As the national grid company and owner of the Swiss transmission grid, Swissgrid is responsible for its infrastructure, as well as the operation and safety of the installations. Costs are incurred for these services, which are borne by electricity consumers. Swissgrid is entitled to collect various tariffs to cover its costs: tariffs for grid usage, a tariff for general ancillary services and tariffs for individual ancillary services. The structure of the tariffs is prescribed by the Electricity Supply Act and the Electricity Supply Ordinance.
Swissgrid publishes its tariffs for the coming year in March of each year. In the last ten years, these were sometimes lower and sometimes higher than in previous years. Andreas Schreiber, Head of Economics & Contracts at Swissgrid, explains in an interview which tariffs particularly fluctuated, which remained fairly constant, and how these developments can be explained.
Swissgrid has existed since the Electricity Supply Act entered into force in 2009. How were the tariffs handled at that time?
Swissgrid tariffs have indeed been in place since the company was officially founded. At that time, the tariff calculation was established from scratch within a very short time. The components of the tariffs and their billing are set out in the Electricity Supply Ordinance and were subsequently further specified in the «Grid usage model for the Swiss transmission system» (NNMÜ) electrical industry document. There was no start-up or transition phase. The calculation had to be correct and reliable from the beginning.
That was 14 years ago. Have the formal requirements for calculating tariffs changed since then?
There have been various minor adjustments, primarily to make some tariffs more efficient and therefore keep the costs for electricity consumers as low as possible. Nevertheless, Swissgrid has been working with the same legally prescribed tariffs since then. A new tariff has been added for the first time for the 2024 tariff year: the tariff for power reserves. The Federal Council has decided on various measures to improve Switzerland’s supply situation, particularly in winter. These include the hydropower reserve, the grid connection of the reserve power plant in Birr (AG) and the use of emergency power groups. These measures entail costs that cannot be influenced by Swissgrid, but are charged via Swissgrid by way of the new power reserve tariff. With the operational management of the hydropower reserve and the emergency power groups, Swissgrid is taking on tasks that go beyond its original legal mandate.
«Every second, the same amount of energy must be fed into the grid as is consumed so that the frequency always remains constant at 50 Hertz.»
Andreas Schreiber, Swissgrid
The power reserve tariff increases the burden on consumers. However, there are other such tariffs for the 2024 tariff year. What are they, and how have they developed in recent years?
The general tariff for ancillary services has again increased significantly for the tariff year 2024. In the last ten years, it has also sometimes swung upwards or downwards. As the name suggests, the tariff covers the costs of ancillary services – and control power in particular. Swissgrid needs this to stabilise the frequency in the event of oscillations. I am happy to elaborate on that. An important prerequisite for the secure operation of the transmission system is the permanent balance between electricity generation and consumption. Every second, the same amount of energy must be fed into the grid as is consumed so that the frequency always remains constant at 50 Hertz. When unforeseen oscillations occur, Swissgrid uses control energy: it commissions power plants to increase or decrease their production. Swissgrid commissions power plants to provision this reserve so that it is always available. This means that the power plants cannot sell the corresponding energy elsewhere, but must reserve the power for Swissgrid. Providers therefore base their calculation on what this reservation costs them or how much they could otherwise earn on the power market. Accordingly, prices are dependent on wholesale prices.
Another tariff that will increase significantly for 2024 is the individual ancillary service tariff for active power loss. This was also subject to regular fluctuations in the last few years. The reason is that the individual tariff for active power is 90 percent driven by electricity prices. During the transfer of electricity, electricity is lost in the form of heat. This «lost» energy is called active power loss. Swissgrid has to compensate for this active power loss in the Swiss extra-high-voltage grid and buys electricity for this from electricity traders via tenders or at short notice on the spot market. Both procurement options are dependent on wholesale prices.
Electricity prices have increased since 2021 and throughout 2022. The upheaval on the energy market caused prices to rise to unprecedented levels. Therefore, the general tariff for ancillary services and the individual tariff for active power loss have increased for the tariff years 2023 and 2024.
«Swissgrid specialists are constantly working to enable further improvements in order to keep procurement costs as low as possible.»
Andreas Schreiber, Swissgrid
Is there no way for Swissgrid to influence these two tariffs?
As the national grid company, Swissgrid cannot influence the electricity price. As already explained, Switzerland is dependent on the European wholesale market, which, in turn, is driven by international events. However, we have taken various measures to influence Swissgrid’s tariffs to a limited extent.
We have introduced market-based procurement mechanisms for ancillary services. We have continually developed the required products so that there is as much competition as possible and new suppliers can also enter the market. This mechanism has already had an effect, as in some cases procurement costs have decreased significantly over the past few years. However, these improvements were unable to prevent the costs for ancillary services from rising in the current price environment on the energy market, which is characterised by sharply rising prices.
Swissgrid has also developed a procurement strategy for active power loss to counteract the volatility of electricity prices. Based on historical values, Swissgrid defines its minimum requirement for the compensation of active power losses. This quantity is then procured by way of different market products and in various time horizons (year, quarter, month or spot products). The procurement process for a given year starts about two years prior and ends intra-day. During this time, the quantity for each hour can be adjusted again 60 minutes before delivery. Thanks to this strategy, Swissgrid is less exposed to short-term fluctuations in prices and, at the time of tariff calculation at the beginning of the year, is aware of the majority, i.e. around 60 to 75%, of its costs for the compensation of active power losses for the current year. This allows for more accurate tariff fixation, reduces any volume – and tariff – related timing differences, and should also make tariffs more stable.
Generally, however, the optimisation of the ancillary services procured by Swissgrid is an ongoing process. Swissgrid specialists are constantly working to enable further improvements in order to keep procurement costs as low as possible.
«Swissgrid is consistently focussed on keeping the financial burden on electricity consumers as low as possible.»
Andreas Schreiber, Swissgrid
Are there also Swissgrid tariffs that have remained fairly constant in recent years?
Yes, there are. The working tariff of the grid usage division has shown little volatility over the last ten years. Since 2013, it has ranged between 0.16 ct./kWh (2013) and 0.27 ct./kWh (2023). Compared to 2023, the working tariff in 2024 will remain unchanged. The working tariff is a component of the charge for use of the grid and covers Swissgrid’s core business: the expansion, maintenance and operation of the Swiss transmission grid. Fluctuations occur due to special regulatory effects or changes in the use of income from auction. Income from auction is income that Swissgrid generates by auctioning grid capacities for cross-border trading. This income from auction is used to reduce costs and does not always remain constant. Each year, the Swiss Electricity Commission (ElCom) decides how Swissgrid may use this income. It is either used to reduce tariffs or to finance long-term investments. For 2024, ElCom has decided that Swissgrid can use the entire income from auction to reduce tariffs. In previous years, usually only a small share of the income was used for the direct reduction of tariffs.
How do you see Swissgrid tariffs developing in the future?
It is very difficult to predict how tariffs will develop in the future. The forecasting of tariff development in the coming years is full of uncertainty. We cannot predict how prices will develop on the power market. There are too many unknown factors that can influence this. However, I am convinced that Swissgrid will continue to carry out its core business conscientiously and thus ensure stable charges for use of the grid. Even though we are at the mercy of price trends on the power market when it comes to general ancillary services and the procurement of active power loss, we will continue to do everything we can to optimise our products and our procurement process. After all, Swissgrid is consistently focussed on keeping the financial burden on electricity consumers as low as possible.
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