level. SAEC’s members are, among others Axpo, Alpiq, BKW, EWZ, and they cover combined 90% of the electricity demand in Switzerland.

Swissgrid is the national grid company, and in its capacity as owner of the transmission system, it ensures the secure, reliable and cost-effective operation of the Swiss high-voltage grid. As a member of the European Network of Transmission System Operators for Electricity (“ENTSO-E”), it is also responsible for coordination and grid usage in the cross-border exchange of electricity in Europe.