Swiss government prepares for electricity price shock

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Switzerland’s leaders are concerned by the current volatility of electricity prices and have started planning for a potential disaster scenario, reported RTS.

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The war in Ukraine has impacted energy provision across Europe, said Swiss energy minister Simonetta Sommaruga on Thursday. Price movements have reached historical levels and could worsen if gas supplies from Russia stop. If the price of gas spikes, some electricity suppliers could experience a liquidity crunch, setting off a chain reaction across Europe’s highly integrated electricity market.

To avoid bankruptcy and market paralysis, the Federal Council’s plans to create a financial mechanism of last resort to save Switzerland’s systematically important electricity companies in a crunch. We must be ready for the worst case scenario to ensure energy provision is maintained in Switzerland, said the minister. The mechanism will remain in place for four years and will only be available as a last resort, stressed Sommaruga.

According to Benoît Revaz from the Swiss Federal Office of Energy (SFOE) the energy market could become paralysed within 24 to 48 hours if there’s a significant shock such as a halt in gas supplies from Russia. The risk relates to the way the market is structured. Electricity companies have contracts to supply agreed quantities of electricity at agreed prices. In a crunch, they might not be able to find enough cash to honour their contracts and pay essential bills. In the worst case scenario they could go bankrupt and put the supply of Switzerland’s electricity at risk.

Eventually, electricity prices would rise and new higher-priced contracts would replace existing ones. However, adjusting to the dislocation could be rough and there is a risk of the financial wheels falling off a key player in Switzerland’s electricity market.

The Swiss government plans to tackle the task of finalising its electricity back up plan over the summer ahead of next winter when the energy market is at its most stretched.

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