Power and utilities: answering today challenges
Swiss utilities, a key pillar of Swiss economic success, providing reliable and largely CO2 free electricity are facing a challenging market environment: low wholesale prices, changing regulation and new technologies are only a few topics which have to be addressed by the energy companies.
Low wholesale prices
Low wholesale electricity prices remain below generation costs for nearly all Swiss generation assets. The low profitability of generation asset owners is leading to permanent cost cutting, refinancing and the sale of non-core assets. Certain energy companies are already facing a separation of their business units in two companies in order to position attractive business domains for new investors.
In order to escape losses resulting from the sale of electricity generated by traditional power stations on the wholesale market, energy companies are looking to increase the capital allocation to energy services and regulated power generation (where subsidies in technologies such as wind and PV are still available in certain countries).
Changing regulations – liberalisation and the digital utility
Given the latest statement of the Swiss Federal Office of Energy (SFOE), full liberalisation will not be introduced before 2020, but in the medium term. As in other countries this will lead to a reduction in power prices for retail customers. The decreasing margins in the liberalised Swiss electricity wholesale market (customers in Switzerland with a yearly consumption of at least 100 MWh can opt into the free market) provide an indication of the impact of a complete electricity market liberalisation. Upon liberalisation we expect a rapid dash to acquire a sufficient customer base. Those utilities unable to acquire sufficient customer base will face slow customer erosion. A clear strategy and market positioning are necessary to counteract this erosion - the preparations should already be started today.
Changing regulations – financial market and tax changes
Trading activities progressively become more subject to financial market regulation (e.g. MIFID II, finfrag, etc.). This is combined with new tax legislation such as BEPS.
The entry of distributed generation and storage, combined with the possibility of the “internet of things” have caused a revolutionary spirit in the energy sector.
Energy and grid companies need to adapt to the new challenge by evaluating and developing new business models around decentralised generation, prosumer energy services and the connected home. The shift of power generation from high voltage into distribution grids and additional storage possibilities also create new demands in grid dispatching (smart grid) and a higher vulnerability for cyber-attacks.