Alpiq in: Europe

4 questions about the electricity price – briefly answered

It is impossible to imagine life without electricity. Electricity means prosperity and security. But electricity also comes at a price. Read about how this price comes about.

  • Why is there no standard price for electricity?
  • How is the electricity price developing?
  • How is the electricity price made up?
  • What is the effect of the liberalised electricity market on the price?

1. Why is there no standard price for electricity?

Unlike petrol, for example, there is no standard price for electricity in Switzerland. Depending on the region or the customer category, there can be a difference of as much as 50%. The reason for this is that depending on the supplier, different regional, topographic and fiscal circumstances apply, but also the lack of market liberalisation for customers with an annual consumption of less than 100,000 kWh. This must be born in mind when the expression “average price” is used.

2. How is the electricity price developing?

According to ElCom, private customers will pay 20.6 cents per kWh in 2016. This means that the annual electricity bill of an average household with a consumption of 4500 kWh/year, will amount to approximately CHF 930.

Between 1995 and 2006 there was a strong decline in the electricity prices. Since then, they have in some cases increased again. Primarily responsible for this were the costs for operation of the transmission grid and for the maintenance of reserves, and the duties and tax burden. The generation costs followed a different pattern: Over recent years they have decreased strongly. Thanks to this, the overall prices for electricity are still below the level of 1995. This cannot be said of all essential goods.

Electricity price

Source: Association of Swiss Electricity Companies (VSE)
Data basis: VSE 1990 -2009; ElCom Survey of electricity prices since 2010

3. How is the electricity price made up?

The electricity price consists of three components:

  • generation costs,
  • grid costs,
  • taxes and duties.

Generation costs are generally understood as the costs for producing electricity. They vary depending on the type of electricity generation and on the power station. Whether and how the external costs, state subsidies and taxation flow into the calculation is frequently politically controversial and hence not always easy to answer.

The grid costs reflect the costs for the transport of the electricity over the grid from the power station to the customer. The basic rule is that the further the electricity is transported, the higher the grid costs. Hence, the share of grid costs is higher for private households than for industrial companies or major distributors, which are located in closer proximity to the high voltage grid than the wall sockets of the private households at the lower grid levels. This also has an effect on the total price. For industrial customers, for example, who consume 150,000 kWh per year, the price lies at an average of 17.5 cents/kWh and for industrial customers who consume 1.5 million kWh per year at an average of 15 cents/kWh.

The third component of the electricity price are the taxes and duties: During recent years, their significance has increased considerably. The levy for the promotion of renewable energies (KEV) introduced in 2009, has been gradually increased from 0.6 cents/kWh to 1.1 cents/kWh, and will be 1.3 cents/kWh in 2016. Within the framework of the Energy Strategy 2050, the statutory upper limit for the KEV will be increased to 2.3 cents/kWh. The phased increase in the water rates (2011 and 2015) and the levying of a renaturation contribution since 2012 also contribute a further 0.35 cents/kWh to electricity costs. Together with the already existing range of taxes and duties, concessions, water rates and requirements stipulated by the federal government, cantons and municipalities, these taxes and duties account for roughly one third of the electricity price. This is not always immediately obvious since depending on the method of presentation, a portion of the taxes and duties is added to other price components (e.g. water rates are added to the energy component).

However, if all the taxes and duties are actually listed under this category, the electricity price for a kilowatt-hour (kWh) of household electricity in 2016 is split approximately equally between the three components:

Composition of the electricity price

Composition of the electricity price for household electricity
Source: Alpiq 2015

4. What is the effect of the liberalised electricity market on the price?

With the partial liberalisation of the Swiss electricity market starting in 2009, customers that consume in excess of 100,000 kWh can choose whether they wish to purchase their electricity on the open market or remain within the framework of the basic provision mandate. Market prices are determined by supply and demand. At the start of deregulation they were above those of the basic provision mandate. Today they lie below them. Hence, by 2015 already one third of the large-scale consumers changed to the open market. This development shows that a complete liberalisation of the market with a free choice of supplier could also benefit all the other customers. The complete liberalisation of the electricity market is scheduled for 2018, provided that it wins the approval of the Swiss population (optional referendum).

The electricity price in comparison to other European countries
The electricity prices for households and industrial customers in Switzerland are positioned approximately at the European average. The prices for household electricity are partially considerably below the prices in comparable Western European countries. The very expensive promotion of renewable energies means, for example, that household electricity in Germany costs roughly 31 cents/kWh and that state duties and taxes constitute approximately 52% of the electricity price (www.bdew.de). 

Adequate domestic generation ensures long-term favourable prices
One element that has a beneficial impact on the electricity price is the ability to generate an adequate supply of domestically-produced electricity. Over the last fifty years this has for the most part been achieved successfully in Switzerland – thanks to the expansion of hydro and nuclear power. Switzerland was thus able to protect itself from expensive imports and international bottlenecks and to maintain the electricity prices at a comparatively low level. Whether this will also be possible in the future depends on various factors, amongst others also on the future structure of the Swiss energy policy.