Swiss ambassador offers UK advice on EU exit

The UK may, like Switzerland, have to accept limited influence in EU energy policy post Brexit, Jean-Christophe Füeg, head of international energy affairs at the Swiss Federal Office of Energy (SFOE), told British parliamentarians last week. SFOE is part of Switzerland's Department of the Environment, Transport, Energy and Communications.

Switzerland is not and has never been a Member of the EU, but the country has a "very special relationship" with the bloc in energy matters. Füeg has been leading Switzerland's lengthy negotiations on an energy agreement with the EU for a couple of years.

The House of Lords EU Energy and Environment Sub-Committee took evidence from Ambassador Füeg on 18 October as part of its inquiry Brexit and Energy Security. The committee said it aimed during the session to explore the advantages and disadvantages of Switzerland's energy relationship with the EU; the key areas of dispute in negotiations to deepen that relationship; and how Switzerland influences EU energy policy.

Cooperation

Asked to what extent Switzerland cooperates with the EU on nuclear safety, safeguarding, and research and development, Füeg said the country is neither a member of the European Atomic Energy Community (Euratom), nor of the Euratom Supply Agency. The UK is currently a member of both.

Füeg said: "We are only an associate country for Euratom research and training, including ITER and fusion. When it comes to the safety of commercial operations, nuclear power plants, the fuel cycle and so on, we are not a part of Euratom. In terms of safety, our nuclear safety inspectorate ENSI is an observer to Ensreg, the European Nuclear Safety Regulators Group. We participated for instance in the stress tests and the follow-up to the stress tests after Fukushima. We also participated in a peer review on ageing management.

"Be aware that this has nothing to do with market access - this is about technical cooperation. The EU sees an advantage to Switzerland participating in nuclear safety for instance and therefore has allowed our safety inspectorate to be an observer in Ensreg. Parallel to that, there is an organisation called Wenra, the Western European Nuclear Regulators Association, which is not an EU forum. It is a very technical forum and has no powers when it comes to legal or regulatory developments and enforcement. When it comes to safeguards, again we have no agreement with Euratom; we only have informal contacts."

Switzerland's fuel cycle is governed by bilateral agreements with France, Sweden and the USA, but again there is no agreement with Euratom. It is also an associate member of Esarda, the European Safeguards Research and Development Association, which is a technical body that deals with the implementation of safeguards and with export controls.

"Again, it is a technical body," Füeg said. "The EU sees the advantage of Switzerland participating, and it has nothing to do with market access."

He also mentioned two other groups. ENEF, the European Nuclear Energy Forum, which is an exchange forum between market players, governments, regulators and NGOs. This deals with information, rather than policy-making, he said. There is also a Decommissioning Forum Group, which deals with dismantling nuclear power plants, and is associated with DG Energy in the European Commission. Switzerland is admitted to this as an observer.

The committee asked him about the status of nuclear power in Switzerland, which generates about 40% of its power from nuclear energy and 60% from hydro, but which aims eventually to close down its nuclear power stations. It has five nuclear power plants – Beznau 1 and 2, Gösgen, Mühleberg and Leibstadt.

Füeg said: "Before Fukushima, Swiss popular opinion was split 50:50 over nuclear. After Fukushima, as you can guess, the opposition to nuclear just skyrocketed. Any new nuclear plants would have needed a law that, by definition, could have been overruled and rejected by a referendum. In a nutshell, it became inconceivable for any new nuclear power plant to be built in Switzerland, with over 80% of the population opposed to it. However, the government decided not to enforce a deadline for the closure of nuclear power plants, and our five plants can run as long as they are deemed technically safe or commercial by the operator. In fact, the first plant will shut down at the end of 2019 for commercial reasons, because the operator does not want to continue operating it. The others may run for as long as they are safe. We expect that the last nuclear power plant will shut in the mid-2030s, or thereabouts."

Elusive agreement

Switzerland has been in talks with the EU on an electricity agreement for as many as 10 years already. One reason for the length of time taken is that, in 2010, it had to adapt its negotiation mandates because in the meantime the EU had introduced its Third Energy Package, he said.

"Since most of our negotiation is about adopting the EU acquis in terms of electricity, we had to readjust our negotiation mandate. The big stumbling block came in 2012. At that stage, the EU reinforced its position that any new market access agreement would hinge on the existence of an institutional framework agreement. From then on, our electricity agreement was inexorably tied to the institutional agreement," he said.

Many of the key issues in the institutional agreement - such as dispute resolution, the adoption of the future acquis, and state aid surveillance or surveillance of the agreement - are intrinsically part of that institutional agreement, he said. "That is why the negotiation became so arduous."

In February 2014 Switzerland held a referendum on mass immigration, which "basically froze all negotiations" until April last year, he said. It then resumed negotiations on the institutional agreement and electricity agreement.

Switzerland can "see the light at the end of the tunnel" on the technical issues related to adoption of the electricity acquis, he said. "There are still a few issues to be resolved. Some of them are very specific to Switzerland: we have contracts with French nuclear plants; we still have to agree a target on the share of renewable energy; we still have to agree on certain state aids that we have in Switzerland, which still need to be acquis-ed by the EU,” he said.

The big issue for the electricity agreement - again, very specific to Switzerland - is the fact that only half of its electricity market is open to competition. "Our electricity market and our electricity companies are in a very difficult situation because of very depressed wholesale prices in Europe. This means that very often they cannot compete against German prices, and the law allows them to charge full costs to captive customers. So, there is not much inclination among a large portion of our electricity companies to fully open the market and expose themselves to very depressed wholesale prices in Europe. At the same time, the idea of full market opening is not very popular," he said.

He described the "legal void" in which Switzerland finds itself without an electricity agreement.

"Matters started to become more difficult, especially from August 2015, when the first regulation about regulating cross-border electricity trade - the so-called Capacity Allocation and Congestion Management Regulation - entered into force. That regulation has a clause, Article 1.4, which specifically targets Switzerland. It states that Switzerland is excluded from this cross-border trade - this new mechanism, which is called market coupling - as long as we do not adopt EU legislation on electricity and as long as we have no bilateral agreement with the EU. This means that Switzerland is excluded from market coupling. There are more network codes that have been enforced, which all have the same Swiss clause - with one exception," he said.

"The next step in the advancement of the internal electricity market is so-called flow-based market coupling, whereby ENTSO-E and the TSOs calculate the methodology that allows you to model and track electricity flows in real time and to get remuneration from that. Because of that Swiss clause, we are excluded from market coupling. Switzerland is not admitted to the ENTSO-E working group, which prepares the methodology for this flow-based market coupling, and the result of all this is loop flows. These are unscheduled flows, which are due mostly to trade between our neighbours, but much of the trade cannot be handled physically between our neighbours and it flows to Switzerland in an unscheduled and non-remunerated way. It may endanger the security of the grid," he said.

The EU acquis "keeps on evolving", he noted. "As the Clean Energy Package is being discussed in the Parliament, we are observing one trend by which some institutions that were previously not under the aegis of the EU are likely, according to current drafts, to become institutionalised: that is, they may move from being independent institutions to being under the remit of the EU and EU legislation. That poses the threat of them being excluded," he said.

Most prominent among them is the so-called Pentalateral Energy Forum, which is a grouping of Austria, Benelux, France and Germany. "Switzerland is an observer there, which is a sort of test ground and precursor for market coupling. This is the most sophisticated trading platform where the acquis is being tested and implemented. We are participating in some of the technical work there, but we fear that as that pentaforum might move under the EU remit, our participation may become more difficult," he said. The “bottom line in this situation" is that there have been analyses, including by ACER, the European Agency for the Cooperation of Energy Regulators, which has estimated the loss at the Swiss border from suboptimal trading at around €120 million ($140 million), "which at the scale of an economy is of course negligible", he said. The exclusion of Switzerland from market coupling is "something of a handicap", he said. "We know that one day it will be a pain. We cannot tell you when it will be, but the trend is clear. That is basically in a nutshell where we stand today."

Although for electricity its key interlocutor is DG Energy, Switzerland senses "unequivocally" that there is a Commission position. "So, there may be some instances where from an electricity viewpoint, the exclusion of Switzerland simply does not make sense. Anyone in the business will agree: the transmission system operators, the market players, even DG Energy, although it will not say it. Common sense would dictate that Switzerland should be a full participant in those mechanisms. The reality is that since electricity has been tied to the institutional agreement, there is no scope for movement," he said.

Overriding exclusion

There has been one instance in the recent past where there has been scope for movement, and that is with balancing energy, which is "absolutely necessary to help stabilise the network", he said. The guidelines for balancing energy are still at the drafting stage and the final version is not known, he added. "With help from our neighbours - this is probably the only case where our neighbouring countries and neighbouring TSOs have supported us in Brussels - the Swiss clause in the balancing guideline has been watered down. Article 1.5 basically states the very same thing: it ties the participation of Switzerland to Switzerland adopting the electricity acquis and concluding an agreement with the EU, and ends by saying, 'except if the exchange of balancing services with Switzerland are necessary for the safe secure network operation of the Union electricity market'."

This is the only instance where the Commission has been "willing to deviate from the overriding exclusion" of Switzerland from the electricity market, absent an institutional agreement and an electricity agreement, he said.

"You have to have a very strong case that you as a country bring something to the internal electricity market that is indispensable to the functioning of the energy market. I have other examples, of network management, where our argumentation has not been accepted. For instance, when it comes to intraday trading, there are Swiss initiatives. Switzerland has been involved in intraday trading for a couple of years now. There is a project to move in accordance with the CACM Regulation. Here, Switzerland has not been successful in ensuring that we would be able to participate in market coupling. Really, the bottom line is that you have to have an absolutely unique circumstance that is quasi-vital or is seen as indispensable to the functioning of the internal market," he said.

"More electricity is traded across our borders than we produce and consume internally. We have an interconnection rate of more than 100%. Although we are still a net electricity exporter over a year, we have very strong fluctuation between the seasons. In the winter, we are an electricity importer. We cannot survive the winter without importable electricity from our neighbours. Even if we were to empty our water reservoirs, we would not get through the winter. At the same time, we have this excess of energy in summer, when the snow melts, and we cannot absorb all this energy; hence, we rely on export markets to sell that energy," he added.

A "relatively recent phenomenon", with the growing integration of renewables in Europe, is the fact that with ancillary services, or very short-term intraday trading prices fluctuate much more and there is much more opportunity for Swiss enterprises to deliver into the intraday market and to deliver ancillary services, he said. The volumes of electricity traded may be less, but the value of that electricity is much higher. This volatility means that from quarter-hour to quarter-hour the flows may change depending on the electricity patterns and prices.

"This is absolutely essential on the commercial side. Of course, if we were to become an island electricity-wise, for instance with regards to the ancillary services - the so-called n-1, the fact that you have to provide for the failure of your single largest unit, which is a big nuclear plant in Switzerland - that would of course drive up the cost of electricity in Switzerland," he said.

"All these things are arguments for us to be in the electricity market. We have been in the electricity market for many decades and we see a tendency. If I may use a metaphor, we have been sitting at the table with our European neighbours electricity-wise and we have felt in some instances that someone has started to saw at our chair legs, and there is even the risk in some cases that the chair may be withdrawn from under us."

Asked why is Switzerland excluded from the ENTSO-E working group on market coupling, despite actually being a full member of it, he said the country is excluded from a sub-group, or specific working group, tasked with elaborating the methodology for calculating flow-based market coupling.

"That is where you try to assess, almost in real time, electricity flow. This is sort of the ultimate advance of market coupling. Since this work is carried out under the CACM Regulation of 2015, which stipulates explicitly that Switzerland will not participate, the working group has not been open to Switzerland, as that working group deals with an issue that is governed by that CACM Regulation," he said.

"One may disagree, but at least it has an internal logic, since it deals with something that is governed by a clause that excludes Switzerland, so they will not admit Switzerland," he said.

Limited influence

As a non-EU member, Switzerland is not subject to the European Court of Justice.

"Electricity trading, although it is very intensive on the ground, is not subject to any EU legislation as such. We are in a sort of legal void right now," he said.

Asked whether Switzerland has any influence regarding the shaping of EU energy policy and legislation, he said its influence is "very limited".

"Although we try from the government, we try from market players, transmission system operators and regulators, we speak to the EU, we speak to our neighbouring countries, the only success that we have had so far - and it is still not totally finalised - is the balancing of energy. We could argue that it has an impact on the overall safety of the European network and that excluding Switzerland full-scale from that would be counterproductive for the Internal Energy Market.

"This is probably the only instance where we, with the backing of our neighbours, actually achieved a little success. Otherwise, we have no say in decision-making. We participate in consultation processes, like any other member of the public in Europe. But direct influence is very limited."

Even Switzerland's influence on regulators is limited, he said.

"You will be aware of ACER, the European Agency for the Cooperation of Energy Regulators. Switzerland's only interaction with ACER is through a memorandum of understanding, which our energy regulator has signed and which affords it the status of observer in one Working Group on Electricity. So, again, it is extremely limited. I cannot guess what ACER's thinking was, but basically it said, 'It makes sense to have the Swiss regulator at the table as an observer when it comes to discussing the implementation of electricity regulation', but it did not go beyond that."
On the European Network of Transmission System Operators for electricity, he said Switzerland is a founding member of ENTSO-E and yet feels it is vulnerable to the sword of Damocles, though "we do not think anyone will activate it right now".

Researched and written
by World Nuclear News