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The Swiss gas industry:
more and more gas customers want to choose their own supplier
Even today, the Swiss gas industry still has a relatively decentralised, complex structure. Market access has not moved with the times and no longer meets market participants’ needs. Companies in the sector are facing new challenges.
Switzerland imports almost all the gas it uses from other countries, which is one consideration that makes regulating network access so important. Currently, however, this regulation is very rudimentary, in the form of a transportation obligation. The Pipelines Act of 1964 stipulates that “a company shall be obliged to undertake contractual transportation (in the high-pressure grid) where technically and economically feasible and where a third party offers appropriate consideration.” In 2012, the gas industry and industrial users of process gas – represented by the interest groups for natural gas and energy-intensive sectors (Interessensgemeinschaft Erdgas and Interessensgemeinschaft energieintensiver Branchen) – agreed terms and conditions and processes for grid access in the form of a “gas association agreement” (Verbändevereinbarung). The main preconditions included a minimum consumption level (currently 150 standard cubic metres per hour), that the natural gas drawn be chiefly used as process gas, and that consumption metering with remote data transmission be installed at the end-customer supplied by a third party.
Federal state and associations have regulation plans in the pipeline
The gas industry wanted to overhaul this associations agreement, for example to simplify market access by creating a single market area, but this has not yet happened. Since this project ground to a halt, there has according to media reports been an increase in requests to Swissgas’s Transmission Coordination Centre (Koordinationsstelle Durchleitung, KSDL) for third-party supply of gas in Switzerland. What is more, industrial firms are not alone in submitting transit requests for process gas: the luxury Dolder Hotel in Zurich, for example, has applied for and secured the right to free transmission of natural gas to heat its extensive SPA area. In the event of a rejection by the KSDL, consumers and potential suppliers are increasingly turning to the Swiss Competition Commission (COMCO). The more dissatisfied consumers appeal to the COMCO, the greater the pressure on the Swiss Federal Office of Energy to drive forward the drafting of the new Gas Supply Act (Gasversorgungsgesetz, GasVG), which was included in the legislative programme for 2015–19. The original timeframe of presenting a consultation draft by the end of 2017 has already been missed. At the same time, there is also the possibility that the COMCO may allow a complainant customer to select a new gas provider that meets its needs, which would constitute prejudice. This happened back in 2001 in relation to the electricity industry. At that time, the Federation of Migros Cooperatives (Migros-Genossenschafts-Bund) signed a contract with the Watt Group to supply electricity to 26 Migros production sites, including at two locations in the Canton of Fribourg. The COMCO concluded that Freiburger Elektrizitätswerke had failed to present any grounds that would justify refusing the transmission.
Today, such isolated transmission consents for third-party suppliers are creating new challenges, such as processing a change of supplier or remote data transmission. If the Swiss gas market is opened up as planned for the new GasVG, the challenges would become even more substantial.
Organisationally, the established gas industry would probably be faced under the new act with the prospect of unbundling. We therefore think that:
- The rules currently in force for calculating local network charges (NEMO) would then need to be revised and boil down to a fixed rate of return for the capital tied up in the electricity network (WACC).
- The flexibility of customers that are able to switch between natural gas and crude oil would need to be factored into the network usage charge, instead of being built into lower gas prices.
- The more intense competition will squeeze margins in the gas industry, especially in B2B, and potentially in B2C business, depending on the details of the new GasVG.
Mounting pressure on gas suppliers to innovate
At the same time, pressure to innovate and enhance transparency is intensifying in the established gas industry: for example a rising number of gas customers expect opportunities for interaction with their suppliers. Regulators are also demanding the greatest possible transparency in the interests of gas customers. With customers switching in increasing numbers, the established gas industry will have to cope with a greater administrative burden and expanded data management requirements (master data, nominations, etc.).
When will your company be getting ready for the new challenges in the Swiss gas market? Talk to us! We will be happy to explore your specific situation and work with you to develop potential approaches, drawing on our wealth of experience.