Legislative context

On 29 September 2023, the Federal Council approved the federal law on a secure electricity supply based on renewable energies, which successfully went through the parliamentary process. The law recently underwent some changes, such as the revision of Article 6 “Obligation to supply (electricity) and pricing in basic (electricity) supply”, which introduces quarterly disclosure.

After the popular vote took place on 9 June 2024, where 68% of Swiss citizens voted in favour, the law will come into force on 1 January 2025.

Details

As a result of the amendments, energy producers will receive the GOs associated with their output per quarter, while electricity suppliers will need to cancel GOs and disclose RES-E consumption at the end of every three months. In contrast, the current disclosure deadline is 31st May X+1.

Power Purchase Agreements (PPAs)

The ordinance also introduces a move away from the average price methodology for calculating prices for customers on basic supply contracts. Instead, a new acquisition strategy is introduced. Electricity suppliers who do not have their own renewable generation assets or the share of own assets is considered insufficient by the Federal Council, will have to complement their supply portfolio with PPAs. The Federal Council will determine the minimum share of necessary PPAs by taking into account the availability of such contracts in Switzerland. The new methodology should shield end customers from extreme prices as suppliers will have a portfolio of options to procure electricity.

So far, only five PPAs in total have been signed in Switzerland with corporate buyers, according to Veyt PPA data. The new suppliers’ portfolio obligations could boost utility PPAs in future. The ordinance stipulates that suppliers will have to provide a set share of renewable electricity to basic supply customers not only via GOs but through sourcing actual renewable production. This suggests that only physical PPAs will be accepted, thus limiting suppliers from finding sellers abroad via virtual PPAs.

Switzerland’s renewable production is dominated by hydro with 15 GW installed capacity in 2022. Solar capacity has been slowly growing from 3 GW in 2020 to 4.3 GW in 2022, while onshore wind has remained rather stagnant at under 1 GW. The Federal Council expects that the availability of PPAs on the local market will increase with the gradual growth of renewable capacity.

Market impact

As the revised article concerns disclosure by electricity suppliers, it would shift their demand needs from annual to quarterly basis, with demand materialisation from Q1 2027 onwards. Quarterly disclosure could also lead to greater demand fragmentation by technology and origin. Since vintage swapping is not allowed in Switzerland, RES-E procurement could be complicated, especially in winter, when consumption typically exceeds Swiss renewable production (see graph below). On average, GO shortage in the domestic Swiss market is 3.7 TWh during colder months (Q1, Q4), while in summer months (Q3) the oversupply equals to 1.7 TWh, based on 2019-2023 data.

Since Switzerland unilaterally accepts imports of EECS GOs issued by EU Member States, in the absence of a bilateral agreement with the EU, suppliers and end-consumers may need to import more EECS-GOs from other countries in winter months to match demand, leading to seasonal demand for European GOs. As this would coincide with disclosure deadlines in most European countries (31 March X+1), this could exert some pressure on the price curve for EECS GOs.

Switzerland, apart from EU-EECS GOs, also accepts imports from the Energy Community (EnC) countries (e.g. Serbia and Switzerland have a mutual agreement), however, these cannot be accepted for disclosure. This means that Swiss electricity suppliers cannot use EnC GOs to disclose the origin of electricity to Swiss consumers, but Swiss companies can use them for sustainability reporting, as disclosure in a legal sense does not apply to them.

This comes amid the RED II provision requiring the Commission to have a bilateral agreement with a third country (which Switzerland is to the EU) for mutual GO recognition. Consequently, Swiss renewable energy producers can no longer sell their GOs in the EU Internal Market for usage in national disclosure schemes, effective from June 2023; although import is allowed, and non-EU countries can use Swiss GOs. It’s also worth noting that Norway closed for import of Swiss GOs from April 2024, until further notice.

Switzerland has implemented full production disclosure since 2020, meaning that every MWh of electricity produced is issued with a GO. In 2023, RES-E issuance of GOs stood at 90%, equivalent to 40.8 TWh, This is 7.0 TWh and 3.2 TWh short of the cancellations for 2021 and 2022, respectively. 2023 cancellation data is not yet published, with the disclosure deadline on 30 May 2024.

During the same time, Swiss consumers imported 23.4 TWh of certificates from the EU Internal Market. In contrast, 58.7 TWh of domestic GOs were cancelled. According to Veyt’s long-term forecast, renewable generation in Switzerland will increase to 59 TWh by 2027, and 64 TWh by 2030. With this, domestic issuance will grow to reach 54 and 59 TWh, accordingly. This could mitigate the GO shortage that historical data indicates the country may face during colder months ahead of the new disclosure rules unless demand increases beyond current levels.

In summary, the introduced change could have a seasonal bullish impact for GOs, both domestic and EECS ones.