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The future of Swiss hydropower: how to distribute the risk and the profits?

Author

Listed:
  • Mirjam Kosch

    (ZHAW
    Potsdam Institute for Climate Impact Research (PIK), Telegrafenberg)

  • Regina Betz

    (ZHAW)

  • Thomas Geissmann

    (ZHAW)

  • Moritz Schillinger

    (University of Basel)

  • Hannes Weigt

    (University of Basel)

Abstract

Low electricity prices put economic pressure on hydropower companies. A more flexible water fee design can counteract this pressure and support hydropower companies during times when market revenues are low. However, this comes at the cost of lower revenues for resource owners. Using a sample of cost data for 62 companies and revenue data derived from an electricity market model, we have quantified this trade-off for the case of Switzerland. We found that electricity market price developments dominate changes in water fees and that for the profitability of hydropower, electricity prices are more important than water fee levels. However, with electricity prices of around CHF 40 per MWh, water fees can make the difference between profit and loss. Therefore, while flexible water fee regimes shift the market risk from producers to resource owners to some extent, the extent of this risk shift depends on the detailed design of the flexible regime.

Suggested Citation

  • Mirjam Kosch & Regina Betz & Thomas Geissmann & Moritz Schillinger & Hannes Weigt, 2021. "The future of Swiss hydropower: how to distribute the risk and the profits?," Swiss Journal of Economics and Statistics, Springer;Swiss Society of Economics and Statistics, vol. 157(1), pages 1-17, December.
    • Handle: RePEc:spr:sjecst:v:157:y:2021:i:1:d:10.1186_s41937-021-00074-0
    DOI: 10.1186/s41937-021-00074-0
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    References listed on IDEAS

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    1. Massimo Filippini & Thomas Geissmann & William H. Greene, 2018. "Persistent and transient cost efficiency—an application to the Swiss hydropower sector," Journal of Productivity Analysis, Springer, vol. 49(1), pages 65-77, February.
    2. Banfi, Silvia & Filippini, Massimo, 2010. "Resource rent taxation and benchmarking--A new perspective for the Swiss hydropower sector," Energy Policy, Elsevier, vol. 38(5), pages 2302-2308, May.
    3. Banfi, Silvia & Filippini, Massimo & Mueller, Adrian, 2005. "An estimation of the Swiss hydropower rent," Energy Policy, Elsevier, vol. 33(7), pages 927-937, May.
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