Electricity grids in demand

Residents of a four-room apartment with an electric cooker and electric boiler will spend an average of around CHF 910 next year. However, only about a third of this is accounted for by pure energy consumption. The bulk of the costs are for grid usage. Although the price varies from place to place, the grid usage fees can be up to twice as high as the actual energy supply. The remainder is made up of municipal and national levies. It is therefore all the more important for energy companies to control the entire value chain and offer all services from a single source: from energy generation to transport and delivery to end customers.

High-yield use

While large producers without their own supply networks suffer from low market prices, regional energy producers with their own networks benefit. Grid usage is heavily regulated in Switzerland and will not be liberalised in the foreseeable future. Grid usage costs include amortisation, operating costs and imputed interest.

The capital invested in the electricity grids is entitled to a return. The average imputed cost of capital is applied, the so-called WACC (Weighted Average Cost of Capital). The Federal Department of the Environment, Transport, Energy and Communications (DETEC) sets this rate annually; for 2017 it is 3.83 percent. The rate is fixed on the basis of calculations by the Swiss Federal Office of Energy (SFOE) and after consultation with the Swiss Federal Electricity Commission (ElCom).

Electricity grids therefore promise a secure and sustainable return in today's world. They are particularly attractive for utilities that have solid equity and low-cost debt capital.

Supply monopoly

It is clear that electricity grids are currently in high demand from many energy producers and fetch considerable market prices. Around eighty percent of electricity grids are owned by the public sector, predominantly by municipalities. These are increasingly acting as sellers. Because the voters have the final say in the sale of municipally owned companies, prudent process management is of great importance. The sale process also involves a political process. It already starts with the change in the legal form of the municipal enterprise. Forward-looking and active support throughout the entire transaction is crucial. This includes not only the sale of the network and its customers, but also the drafting of contracts and tax issues.

Sale also a political issue

In such projects, it is essential to know the seller and buyer sides inside out. It is essential to master the market mechanisms, to sound out the possibilities of supply and demand as best as possible, and to respect the tolerance limits. Precisely because the success of such transactions can be strongly influenced politically. Supply fears, for example, must be eliminated. Or objections, such as the municipality selling off its silverware, must be refuted with objective arguments. In short, the transaction must be politically justifiable and able to stand up to a vote at the municipal level.

In advance, it is important to realistically assess the climate in a community and act accordingly. This is the only way to successfully conclude a sale. Prospective buyers from all over Switzerland or from abroad are usually interested in small grids. From experience, however, it is often advisable to find solutions that provide for a sale to a regional energy supplier. Such a supplier has a good chance of retaining the existing end customers, if only because of its proximity.