(Bloomberg) -- Two of Switzerland’s biggest power producers may need to have their hydro units sold by the provincial authorities controlling them because of the franc’s strength and weak power prices, an official with the Federal Office of Energy said.
Walter Steinmann, director of the BFE federal energy office, said it will be difficult for Alpiq Holding AG and Axpo Holding AG to survive as utilities owned by local cantons in Switzerland. That’s because the costs they incur to generate electricity are higher than the price they’re paid for the power, a situation exacerbated by the strength of the franc.
Hydro power accounts for about 56 percent of power generation in the Alpine state, and the companies already have talked about piecemeal asset sales. Steinmann’s remarks, in an interview at the Bloomberg New Energy Finance summit in London on Monday, suggest a more sweeping reform is likely even with financial aid planned from the government. “I’m concerned about the capacity of the units to survive as Alpiq and Axpo assets -- canton-controlled,” said Steinmann. “Help for the clean energy in the form of fiscal reform and market-based solutions is coming, but it takes time.”
Steinmann said the hydro units of the companies may be sold to private investors with a different business model than the Swiss municipalities.
The Swiss government’s 2050 climate and energy plan envisions aid for hydro power, yet the emergence of sweeping changes in policy may come too late to preserve the municipal-controlled structure of hydro power, boosting risks of a bigger sell-off of assets than owners envisioned, he said.
The Swiss government’s planned roll-out of subsidies for existing and new hydro plants will be taken to a referendum next year. The government is considering tax-rate adjustments on generation to compensate for lower wholesale prices, said Steinmann. The utilities pay 110 Swiss francs ($112) a megawatt-hour for hydro generation through a tax that benefits the cantons, he said. A flexible element may be introduced that adjusts the tax rate depending on wholesale power prices.
For their part, the utilities have pledged to cut costs and sell some assets to cut losses.
“The strength of the franc is just one of the problems weighing on hydro,” said Steinmann. The currency is 9.7 percent stronger than in mid January 2015, when Switzerland’s central bank removed its limit on the exchange rate and allowed it return to a free float.
Alpiq in March said it would sell as much as 49 percent of its hydro power portfolio to ease its exposure to wholesale power prices that dropped a third last year. The company wants to stay a “51 percent hydro power company,” President Jasmin Staiblin said at the time, according to the Tages Anzeiger newspaper. Alpiq didn’t return calls on Monday.
Axpo, Switzerland’s biggest hydro power producer, is examining hydro-, nuclear- and gas-plant asset sales to ease the company’s dependence on power prices, said spokesman Torsten Kistner in a written reply to questions. It reported a loss last year and hasn’t yet decided on what to sell, said Kistner.
Axpo is “very exposed to the risks of very low power prices,” he said. The company, which has engaged in hydro power for about a century, intends to maintain its activities in the clean and sustainable power sector while “it’s up to the government to decide on the solutions needed to keep the current plants.”
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