Green energy: avoiding the trap of over-regulation

Guest commentary of FluxSwiss in the Neue Zürcher Zeitung: instead of investing time and money in a complicated regulation of a bygone era for the Transitgas pipeline, Switzerland should rather leverage on the European Green Deal momentum.

The EU is currently turning its attention to the Green Deal. To achieve its highly ambitious goal of carbon neutrality by 2050, the continent will need a combination of electricity and green gas (green hydrogen, biomethane) as well as – in a transitional period – low-carbon, liquefied gases. An appropriate regulatory framework and incentive systems for investors are also required. At the same time, the overall system costs must be kept minimal, which means reusing existing infrastructure as much as possible.

Switzerland would do well to look to Europe and not just focus on its domestic gas market, especially given the drastic changes that have occurred in the past few months. Switzerland's transit pipeline and gas networks are by no means obsolete, as advocates of decarbonisation often claim. Hydrogen or biomethane can be mixed up to a 20% blend with natural gas in the medium term. Moreover, a second Europe-wide network is to originate for carrying 100%-renewable gas to large consumers. Switzerland's international connectivity is key here, because the bulk of green gas is produced where it makes most sense economically, in the north and in the south.

While EU regulation is geared towards these challenges and a 500-bcm market of 27 countries, Switzerland, while focusing on its own 3.5-bcm gas market, has to be careful not to unwittingly harm its favourable market configuration. The Swiss Federal Office of Energy is striving for a level of exemplariness that does not exist in, and is not expected of, the EU. By incorporating the transit pipeline rather than making gas infrastructure future-proof, the planned new Gas Supply Act looks set to become a classic example of over-regulation.

Firstly, there is no need to regulate transit, which is already liberalised and demonopolised. The pipeline's capacity is already being marketed by an independent operator that complies with the new EU regulations. Secondly, state management would reduce commercial flexibility in a tough competitive environment, while the risk associated with transit – underutilisation of the pipeline – would be passed on to the Swiss taxpayer. Transmission system operator FluxSwiss’ current competitiveness in the market is due to a highly commercial approach to capacity products and tariffs, whereas the proposal in the draft Gas Supply Act to establish a 'Marktgebietsverantwortlicher' (market area coordinator) – something unparalleled anywhere in the world – would lead to unnecessary complications and costs in the transit system and ultimately to an expropriation of private-sector infrastructure that would be highly questionable in regulatory terms.

Instead of investing time and money in a complicated regulation of a bygone era for the Transitgas pipeline, Switzerland should rather leverage on the European momentum. In the new energy world of the Green Deal, gas flows in the existing transit system offer a great opportunity to strengthen Switzerland's position as a crossroads for trans-Europe energy flows, not least with a view to boosting its domestic security of energy supply.

(Translation of the guest commentary published in German in the Neue Zürcher Zeitung on 2 November 2020 (PDF 143KB))