High hopes

With its trademark mountain ranges and an extensive river network that includes the mighty Rhine, Switzerland has always looked to hydro for the bulk of its power supplies. Today hydro covers over 60% of output - the third highest proportion in continental Europe, but still well down on the 75%-plus market share achieved in the 1970s. Storage plants generate one-third of supplies, with a further one-quarter from run-of-river plants. Hydro and nuclear together generate almost all Swiss electricity, although hydro sales slipped almost 7% in 2000 to 37.9TWh. Full-year figures are not available for 2001, but better rainfall and economic recovery helped produce record power demand.

High altitude reservoirs and imposing dam walls have long been integrated into the Swiss Alpine landscape. The federal authorities control some 210 dams, from 5-285m high and with a reservoir volume up to 50,000m3. More than 80% are integrated in hydro schemes. Among the most spectacular is the Cleuson-Dixence facility, completed in 1998 by Energie Ouest Suisse (EOS), a utility supplying distribution firms in western Switzerland. Cleuson-Dixence draws an average 500mm3/yr supplies, collected from mountain glaciers between Mishabel and Mont Gele into a main 24km long pipeline, built at an altitude of 2400m in the heart of the Alps.

The US$800M project, the massive extension of an existing plant, also features the world's highest gravity dam wall. Built in the 1960s, the 285m tall barrier at Grande Dixence weighs 15Mt and extends across 700m at its crown. A 580m fall feeds 3x423MW Pelton turbines in the Rhone valley, generating 2TWh/yr. Almost the entire facility was buried underground to meet Switzerland's tough environmental laws. The plant reaches its peak 1200MW performance in less than two minutes. Around 17% of the country's stored power comes from the Grande Dixence region, while 85% of EOS's 3.2TWh/yr output now comes from hydro. Along with its landscape, Switzerland's unique political system also influences the structure and growth of hydro supplies. Much power is devolved to the 26 states (or cantons), which take their own decisions unless the federal constitution specifically gives competence to central government. This localised system is echoed in a fragmented power sector, where there are still over 1200 suppliers. Argovia state alone has some 200 power utilities.

There is a layer of grassroots democracy via referenda, which allows local people a powerful voice on individual hydro projects. To take one current example, the city government in Zürich wants to renovate the Wettingen plant on the Limmat river. The 140GWh/yr from Wettingen accounts for 10% of the output of municipal utility EWZ. Critics have secured the modest number of signatures needed to trigger a referendum on the project - an impressive example of direct democracy, but one posing particular problems for Swiss hydro.

The popular veto extends to broader industry issues. At present three-quarters of utilities are majority-owned by cantons or local authorities. De facto liberalisation in recent years has already brought many mergers and alliances among leading suppliers. But quality public services are key in Switzerland. Recent dramas over several top private firms (above all the humbling of Swissair) provoked a wave of opposition to power liberalisation. The no vote in Zürich last year to privatisation of cantonal supplier EKZ was a major setback for this creeping industry reform. Many of the 3000 communes benefit from cheap power and monopoly profits under the current system.

Another national referendum last December aimed to impose a potentially massive energy tax - including hydro plants above 1MW - to cover most of the country's social security costs. The proposal (from Switzerland's Green Party) was defeated by 77-23%, after the government warned it would make Swiss hydro uncompetitive.

New challenges

The hydro sector may face a new challenge later this year, if voters approve the government's power market liberalisation law. The reform is backed by electricity association VSE: 'Because of our position, we have to harmonise with everyone else,' concedes spokesman Werner Graber. 'We can't have a different system.' Signs are that the famously independently minded Swiss may not see it that way. A no vote on September 22 - in a referendum already delayed twice for fear of defeat - might pose even greater problems for the many hydro suppliers preparing for an integrated European market. In an unhelpful intervention, German Economics Minister Werner Müller warned that his country might block Swiss electricity exports if market reform stalls.

The government has tried to end public criticism of its so-called EMG, or electricity market reform, by publishing an ordinance detailing how it will work. Moritz Leunenberger, President of the Swiss government, claims that 'one of the objectives of the new law is to keep hydroelectricity at the centre of Switzerland's electricity production, if need be by giving out government grants'. While the hydro-heavy mountain cantons claim the ordinance gives inadequate support for water power, the Swiss employers' lobby has attacked this cushioning of hydro from market forces.

The reform could damage hydro if operating costs became the only measure of commercial efficiency and viability. Yet many utilities agree with Richard Molinari, head of the Federal Office of Water and Geology (BWG), that hydro output can 'in spite of all difficulties, be kept at least at current levels' under the new regime.

One reason for this confidence is Switzerland's pivotal location. Most of Europe's high voltage transmission lines run through the country, which is traditionally a net power exporter. The industry also already has much experience in power trading, with a SWEP (Swiss Electricity Price Index)-based spot market operating on the Rhine at Laufenberg for several years. Combine this location and expertise with hydro's flexibility to meet peak demand, and many believe Switzerland has a winning formula for Europe's emerging single electricity market.

The industry can tap into increased cross-border sales to both the north, where there are high hopes on German consumers paying a premium for clean Swiss hydro, and southwards, where underproduction in Italy is already producing high prices. The market for branded hydro within Switzerland is less clear. A survey for Elettricita Svizzera Italiana (ESI) found fewer than 1% of consumers in Ticino canton would pay a small premium for certified green power. ESI is now looking beyond the Alps to Italy to market these supplies. It faces competition from Atel and EGL, two founder members of SWEP already selling their high value peak hydro in Italy. The peninsula is Atel's main market, while experienced trader EGL lifted sales by over 150% last year. AlpEnergie Italia, a joint venture between eos and Belgian supplier Electrabel, also markets Swiss power in Italy.

BKW Energie of Berne has launched a new marketing arm to promote certified power from its Aarberg hydro plants under the brand name Water Star. BKW also runs a distribution company on the German side of the Rhine. Five hydro stations run by EGL - including the leading central Valois plants at Mattmark and Mauvoisin - have just won green power certification from German agency TÜV. The TÜV label is vital for selling hydropower in Germany.

The Cavaglia storage plant run by Ratia Energie was the first Alpine facility to win the Nature Made Star label. Developed by two Swiss agencies, Nature Made is one of Europe's most stringent green certifications. The new domestic energy brand Swisspower offers hydro supplies entirely from Nature Made sources. Consumers may grow confused and sceptical as these certificates and brand names multiply - this was certainly the case in neighbouring Germany. Nor are hydro supplies always cheap. The Prisma Sky package (80% small hydro) from the Axpo Group in northern Switzerland adds US$425/yr to the average family bill.

Leading European utilities also want direct access to the storage potential of Swiss hydro. Last year EnBW, which often serves as a stalking horse for major shareholder Electricite de France, bought the Swiss Lonza group's energy division. The additional 300MW hydro capacity (mostly run-of-river Rhine plants) produces over 1TWh/yr. The southwest German utility aims to merge these assets - still operating as a separate company - with other Swiss hydro plants.

German giant Eon has a 20% stake in BKW Energie, which serves 400 communes in northwest Switzerland. Both Eon and RWE are thought to have other leading regional suppliers in their sights. For its part Axpo is seeking a major foreign investor to help it compete in Europe. The group includes Nordostsch-weizerische Kraftwerke (NOK), Switzerland's largest distributor and the country's leading hydro supplier. Output jumped to 7.1TWh last year, with Kraftwerke Vorderrhein generating 1.1TWh - a record in its 45-year history.

Other suppliers are also reorganising for the new market. Last year Atel separated its hydro plants into two independent companies, Atel Hydro and Atel Hydro Ticino. Atel Hydro runs the Flumenthal, Ruppoldingen and Goesgen stations on the river Aare - together these have an annual output of 500TWh. The move means that the utility already complies with Switzerland's electricity market law.

The new Ruppoldingen run-of-river plant has some of Europe's highest environmental standards. Officially inaugurated in March after a US$130M redesign, it features the world's largest by-pass channel, a large wetland area and artificial islands for birds and other wildlife. Atel commissioned an environmental impact study for the new plant, and has agreed to compensate for up to 50% residual flow loss. In all 10% of the project spend went on renaturing. Two Kaplan turbines, each of 5.9m diameter (the largest in Switzerland) generate 114TWh/yr. The firm charges a small surcharge for green power from Ruppoldingen Atel claims hydro growth is hampered by domestic constraints. 'The cost of domestic hydro is still too high compared to imported electricity,' argues the latest annual report. 'This is due mainly to public levies (mostly taxes and water rates) that amount to 50% of production costs in some cases.'

  'At a crucial moment for Swiss hydro, a better balance needs to be found between the interests of the industry and local communes,' agrees Bernard Joos of hydro lobby Schweizerische Wasserwirtschaftsverband.

Peter Molinari, Director of Engadiner Kraftwerke and head of the VSE's hydro division, says water charges for his firm have risen at double the rate of inflation since 1970 - and even more sharply over the last decade. Strict regulation of residual water flows also misses the bigger picture, according to Molinari: 'Put simply, what good are local improvements in residual flows for fish, when global warming threatens survival of the species?' The EMG also promotes small hydro and other renewables by guaranteed minimum rates for supplies fed to the grid and state loans at favourable rates for existing hydro plants. The government reserves the right to enforce tariff-free transit for a maximum of 10 years for hydro up to 500kW.

In 1914 there were over 10,000 small hydro plants (the vast majority below 300kW) in Switzerland. These had dwindled to 1000 by the mid-1980s, but the government then offered financial support to the sector in its 1991 Energie 2000 programme.

Private engineering firms develop many schemes. At Freienstein on the Töss, Entec is reviving a small plant first opened in 1836 and closed a decade ago. The St Galler firm builds and operates small hydro plants in Europe and Asia. Power supplier EKZ rejected the US$2.4M scheme as uneconomic.'But for us it will be worth it,' says Peter Eichenberger of Entec. Even with the plant's high environmental safeguards, he expects to market 2.4 million kWh/yr supplies at a profit.