Swiss hydropower profitability affected by weak power prices

The Director of the Swiss Federal Office of Energy, Walter Steinmann, at a financial conference in London yesterday reportedly said that because of the Swiss franc’s strength and weak power prices, he is concerned about the profitability of Swiss utilities operating hydropower and other generation plants.

In a country that generates about 56% of its energy from hydropower, it appears his concerns are accurate based on information from Baden, Switzerland-based Axpo Holding AG, the country’s largest hydropower producer.

On Oct. 9, the Axpo Group issued a statement that in part said, “The year-on-year contraction of around 30% in European wholesale prices for electricity is a clear sign that the price slump will last longer than expected a year ago. Axpo therefore has to adjust the value of its production plants and make provisions for energy supply contracts again in the 2015-16 financial year. In addition, the most recent impairment test has shown that the new 1,000-MW Limmern pumped-storage hydropower plant has to be impaired by about US$547 million (CHF 540 million). As these adjustments are expected to burden the Axpo Group’s operating profit (EBIT) by some US$1.417 billion (CHF 1.4 billion), the group is likely to post a negative net result again for the year.”

Axpo has power plants and shareholdings scattered throughout the entire northeastern region of Switzerland, into the Valais and southern Switzerland.

The company also said the profitability of the Limmern pumped-storage plant strongly depends on the difference in prices for base-load electricity and peak-current, which is used to cover peak consumption periods and to balance the grid load. This margin is not enough to guarantee the profitable operation of the plant, and Axpo does not expect the situation to change in the medium term.

“Axpo is therefore posting a massive write-down on the value of this epic power plant, the largest in its power plant fleet. Even though this power plant is immensely important for the security of supply in Switzerland, it cannot be operated profitably in the coming years,” said the release.

Located in the Linthal Valley in eastern Switzerland, the Limmern pumped-storage plant uses water pumped from Lake Limmern to Lake Mutt to generate energy.

In addition to the Limmern pumped-storage plant, the new value adjustments affect the hydropower and nuclear power plants and the energy supply contracts with partner plants and French nuclear power plants.

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Gregory B. Poindexter formerly was an associate editor for HydroWorld.com.

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