This study examines the effects of market design changes in neighbouring countries on the Swiss electricity market and in particular on the profitability of Swiss hydropower. In a first step, an econometric model based on a multiple linear regression is developed to determine the impact of exogenous drivers on the Swiss wholesale electricity prices. The results indicate that the French load and the Swiss wholesale electricity price interact strongly during peak load periods due to the electricity market coupling and large electricity exchange capacities. In addition, strong correlations are observed between wholesale electricity prices in Germany, France and Switzerland in spring and summer. Furthermore, German wind power and photovoltaic electricity generation have a negative impact on Swiss wholesale electricity prices in spring and summer, but this impact decreases during autumn and winter. In these periods, Swiss wholesale electricity prices mainly follow Italian and French wholesale prices.
Furthermore, an agent-based simulation model (PowerACE) is used to investigate different energy scenarios with regard to the development of the electricity market. In the first scenario, all present market designs (implemented capacity remuneration mechanisms) are represented according to the legislation at the time of this study. As a second scenario, a so-called energy-only market (EOM) is assumed in all surrounding countries of Switzerland (Germany, France, Italy and Austria). In both scenarios, the development of wholesale electricity prices and power plant capacity is examined. The results of the agent-based model also show that wholesale electricity prices are highly dependent on developments in neighbouring countries, independently of the scenario chosen. This dependency is even expected to increase as a result of the expansion of trading capacities. With regard to power plant capacities, there are only minor differences in the scenarios examined. In the scenario with capacity remuneration mechanisms in neighbouring countries, for instance, less flexible power capacity is built in Switzerland. This can be explained by the higher capacity in neighbouring countries and the possibility of importing electricity. The installed flexible power plant capacity, together with the use of hydropower capacities in Switzerland, enables a high level of generation adequacy. Regardless of the scenario, rising prices are expected on the wholesale market due to the assumption of rising CO2 certificate and fuel prices with at least constant or rising demand.
In addition, the wholesale market prices of the scenarios simulated with the agent-based model are used to examine the support schemes for renewable energies (in particular the fixed feed-in tariffs and direct marketing combined with the market premium model). Due to rising wholesale electricity prices, a decline in the funding volume can be observed in the medium term, as an increasing share of investment expenditures can be refinanced by revenues on the electricity market. However, an increase in the total subsidy volume is again to be expected as a result of the over-proportional increase in the number of photovoltaic systems assumed from 2030 onwards (without assuming a degression of the feed-in tariffs). The declining specific investments should therefore be countered with a reduction of the feed-in tariffs in order to benefit from the declining price developments for renewable energy installations in the overall system.
The simulated wholesale prices in the two scenarios are also the basis for investigating the operational revenues of Swiss hydropower (storage and pumped storage) using an optimal stochastic control model. The results show that the expected electricity prices on the wholesale market are likely to lead to higher revenues for storage and pumped storage power. For seasonal storage power plants, which have a significant natural water inflow, a significant increase in market revenues can be expected in both scenarios as early as 2030, as the average price level strongly increases. For pure pumped storage power plants with short filling cycles, the increase in market revenues is smaller in the mid-term, as this type of power plant is dependent on price fluctuations that increase only slightly until 2030. In the long term, however, pumped storage facilities are able to benefit from the sharp increase in price volatility in both scenarios. In the EOM scenario, in particular, large price fluctuations occur leading to optimal, high-frequency pump-turbinization cycles. However, this could have a negative impact on the technical feasibility of the plant if all these price fluctuations are exploited. By the year 2050, the general price level will again rise strongly relative to 2030, so that storage power plants without (or with relatively low pumping capacity) will also be able to further increase revenues.
The analysis of the secondary control reserve in the scenarios for 2030 and 2050 refers primarily to the relationship between wholesale electricity prices and control reserve prices. It turns out that a lower limit for the minimum expected secondary control reserve price is determined solely by the fluctuations of the wholesale electricity price, so that secondary control reserve prices should also rise proportionally in the future.
The analyses lead to the conclusion that, due to price dependencies, the Swiss authorities should monitor the development of wholesale prices for electricity, capacity and generation adequacy in neighbouring countries in order to be able to react appropriately to significant changes, in particular when the level of generation adequacy is at risk. However, the results also show that the current market design changes in the neighbouring countries do not have a negative impact on generation adequacy in Switzerland and that therefore the introduction of a capacity remuneration mechanism in Switzerland is not necessarily required. With regard to the strong increase in revenues for hydropower (in both scenarios), Swiss hydropower could, under the assumptions and under the given regulation, play the role of a profitable source of income in the medium term.