Is the gradual reduction in Federal support for renewable energies a hindrance to their deployment?

In reality, the total amount of subsidies for new renewable energies is not going to decrease. On the contrary, it will even increase. On the other hand, the tariff for the purchase of green electricity by grid operators will gradually fall for newly commissioned plants. The aim is thus to pass on the lower costs of new renewable energy production technologies, particularly solar photovoltaics.

If carefully balanced, this reduction in green electricity feed-in tariffs will help to increase the rate of deployment of renewable energies, as the financing available will support a greater number of installations.

Electricity from new renewables is not yet competitive in terms of production cost, compared to the power provided by conventional technologies such as nuclear or hydropower [→ Q64]. The federal government has a feed-in tariff remuneration system (RPC) as an incentive to remedy this situation. The aim of this scheme is to eliminate the difference between the cost of producing green electricity (10 to 50 centimes per kilowatt-hour [ct/kWh], depending on the size and type of plant, in 2018) and the market price of electricity, thereby ensuring that owners of renewable plants receive a return that corresponds to their production costs.

This support mechanism for renewable electricity is widely used in all industrialised countries. It is known under the generic term “feed-in tariff”. In Switzerland, the following technologies were eligible for financial support from the RPC: small hydropower (less than 10 MW), solar photovoltaic, wind, geothermal and biomass. With the new Energy Act, since the beginning of 2018, the PRC’s support system has undergone major changes. Renovated or expanded installations are no longer permitted, and new photovoltaic installations will be covered by the one-off payment system (UK). Biomass infrastructure (incineration and purification) will be supported only through investment contributions, and wood-fired power plants can be supported by other means. The lower power limit for the small hydraulics has been raised to 1 MW.

As the annual amount available to the PRC fund is predetermined by Parliament [→ Q79], the aim is to use it as efficiently as possible by supporting as many renewable plants as possible. For the federal government, the challenge lies in defining a fair compensation price. Owners of renewable energy plants would benefit from tariffs that are too generous (higher than the actual production costs of green electricity). Taxpayers’ money would therefore be poorly invested, which would limit the number of new systems that could be installed. The windfall effect would also lead to a demand that would exceed the volume of financing available. Conversely, if the feed-in tariff for green electricity is set too low, i.e. below its production cost, nobody will want to invest in new installations and the deployment of renewable energies would be slowed down. The “right price” must therefore be found.

However, while the tariffs offered under the PRC have been rather generous in the past, those proposed in 2014 seem relatively modest, especially for solar photovoltaic in international comparison. If a slowdown in the expansion of this technology in Switzerland were to be observed, these remuneration tariffs would then have to be reviewed and readjusted if necessary. The costs of production facilities for new renewable energies are tending to fall, thanks to technological developments and their increasing commercial maturity. It is therefore essential that feed-in tariffs follow technological developments and are periodically adjusted downwards, or upwards where necessary, in order to match as closely as possible the break-even point of these technologies, thereby accelerating their widespread dissemination. A too significant drop in rates runs the risk of breaking the market dynamic by generating “stop and go” phenomena. Such effects have been observed in several countries, but fortunately not in Switzerland.

To combat this phenomenon, Switzerland now directly subsidises small installations by granting a subsidy equivalent to 30% of the cost of the installation instead of the feed-in tariff. The federal government calls this one-off payment the “RU” [→ Q81].