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Financing Energy Transition

The world is facing a radical shift in the energy sector, and Switzerland is aiming to transform its system by 2050 – at a cost of CHF 200 billion. A discussion at the Lifefair Forum in Zurich.

On March 20, 2015, a natural spectacle was witnessed in Europe. For a short time, a solar eclipse darkened the morning sky, and, with the right equipment and if the weather was clear, it was possible to observe this rare occurrence. Solar eclipses have been taking place for billions of years, but one question was raised for the first time: Will the temporary loss of sunlight jeopardize energy supplies? Since the last solar eclipse in Europe in 1999, according to Bruno Bischoff of Sustainability Affairs at Credit Suisse, in Germany alone, for example, solar power capacity has increased more than 500 times, from 70 megawatt-hours to 39 gigawatt-hours.

This was the opening statement at the 18th Lifefair Forum (see box), where the topic "Energy Transition: How to Finance It" was discussed at the Forum St. Peter in Zurich on March 24, 2015. The fear of a power outage at the start of spring may have owed more to media speculation than scientific scenarios – but it illustrates that the conversion of our energy infrastructure is marching ahead. It is not only solar panels on the roofs of houses that form part of the technological landscape of the 21st century, but also wind turbines, energy-saving light bulbs, and electric cars like the Tesla.

Historically Low Prices

It is common knowledge that present-day climatic and demographic challenges are making it necessary to rethink energy consumption and production. But how exactly should one react? Who are the winners and losers in this structural change, how should it take place, and how quickly? And – not least: How is it to be paid for? In her introductory presentation at the Lifefair Forum, Jasmin Staiblin, CEO of the Swiss electricity and energy services provider Alpiq, argued that wholesale electricity prices would fall steadily because there were too many power stations in Europe, because Germany was subsidizing solar and wind power to the tune of over 20 billion euros per year, and because, in parallel, the economy was no longer growing. On top of this, there was the renaissance of coal power in Europe and a strong Swiss franc. "Swiss hydroelectric power in particular is suffering as a result." Wholesale prices had fallen by a total of around 60 percent since 2008, which had a direct impact on the income of the energy producers, she added. Households, however, had seen nothing of the lower wholesale prices. On the contrary, average prices for end-clients had risen by as much as five to ten percent.

Two Hundred Billion for the Conversion

Jasmine Staiblin's presentation was followed by a panel discussion about how the energy transition was to be managed both financially and technologically in this confused situation. The moderator of the Lifefair Forum, Dominique Reber, specifically mentioned the Swiss federal government's Energy Strategy 2050 and introduced a huge figure into the discussion: 200 billion. Because that is the amount in Swiss francs that it is expected to cost to convert the infrastructure and implement the transition in the energy sector – including abandoning nuclear energy and much less use of fossil fuels.

Is this figure realistic? How can so much be invested? The panel members discussed the topic from different points of view. Daniel Aebli, Chairman of the Executive Board of Stahl Gerlafingen, underlined the business concerns: "We are in no sense opposed to the energy transition, but, in certain models, profitability can become a problem." Creating profitable models, through which capital is invested in sustainable energy, is Dominik Bollier's area of expertise. Bollier, Managing Partner of Credit Suisse Energy Infrastructure Partners AG, said: "The existing players will not likely be able to finance the energy transition on their own, whether it costs 200 billion, or a little more or less." For that reason his goal was to give institutional investors access to the relevant asset classes.

On the other hand, Sara Stalder, Head of the Foundation for Consumer Protection, stressed the dependence of Swiss energy provision on foreign suppliers. "We spend 12 billion Swiss francs per year on importing oil, gas, and uranium," she said, "which should be replaced by domestic production." Clients too should see the benefits of low prices on the energy market – "They are still the ones being held hostage." And, as Hansjörg Sidler, Sales Director with Siemens Switzerland, added, it must be clear and measurable where energy is actually being saved through modern infrastructure, and how much. "For example, many buildings do not stick to what they promise in this regard."

Undisputed Need for Action, Open Questions

This discussion demonstrated that energy transition is a multi-layered issue that forms a network of mutual dependencies and open questions. What is undisputed is that infrastructure and supplies, production and distribution will have to be rethought in the future. The questions that remain open are, for example: Which sources of energy should play how big a role, or how fast the switch from fossil fuels to renewable energy, and the phasing out of nuclear energy, should take place. The final question that is still open is that of financing – 35 years is a long time and 200 billion is a lot of money. It will need substantial investments from different sides to make the energy transition a reality.