The Design of Variable Water Fees and its Impact on Swiss Hydropower Companies and Resource Owners

Work Package 3: Energy Policy, Markets and Regulation SCCER CREST (2019)

24 Pages Posted: 26 Aug 2019

See all articles by Regina Betz

Regina Betz

Zurich University of Applied Sciences

Thomas Geissmann

Massachusetts Institute of Technology; ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Mirjam Kosch

ETH Zürich

Moritz Schillinger

University of Basel - Center for Economic Science

Hannes Weigt

WWZ, Wirtschaftswissenschaftliche Fakultät der Universität Basel

Date Written: August 23, 2019

Abstract

Water fees are a remuneration to be paid by the operators of hydropower plants to the owners of the water resource right. In Switzerland the fee is based on the gross capacity of the plant and independent from market conditions. This regulation implies that cantons and municipalities have a constant income from water fees, because the whole market risk lies with the producers. As revenues of hydropower companies have dropped after 2012 due to low electricity prices Swiss hydropower producers have been calling for a change in the water fee regime. The currently most probable policy change is a flexibilization of water fees. Within this paper we analyse the impacts of different water fee reform options – and how they depend on market conditions – from the hydropower producers (companies) and resource owners (cantons and municipalities) perspective. We find that electricity market price developments dominate the water fees in most cases, but for a range of electricity prices between 40 and 60 CHF/MWh water fees can make a difference. However, there is a larger variability between plants than between market scenarios, i.e., in every scenario, we find plants that make profits and others that make losses. We also show that a uniform water fee favors storage/pump-storage plants, whereas a differentiation of the water fee level by plant type favors run-of-river units.

Keywords: hydropower, Switzerland, water fees

JEL Classification: L94, Q25, Q48

Suggested Citation

Betz, Regina and Geissmann, Thomas and Kosch, Mirjam and Schillinger, Moritz and Weigt, Hannes, The Design of Variable Water Fees and its Impact on Swiss Hydropower Companies and Resource Owners (August 23, 2019). Work Package 3: Energy Policy, Markets and Regulation SCCER CREST (2019), Available at SSRN: https://ssrn.com/abstract=3441581 or http://dx.doi.org/10.2139/ssrn.3441581

Regina Betz

Zurich University of Applied Sciences ( email )

Centre for Energy and the Environment (CEE)
Bahnhofplatz 12
Winterthur, CH 8401
Switzerland

Thomas Geissmann

Massachusetts Institute of Technology ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Mirjam Kosch

ETH Zürich ( email )

Zürichbergstrasse 18
8092 Zurich, CH-1015
Switzerland

Moritz Schillinger

University of Basel - Center for Economic Science ( email )

Basel, 4051
Switzerland

Hannes Weigt (Contact Author)

WWZ, Wirtschaftswissenschaftliche Fakultät der Universität Basel ( email )

Basel, 4051
Switzerland

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